U.S.–China Semiconductor Tariff Tensions

By Robert Castellano

The U.S. government’s move to raise tariffs on Chinese exports to 125% on April 10, 2025, was followed by a swift and targeted response when China imposed a reciprocal 125% tariff on U.S. goods, including semiconductors.

China’s Semiconductor Industry Association at the same time issued new guidance clarifying that the “origin” of a chip will be determined by the wafer production site, not the location of packaging or assembly. This rule disproportionately impacts U.S.-based Integrated Device Manufacturers (IDMs)—encompassing companies that design and fabricate chips in-house, often onshore.

Prominent examples include:

• Intel (NASDAQ: INTC), which operates advanced fabs in Oregon and Arizona and ships chips globally, including into China for data centers, PCs, and automotive clients.
• Texas Instruments (NASDAQ: TXN), which manufactures analog and embedded chips at several U.S. sites, including its flagship 300mm fab in Texas.
• Microchip Technology (NASDAQ: MCHP), Analog Devices (NASDAQ: ADI), and GlobalFoundries (NASDAQ: GFS), all of which maintain U.S. wafer production capacity.

Table 1 below summarizes the impact of these new tariffs and origin rules on key U.S. semiconductor companies. The companies are categorized by wafer fabrication location, level of exposure to the Chinese market and the strategic implications of facing a 125% tariff. The table illustrates how companies with U.S.-based wafer fabs, like Intel and TI, are disproportionately affected, while fabless firms such as NVIDIA Corporation (NASDAQ: NVDA) and Qualcomm (NASDAQ: QCOM) are effectively shielded.

This structure benefits fabless chip designers like NVIDIA and Qualcomm, whose wafers are produced in Taiwan, thus escaping China’s retaliatory tariffs. These companies will retain access to the Chinese market even as tariffs crush competitors with U.S.-based fabrication operations. This analysis will be illuminated upon further in the next issue of the Gilder’s Technology Report.

Relaxed Tariffs on Consumer Electronics: A Lifeline for U.S.-China Trade

Simultaneously, the U.S. Customs and Border Protection announced a significant de-escalation in another area: tariff exemptions for consumer electronics. Starting April 5, 2025, products including smartphones, laptops, tablets, SSDs, routers, and some semiconductors were exempted from the 125% reciprocal tariff.

This creates a split scenario:

• Chips made in the United States and sold into China directly will be hit by tariffs. These products are now considered U.S.-origin at the wafer level, making them subject to China’s full 125% retaliatory tariff regardless of where they are assembled.
• Consumer electronics with embedded foreign-made chips (e.g., Taiwan Semiconductor Manufacturing Company Ltd. (NYSE: TSMC) fabricated Qualcomm or Nvidia chips will be tariff-exempt. Because the wafers originate outside the United States, these chips do not meet China’s tariff criteria and can continue entering the country freely as part of finished products.
• Products built in China by U.S. companies for re-export to global markets remain largely unaffected. Since these goods do not enter China’s domestic market, they fall outside the scope of the retaliatory tariffs and remain viable within global supply chains.

This distinction is critical. Multinational OEMs like Apple (NASDAQ: AAPL), Dell (NYSE: DELL) and HP Inc. (NYSE: HPQ) will face lower cost pressure if they rely on non-U.S. fabricated chips (e.g., from TSMC or Samsung). Conversely, if they depend on analog or microcontroller components from TI or Microchip, tariffs will be passed along the supply chain.

Tariff Fallout Reaches Semiconductor Equipment Companies Outside China

While front-end chipmakers are the immediate targets of China’s new wafer-origin-based tariffs, the consequences are also rippling through the semiconductor equipment sector—particularly for non-Chinese toolmakers whose sales are heavily exposed to the Chinese market. As domestic wafer fabrication efforts accelerate in China, the tariff response is reinforcing an industrial pivot away from imported capital equipment and toward domestic alternatives.

Leading U.S., Japanese, and European equipment vendors—including Applied Materials (NASDAQ: AMAT)—depend on China for a large share of their annual revenue. According to 2024 disclosures, these companies derived between 37% and 47% of their revenue from China, making it one of their most important regional markets. These are not marginal figures—China’s share of global wafer capacity and expansion activity makes it a critical source of demand.

U.S.-based vendors face the greatest risk. First, there is indirect demand destruction: as Chinese fabs deprioritize U.S.-origin chips due to tariffs, fab utilization may drop, slowing upgrade cycles and tool purchases. Second, policy-driven substitution is accelerating, with China increasingly incentivizing local procurement of capital equipment from domestic players like Naura, AMEC, and Piotech. These firms are expanding aggressively in key areas such as etch, deposition, and cleaning for trailing-edge and specialty nodes.

European and Japanese vendors are not subject to U.S. export controls but remain exposed to Chinese localization pressure. ASML Holding N.V. (NASDAQ: ASML), despite restrictions on EUV exports, still generated 43% of its 2024 revenue from China. Tokyo Electron and Screen have even higher exposure, at 45% and 47%, respectively. Though not directly targeted by U.S. policy, these companies could see demand gradually diverted as Chinese customers internalize risk and align spending with national strategic goals.