Pricing impact of tariff hike on semiconductors may be small

May 16, 2024
As the U.S. pushes efforts to boost chip manufacturing, President Biden announced steep tariffs this week on a variety of products made in China, blaming the country’s “unfair trade practices” in connection with technology transfer, intellectual property and innovation.

With technology evolution booming in the security industry there is burgeoning demand for semiconductors to power the products designed to keep people and property safe.

As the U.S. pushes efforts to boost chip manufacturing, President Biden announced steep tariffs this week on various products made in China, blaming the country’s “unfair trade practices” in connection with technology transfer, intellectual property and innovation.

The Biden Administration says the tariff hikes across strategic sectors -- such as steel and aluminum, semiconductors, electric vehicles, batteries, critical minerals, solar cells, ship-to-shore cranes and medical products -- are an effortto protect American workers and companies.”

Specifically as it relates to semiconductors, the tariff rate will increase from 25% to 50% by 2025. The White House claims China’s policies in the legacy semiconductor sector “have led to growing market share and rapid capacity expansion that risks driving out investment by market-driven firms.”

Biden officials say that over the next three to five years, China will account for almost half of all new capacity coming online to manufacture certain legacy semiconductor wafers. They note that during the pandemic, disruptions to the supply chain, including legacy chips, led to price spikes in various products, underscoring the risk of overreliance on a few markets.

The effect the tariffs have on end-user pricing in the security industry remains to be seen. While capacitors and certain semiconductor components can’t be sourced from anywhere but China, says PSA Security Network CEO Matt Barnette, not every security product relies on high-end processors.

“This will definitely have some pricing impact because there is such a lack of ability to buy some of these components, and it also depends on what qualifies under that tariff,” Barnette told this week at PSA TEC 2024.

“You have the access control and alarm side where the processing requirements are not as large, and processors being used are not anywhere near current generation,” Barnette says. “And it’s possible that some of the chipsets can be sourced in other places.”

He also notes the price hikes for chips during the supply chain crisis a couple of years ago have waned a bit. “(A) twenty-five percent (increase) sounds like a lot of money but it may not impact the end-user cost significantly, by and large,” he says.

Barnette also notes that some companies have workarounds by ordering from countries exempt from tariffs. Even if the components come from prohibited countries, if they’re packaged and labeled in a different country, the tariffs can be subverted. “There may be some price increases but not significant,” Barnette says.

There should potentially be more chip supply domestically that would compensate for issues seen with international sourcing.

Enacted in 2022, the CHIPS and Science Act is making a $53 billion investment in American semiconductor manufacturing capacity, research, innovation, and workforce meant to reverse disinvestment and offshoring that reduced U.S. capacity to make semiconductors domestically.

The Act includes $39 billion in direct incentives to build, modernize and expand semiconductor manufacturing fabrication facilities, as well as a 25% investment tax credit for semiconductor companies. Biden officials say raising the tariff rate on semiconductors “is an important initial step to promote the sustainability of these investments.”

The U.S. government has awarded nearly $30 billion in grants and $25 billion in loans to seven companies. Due to the investments, U.S. semiconductor manufacturing is expected to triple by 2032, growing an estimated 203% in less than a decade, according to a Semiconductor Industry Association and Boston Consulting Group report.

SIA’s State of the Industry report for 2023 notes that supply chain resilience remains the top priority for the global semiconductor industry, and other governments are taking steps to build domestic chip ecosystems and increase market competitiveness.

Governments in Asia, Europe and the Americas are continuing to advance their own versions of the CHIPS and Science Act, creating ambitious packages of subsidies and tax incentives for semiconductor research and development, and manufacturing.

John Dobberstein is the managing editor of and oversees all content creation for the website. Dobberstein continues a 35-year decorated journalism career that has included stops at various newspapers and B2B magazines.

About the Author

John Dobberstein | Managing Editor/

John Dobberstein is managing editor of and oversees all content creation for the website. Dobberstein continues a 34-year decorated journalism career that has included stops at a variety of newspapers and B2B magazines. He most recently served as senior editor for the Endeavor Business Media magazine Utility Products.