Barely a month into his second term, President Donald Trump is aggressively pushing trade policies to reshore chip manufacturing to the US. His latest move—a proposed 25% tariff on imported semiconductors—reinforces his America First agenda, prioritising protectionist policies over incentives like the CHIPS and Science Act. While the implementation date remains uncertain, industry stakeholders are already bracing for its potential impact on global semiconductor supply chains, major chip-producing nations, and emerging players like India.

Trump argues that tariffs will be more effective than subsidies in driving domestic investment, favouring US chipmakers such as Intel, Micron, and GlobalFoundries. However, the semiconductor industry—highly reliant on globally integrated supply chains—warns of severe disruptions.

“The semiconductor industry is global, and every chip produced involves contributions from multiple countries in design, manufacturing, and raw materials. If one country imposes tariffs on chip imports, it could trigger a global trade war, causing unprecedented disruptions to the semiconductor and electronics industries,” says Satya Gupta, President of the VLSI Society.

Gupta highlights a key challenge: defining what constitutes an “imported chip” in a deeply interconnected industry.

“One of the core problems is that, being a global industry, it is difficult to define what qualifies as an import. A US-based fabless semiconductor company may design a chip using engineers from multiple countries, manufacture and package it in Asia, and then sell it back to a US firm for integration into an electronic system—manufactured once again in Asia and distributed globally. In such a scenario, who is importing and who is exporting?”

Currently, India is not a major exporter of semiconductors—whether through domestic fabless companies or contract manufacturing for global players. In the short term, this limits the immediate impact. However, once India’s chip manufacturing reaches full scale, high US tariffs on semiconductors produced in India for American companies could significantly hinder its semiconductor ambitions.

India’s semiconductor ambitions at risk

The proposed tariffs will disrupt both established semiconductor powerhouses and emerging ecosystems like India. Analysts warn that while the move aims to protect US leadership in advanced semiconductor technology (chips manufactured below 10nm), it could severely impact legacy semiconductor supply chains (older-generation chips above 28nm used in automobiles, industrial applications, and consumer electronics).

Fab Economics, a US-based semiconductor investment advisory, notes that the Trump administration’s tariffs primarily seek to prevent the offshoring of cutting-edge semiconductor technology. However, the real damage may occur in the legacy chip segment, which operates on razor-thin margins and cannot simply be relocated to the US due to high costs.

“Unlike leading-edge semiconductor supply chains, legacy semiconductor production cannot be relocated to the US to avoid tariffs, as the cost of operations would drastically inflate the Cost of Goods Sold (COGS),” explains Danish Faruqui, CEO of Fab Economics.

Of the five projects approved under India’s ₹76,000 crore Semicon India Programme, four focus on legacy testing and packaging—areas that could be hardest hit by US tariffs.

“US tariffs on Semiconductor Finished Goods (SFG) target packaged products, i.e., the output of OSAT (Outsourced Semiconductor Assembly and Test) and ATMP (Assembly, Testing, Marking, and Packaging). India’s legacy semiconductor packaging sector already faces pricing pressure from high-volume competitors like China, alongside operational inefficiencies typical of greenfield projects. These tariffs would further squeeze operating margins, particularly for exports to the US.”

Fab Economics estimates that once India’s OSAT units reach high-volume manufacturing, daily output could exceed 100 million products.

“With India inching toward significant OSAT capacity through its five projects, it is poised to become a major semiconductor exporter in the next two to three years. As a result, US tariffs could have a significant impact.”

Balancing trade relations: India’s challenge

While India aims to become a semiconductor hub, it must navigate the risk of potential retaliatory tariffs from the US.

Prav Sharma, Senior Analyst at Counterpoint Research, warns that India’s high tariffs on US goods could provoke reciprocal actions that harm its Make in India initiative.

“India currently imposes some of the highest tariffs on US imports. If the US responds with reciprocal measures, it could disrupt the Make in India initiative and make Indian-manufactured goods less competitive in the US market. Higher landed costs for key exports, such as smartphones and consumer electronics, could deter global companies from choosing India as a manufacturing hub.”

However, Sharma notes that during Prime Minister Narendra Modi’s recent visit to the US, discussions on easing tariffs took place, with both nations working toward a trade deal.

“India has already been selected by major OEMs as part of their ‘China +1’ strategy to mitigate geopolitical risks. Once a trade agreement is finalised, India stands to benefit significantly.”

Will existing projects be affected?

Trump’s protectionist stance has drawn scrutiny in India, particularly following his criticism of Tesla’s plans to manufacture in the country. However, some experts believe projects like Micron’s $2.75 billion ATMP facility in Gujarat’s Sanand will remain unaffected.

“I don’t think there’s a direct comparison here,” says Arun Mamphazy, an independent semiconductor analyst. “Micron is already building its ATMP unit in India. If not in India, such a facility would likely end up in China or Malaysia. The key question is how far Trump wants to bring semiconductor manufacturing back to the US. If he insists on reshoring OSAT operations as well, India could be seen as ‘taking away’ those jobs. But even then, India will remain a relatively small player, likely capturing no more than 5% of the market by 2030.”

A shift toward regionalised supply chains

Despite near-term disruptions, some analysts see an opportunity for India in the long run as semiconductor supply chains become more regionalised.

“Our semiconductor indices show that multiple countries are heavily investing in fabs, back-end assembly, and test sites to incentivise local manufacturing,” says P.S. Subramaniam, Partner, Strategic Operations Practice at Kearney, a global management consulting firm.

“Regionalising supply chains will help expand global capacity, mitigating the risk of shortages while offering OEMs and consumers greater choice. Additionally, shorter supply chains will reduce lead times, ultimately benefiting end-users.”

India, with its aggressive incentive programmes, expanding talent pool, and strategic partnerships with semiconductor powerhouses, is well-positioned to capitalise on this shift. While Trump’s tariffs pose immediate challenges, India’s long-term prospects in the global semiconductor industry remain strong—provided it carefully navigates its trade policies.