The importance of semiconductors in the modern world cannot be understated. Semiconductors, also referred to as microchips, are the brains of most modern electronics, including smartphones and laptops, and have driven advances in communications, computing, clean energy, and other fields.
The criticality of semiconductors is only expected to increase in the future with the greater focus on sustainability and green technologies, since semiconductors are vital to technologies that enable the shift towards sustainability, as they are found in wind turbines, solar farms, and similar technologies. They are equally important for the healthcare sector, as components for medical devices, as well as implantable technology such as pacemakers and insulin pumps.
Geopolitics in the Semiconductor Materials Sector
Semiconductors have been the theatre of geopolitical conflicts for quite a few years now, even before the Trump presidency. Semiconductors are made using critical minerals, the supply of which is generally concentrated in a few regions globally.
The African continent is one such region, being rich in critical minerals essential for semiconductor production, including cobalt, tantalum, and rare earth elements.
Over the course of the past two decades, China has strategically built up its presence in African mining and infrastructure sectors through global-scale projects such as the Belt and Road Initiative (BRI), as well as FDI and developmental loans to African countries. As a result, China has acquired mining concessions in multiple countries across the continent and today controls a significant portion of the African supply of critical minerals.
This has helped China secure a steady supply of raw materials for semiconductor production, putting it at a relative advantage to the US and Europe, who are only now attempting to counter Chinese dominance. The US has considered invoking international emergency economic powers to address these trade imbalances and protect its national security.
Impact of Geopolitics and Trump Tariffs on Semiconductor Supply Chains
In recent years, geopolitical tensions have impacted the semiconductor industry, as tariffs and export restrictions have hit international trade hard.
The US has attempted to curtail China’s technological development by limiting exports of advanced semiconductors and the machines to manufacture them, while China has retaliated to the tightening restrictions by banning or restricting the sale of critical minerals like antimony, gallium, and germanium. US Customs and Border Protection (CBP) plays a crucial role in enforcing these new trade policies, ensuring compliance with the latest regulations.
The raft of tariffs announced by the Trump administration did not exclude the semiconductor sector. While some tariffs were subsequently kept on hold for the time being, bearing in mind the broad-based impact of a sudden reduction in imports or availability of semiconductors, Trump has already said that new tariffs on chips would be announced soon.
The semiconductor supply chain is highly geographically dispersed, with critical minerals being sourced from Africa, processed outside the continent, manufacturing dominated by Taiwan, South Korea, Japan, China, and the US, while the electronic components that they are used in are being manufactured by various countries (including China).
This has resulted in extremely intricate and interdependent supply chains, spanning numerous countries, each of which is subject to different tariff levels and trade restrictions. The impact of new tariffs on goods shipped, particularly semiconductor goods, has been profound, affecting pricing and delivery times.
Potential Challenges From Tariff Wars
The tariff complexity can give rise to several supply chain-related challenges, such as delays in imports and consequently upstream production, unreliable supplies disrupting production planning and schedules, difficulties in computing the correct tariff rates, and risks of tariff overpayments.
These challenges could potentially undermine supply chain integrity, elongate production cycles, elevate risks of customs violations, and add to overall landed costs.
Precision in HTS Classification and Country-of-Origin Tracing
It is in this regard that importers and manufacturers have to pay careful attention to sourcing patterns of individual components and ensure precise HTS classification.
Manufacturers and importers must have visibility to the source of each component, in order to be compliant with the applicable restrictions and tariff rates. They will subsequently have to ascertain that the HTS classification is accurate and in accordance with customs and regulatory requirements.
These two steps can go a long way in ensuring importers remain customs compliant and also avoid tariff overpayments. Doing so will facilitate the smooth movement of semiconductors past Customs, enabling them to proactively prevent possible delays in manufacturing.
KlearNow: Optimizing Semiconductor Supply Chains
Semiconductor manufacturers must, of necessity, invest in logtech solutions to overcome the challenges posed by Trump tariffs and mitigate potential production delays.
While KlearNow offers a diverse range of products aimed at simplifying various aspects of supply chains, the current VUCA environment demands a holistic solution.
KlearHub, which is KlearNow’s global control tower product, is well-positioned to bridge this gap between complexity and capability by offering functionalities that enable digitization and accurate handling of customs and trade data, enhancing visibility and control, and improving compliance and accuracy.
With KlearHub, semiconductor manufacturers can track the source of each component and accurately calculate the tariffs applicable, thus ensuring adherence to customs requirements while also avoiding overpayments.
Book your free demo now to understand how KlearHub can support your business.
Frequently Asked Questions (FAQs)
Q1: How do foreign trade barriers affect semiconductor supply chains?
Foreign trade barriers such as tariffs, export bans, and import quotas can severely disrupt semiconductor supply chains. These restrictions from other countries complicate sourcing raw materials and components, leading to longer lead times, increased costs, and potential production delays. Navigating these challenges requires deep visibility into your sourcing strategy and strong compliance with international trade laws.
Q2: What role do executive orders and presidential memoranda play in semiconductor trade?
Executive orders and presidential memoranda can rapidly alter the regulatory landscape for global semiconductor trade. These tools have been used to impose tariffs, enforce export restrictions, or prioritize national security concerns, directly influencing how companies navigate customs and compliance. Businesses must stay informed to avoid costly missteps and ensure continuity amid changes in the global economy.
Q3: How do reciprocal trade agreements influence the semiconductor industry?
Reciprocal trade agreements between countries can help reduce the impact of tariffs and trade restrictions by fostering more favorable conditions for semiconductor imports and exports. These agreements can also encourage smoother cross-border collaboration, improving access to critical materials and expanding market reach in the global economy.
Q4: Why is it important to understand laws and regulations in semiconductor trade?
Understanding international trade laws and customs regulations is essential for semiconductor manufacturers to stay compliant, avoid penalties, and prevent shipment delays. Accurate HTS classification and country-of-origin documentation are crucial when navigating foreign trade barriers, executive orders, and evolving legislation in other countries.
Q5: What impact does the global economy have on semiconductor tariffs and trade flows?
The global economy shapes demand, pricing, and policy decisions around semiconductor trade. Economic instability, political shifts, or supply chain shocks can lead to new executive orders, presidential memoranda, or trade barriers that directly impact semiconductor imports and exports. A dynamic strategy and digital tools like KlearHub are vital for staying agile and compliant.
