'Make America Outsource Again' may be the new mantra of chip production

US tariffs designed to punish China are backfiring on US tech firms like Nvidia, Apple and Tesla, raising costs, disrupting supply chains and potentially weakening demand through higher prices.

President Donald Trump's goal of trying to force offshore manufacturing back to American soil may hurt US industries with close trade ties to China more than anticipated.

Adding to their woes, is confusion about Trump tariffs on electronics imports. First he announced a global exemption on them, and then announced the exemption was temporary and new product-specific tariffs on chips and chip-enabled electronics would be levied following an investigation.

The US has slapped tariffs of 145 percent on China since Trump took office in January. On Wednesday evening, US said China faces levies of up to 245 percent when pre-existing duties are included.

US tariff policies are reshaping global trade dynamics, triggering uncertainty across the technology sector. For the IT services market, that means supply chain disruptions, delayed hardware projects and cautious corporate spending, said Global Data in a recent note.

Chip export control and tariffs challenges

California-based Nvidia, for example, faces potentially billions of dollars in additional costs due to new US licensing requirements on export to China of chips used in artificial intelligence.

The company is warning that will result in a US$5.5 billion charge in its first-quarter earnings report ended in April, related to inventory, purchase commitments and reserves of its H20 integrated circuits. Following the government's action, Nvidia shares slumped 6.87 percent on Wednesday.

In response to US concerns, Nvidia had already modified its H20 chip from the H100 version, reducing AI capabilities. The modified chip works well in China.

While detrimental to Nvidia, the latest US restrictions present an opportunity for rival Huawei, which is promoting its Ascend AI infrastructure as an alternative to Nvidia's H20 and CUDA platform. The H20 restrictions may prompt Chinese clients to explore domestic alternatives.

At the same time, China has retaliated by raising tariffs on US imports, including chips, to 125 percent. However, the China Semiconductor Industry Association clarified that chips manufactured outside the US are exempt from the tariffs.

"For all integrated circuits, whether packaged or unpackaged, the declared country of origin for import customs purchases is the location of the wafer-fabrication plant," the association said.

This policy, while targeting US-based fabrication plants, could incentivize US chipmakers to outsource manufacturing – a consequence dubbed "Make America Outsource Again" by IC Wise analyst Gu Wenjun.

A Reuters report estimates that Trump's tariffs could cost US semiconductor equipment makers over US$1 billion annually. Applied Materials, Lam Research and KLA, the major equipment suppliers of wafer-fabrication plants,could each face losses of about US$350 million a year, the report said.

Apple and Tesla are influenced

Apple, heavily reliant on Chinese manufacturing for iPhones and iPads, is also feeling the pinch.

Despite the temporary electronics exemption that includes smartphones, the company is actively diversifying its supply chain. Foxconn and Tata, Apple's main suppliers in India, shipped a record US$2 billion worth of iPhones to the US in March. This suggests Apple, anticipating potential further tariff disruption, is increasing production in India and using air freight to ensure sufficient US inventory

After the temporary electronics exemption was announced, Wedbush Securities analyst Daniel Ives told USA Today: "They can breathe a sigh of relief because of this. You don't have to rush out to the store. We're not seeing US$2,000 iPhones anymore."

Some reports suggest an iPhone wholly manufactured in the US could cost US$3,500 or more.

"Escalating global trade tensions are creating fresh uncertainties for smartphone vendors in 2025," noted Amber Liu, research manager at Canalys.

The research firm also pointed out that Apple front-loaded shipments in early April to mitigate potential cost hikes in the US market.

Globally, while the full scope and timing of new electronics tariffs remain uncertain, vendors are bracing for higher component prices and softer export demand.

To reduce exposure, vendors and supply chain partners are accelerating diversification strategies, shifting production bases, reassessing sourcing models and optimizing logistics. These dynamics are expected to disrupt profitability and extend planning cycles in the worldwide smartphone industry in 2025, analysts said.

Similarly, plans by US-based electric carmaker Tesla, which operates a large manufacturing facility in Shanghai, to source parts for its upcoming Cybercab and Tesla Semi production in China have been disrupted by the trade war.

The automaker relies heavily on imported parts from China, Mexico, Canada and Europe for its US production.

Tesla has also stopped taking orders in China for two of its US-shipped models.