Tariffs and export controls reshape chip supply

The global semiconductor industry continues to work through a period of intensified geopolitical friction, with new U.S. export controls and expanded tariffs heightening pressure on Chinese firms and straining multinational supply chains. As Beijing pushes back on what it calls “discriminatory restrictions,” manufacturers must reevaluate their sourcing strategies and pricing forecasts in the region.  

These disruptions are also indicative of a broader industry move away from centralized production in China and toward a more diversified supply chain. In this environment, the ability to adapt will be critical to maintain competitiveness and operational continuity.  

Beijing pushes back on U.S. export controls

China has again criticized the United States’ recent expansion of semiconductor export controls, labeling them “economic coercion” that threatens global market stability. The latest measures, which include restrictions on advanced AI chips and chipmaking equipment, extend American jurisdiction over foreign-produced items using U.S. technology.  

In response to the Trump administration’s recent moves, China’s Ministry of Commerce has accused Washington of weaponizing trade policy to suppress the technological advancement of Chinese firms and vowed “resolute and forceful measures” to safeguard its interests.  

Nvidia and AMD were the first advanced AI chipmakers halted from doing business in China by the Biden administration in 2022. However, recent sanctions expanded the ruling to include Nvidia’s H20 AI accelerator, a chip the firm designed specifically to comply with previous restrictions. That move alone is expected to cost Nvidia $8 billion in sales this quarter.  

Nvidia CEO Jensen Huang, an early critic of Washington’s methods for targeting China’s chip sector, said in an investor call, “The U.S. has based its policy on the assumption that China cannot make AI chips. That assumption was always questionable, and now it’s clearly wrong.”  

Despite most tariffs between the U.S. and China being on a 90-day pause for further negotiation, Beijing has signaled that retaliatory measures are on the table. However, direct retaliation might not be necessary. Experts warn that the current U.S. strategy for limiting China’s chip industry may actually fuel it.  

In recent quarters, Beijing has ramped up investment in its domestic chip production and is leveraging its dominance in critical materials like rare earth elements to insulate itself from external pressure. Many chipmakers have made noteworthy strides in performance and capacity in recent years, securing themselves a larger share of the market in segments like memory and legacy components. These efforts are helping reduce reliance on foreign companies, potentially enabling Chinese chip firms to bypass future U.S. restrictions altogether.  

For multinational companies, the escalating trade standoff introduces new complexities. Firms operating in or sourcing from China face increased risks of supply chain disruptions and regulatory scrutiny. A resilient sourcing strategy relies on diversification across global regions.

Sourceability empowers semiconductor buyers to navigate geopolitical disruption by providing access to a globally distributed supplier network and real-time market intelligence tools. Thanks to transparent inventory and strong relationships with vetted suppliers, Sourceability helps buyers ensure continuity even when policy shifts disrupt primary supply routes.  

The long-term impact of tariffs on semiconductors

With tariffs established as the key focal point of U.S. economic policy, the long-term consequences for the semiconductor industry grow clearer by the day. The initial wave of tariffs prompted short-term price increases and supply chain rerouting. Now, the chip sector must confront a structural transformation and enduring volatility that threatens the “normal” way of doing business.  

At the operational level, tariffs are driving a fundamental change in how multinational firms source components. According to McKinsey, many OEMs and CMs are now working to re-engineer procurement and production strategies around tariff zones—not just efficiency or product quality. This shift is particularly notable in high-volume, margin-sensitive segments like memory, analog, and microcontrollers. The added cost burden from tariffs, often ranging from 10% to 25%, is a major headwind that is prompting accelerated moves to diversify away from China.  

McKinsey’s data indicates that over one-third of multinational firms with China-based operations have already shifted, or plan to shift, a portion of their supply chains to countries like Vietnam, Thailand, and India. These markets are not only lower-cost alternatives but also serve as a hedge against geopolitical escalation in the trade conflict between the U.S. and China.  

However, making such dramatic moves comes with its own set of challenges. New production hubs often lack the scale, infrastructure, and supply chain density that make China so dominant in the first place. As a result, companies face transitional inefficiencies which manifest as limited inventory and elongated lead times.  

The long-term economic consequences of semiconductor tariffs are more nuanced. For one, persistent tariffs are a major contributor to global price volatility. Chip pricing has always been cyclical, but tariff-induced distortions have introduced a fresh layer of unpredictability that makes forward-looking capacity planning and pricing more difficult to manage.  

These disruptions ripple throughout the entire value chain, impacting raw materials and packaging to final assembly and wafer production. OEMs that once relied on lean, just-in-time sourcing strategies must adapt to stay competitive. Many are building buffer inventories or overpaying for extra supply simply to mitigate risk—an expensive and unsustainable strategy. Moreover, such actions, when taken on a wider scale, throw additional distortions into the global supply chain, making it more difficult for every player to manage their inventory and predict market swings.  

Innovation also suffers in a tariff-driven market. The shift toward protectionism and regional self-sufficiency hampers previously unified R&D efforts, and chipmakers are forced to redesign components to comply with local regulations rather than pursuing new designs. The result is slower time-to-market and higher development costs.  

Perhaps more concerning is the fragmentation of global technology standards that becomes more likely as each region races to establish its own “secure” semiconductor stack. Such division weakens the economies of scale that have historically underpinned the chip sector’s innovation engine. In an industry where cost-per-transistor declines have enabled exponential performance gains, widespread inefficiency brought on by tariffs threatens to halt progress.  

Managing the sourcing strategies necessary to prevent disruption in a tariff-driven market requires an active role. Sourceability gives procurement leaders real-time intelligence for smarter buying and access to a broad supplier base to reduce exposure to cost inflation. Our sourcing experts help companies proactively manage tariff risk by identifying alternative components, regions, and logistical strategies.

Ultimately, semiconductor tariffs aren’t just another economic headwind. They are harbingers of a larger industry shakeup. Organizations that treat tariffs as a catalyst for smarter, proactive sourcing in the days ahead will differentiate themselves from those that remain reactive.