(Bloomberg) — The administration of President Donald Trump is moving ahead with its plans to introduce tariffs on imports of semiconductors and pharmaceuticals through trade investigations led by the Commerce Department.
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These initiatives, announced on Monday via the Federal Register, serve as a precursor to implementing tariffs and are set to expand the president’s extensive trade conflict with other countries.
The Commerce Department stated it has initiated inquiries into the implications for U.S. national security regarding “imports of semiconductors and semiconductor manufacturing equipment” as well as “pharmaceuticals and pharmaceutical ingredients, including completed drug products,” as detailed in two notices in the register.
These investigations, which commenced on April 1 and were mandated under Section 232 of the Trade Expansion Act, are expected to take several months. According to the law, the Commerce Secretary is required to report the findings of the investigation within 270 days; however, Trump and other officials have indicated that these processes may conclude sooner.
The U.S. president has long criticized foreign production of drugs and chips as a risk to national security and has threatened to enforce tariffs on imports to revive domestic manufacturing of these products. Nevertheless, the proposed duties could disrupt supply chains and raise costs for American consumers.
New tariffs threaten to disrupt a semiconductor industry that achieved over $600 billion in global sales of essential chips for a variety of products, including cars, airplanes, mobile phones, and consumer electronics. Supply chains, already affected by disruptions from the Covid-19 pandemic, may experience additional strains as a result of the U.S. duties.
The administration announced these plans shortly after it excluded imports of semiconductors, mobile phones, computers, and other electronics from the recently imposed 145% tariffs on China. This decision was perceived as beneficial to technology giants like Apple Inc. and Nvidia Corp., but Trump and his advisors quickly stated that this reprieve would be temporary and that separate tariffs on chips would soon be imposed.
The Commerce Department’s investigation into semiconductors aims to cover a wide range of products, assessing both legacy and advanced chips important for artificial intelligence applications. The probe will look at all semiconductor imports, the manufacturing equipment required, and the electronic products containing these components, according to the government notice.
Tariffs targeting the semiconductor industry could impact numerous companies that export billions of dollars of microprocessors and related materials to the U.S. each year. Foreign manufacturers of advanced chips like Taiwan Semiconductor Manufacturing Co. and South Korea’s SK Hynix may be compelled to increase prices or accept lower margins if Trump carries out his plans for import duties.
These actions also pose a risk of increasing costs for Trump’s strategy to boost domestic semiconductor production, particularly if imported chip-manufacturing equipment from firms like ASML Holding NV faces tariffs. ASML, a Netherlands-based leader in advanced lithography machines, supplies the technology necessary for producing the smallest computer chips used in AI and other critical applications.
The separate investigation into pharmaceuticals will assess imports of all kinds of medicines—both finished generic and non-generic—as well as the components used in their production. The inquiry will also scrutinize imports of crucial pharmaceutical ingredients. The public has been invited to comment on both investigations over the next 21 days.
Tariffs would also negatively impact the world’s largest pharmaceutical companies, including Merck & Co. and Eli Lilly & Co., many of which have extensive manufacturing operations around the globe.
In anticipation of potential tariffs, drug companies have hastily announced significant investments in the U.S. Recently, Swiss pharmaceutical giant Novartis AG revealed plans to invest $23 billion in the U.S. over the next five years, following earlier commitments from Eli Lilly, Merck & Co., and Johnson & Johnson.
However, experts caution that these investments may not mitigate the effects of the tariffs.
“There is no quick solution for the exposed companies,” stated Leerink Partners analyst David Risinger in a note to clients prior to the announcement. “Shifting manufacturing locations would take years and be significantly expensive.”
Pharmaceutical companies will have to choose between absorbing the costs of potential tariffs or raising prices for their already expensive medicines.
“There’s a lot at stake politically for branded manufacturers if they increase prices now,” remarked Marta Wosińska, a senior fellow at the Brookings Institution’s Center on Health Policy. “I anticipate there will be hesitance to pass through price hikes.”
Due to certain price controls on medications, tariffs could adversely affect the profits of drug manufacturers, potentially leading them to cut back on research, according to Lilly Chief Executive Officer Dave Ricks.
“We must absorb the cost of the tariffs and make compromises within our own companies,” Ricks stated recently to the BBC. “Typically, this would result in reductions in staff or in research and development (R&D), and I predict R&D will be first to go. This is a discouraging outcome.”
Trump, who has often criticized U.S. drug manufacturers for their reliance on foreign production, is breaking with decades of established practice. Historically, the pharmaceutical sector has avoided trade wars, benefiting from international agreements that largely shielded medicines from tariffs on humanitarian grounds.
Global Ramifications
Trump’s actions on semiconductors mirror his targeting of other sectors, with 25% tariffs already imposed on imports of steel, aluminum, and automobiles, alongside an ongoing Commerce Department trade investigation expected to yield duties on foreign copper.
Under former President Joe Biden, the U.S. had already increased tariffs on what are referred to as legacy semiconductors from China to 50% and last December initiated an investigation focusing on Chinese dominance in this category, laying the groundwork for Trump to impose even higher tariffs. While these older technologies are not as advanced as those fueling artificial intelligence, they are prevalent in automobiles, airplanes, medical equipment, and telecommunications.
Trump has framed the revitalization of the U.S. chip manufacturing industry and the industrial base as vital for national security. Competing successfully in the global arena for dominance in the AI sector is also a top priority for the Trump administration. Analysts have warned that rebuilding chip manufacturing capabilities within the U.S. will require years of dedicated effort.
The impact on medicines will significantly affect Ireland, which enjoys a $54 billion (€47.6 billion) trade surplus with the U.S., a situation that has drawn Trump’s ire. This trade imbalance, largely influenced by the pharmaceutical industry, arises from Ireland’s favorable tax policies and highly qualified workforce. American pharmaceutical companies, including Lilly and Pfizer Inc., operate nearly two dozen factories in Ireland that supply products to the U.S., according to an analysis by TD Cowen.
The U.S. biotechnology sector, a leading force in drug development innovation, also faces vulnerability from the impending tariffs. Almost 90% of American companies rely on imported components for products approved in the U.S., according to a recent Biotechnology Innovation Organization survey. Consequently, the availability of medications for U.S. patients is especially precarious due to the proposed tariffs against the European Union, China, and Canada, the organization reported.
Nearly all companies surveyed indicated they expect manufacturing costs to rise if import tariffs are levied against the European Union. Half of the 42 companies stated they would need to urgently seek new research and manufacturing partners or rework and potentially delay regulatory submissions for new products.
“Re-establishing essential segments of the biotechnology supply chain within the U.S. and among our allies and enhancing the American manufacturing foundation should be a primary focus for both national and economic security,” stated BIO President John Crowley in a statement. “Nevertheless, this transition will require significant time. We must be cautious of the adverse effects of these proposed tariffs.”
Trump’s Considerations for Exemptions
The U.S. president announced earlier on Monday that he would contemplate temporary exemptions from his 25% tariff on automotive imports to give companies the opportunity to relocate production to the U.S.
This announcement indicates that the president is open to negotiations with industry leaders, and similar initiatives from technology and pharmaceutical executives are likely to follow.
“He aims to expedite this onshoring process in a swift and orderly manner,” said Trump economic advisor Kevin Hassett on Monday during a segment on Fox Business. “So when he converses with CEOs and they express a need for additional time, he is absolutely willing to listen.”
Treasury Secretary Scott Bessent, in a recent interview with Bloomberg Television, mentioned that the administration remains focused on negotiating agreements that will benefit American citizens.
“I think we’re about to start negotiations, and just like with everyone else, I’m advising them to bring their best proposals. We’ll assess what they have and proceed from there,” Bessent added.
Trump was asked about any temporary product exclusions he was contemplating but did not clarify how long any possible suspension or reduction of auto tariffs might remain in effect.
–With contributions from Michael Shepard, Annmarie Hordern, and Hadriana Lowenkron.
(Updates throughout with additional context)
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