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Shares of major semiconductor firms, including Taiwan Semiconductor Manufacturing (TSM), Advanced Micro Devices (AMD), and Monolithic Power Systems (MPWR), saw significant gains today, rising by 2.7%, 7.4%, and 6%, respectively, as of 2:21 p.m. ET. This uptick in stock prices appears to stem from reports suggesting that the Trump administration may delay implementing significant tariffs on semiconductors and other key industrial sectors.
Trump’s Tariff Reevaluation
As reported by Bloomberg and sourced from individuals knowledgeable about the situation, the Trump administration is expected to retract plans for sector-specific tariffs on automobiles, semiconductors, and pharmaceuticals, which were initially slated to be part of the April 2 tariff measures. Instead, the upcoming tariffs will focus on imposing “reciprocal” tariffs on specific trading partners that currently impose duties on U.S. goods or have noticeable trade imbalances with the United States. The exact future of the previously proposed sector-specific tariffs and those on trade with Canada and Mexico remains uncertain. Presently, it appears that tariffs will primarily affect approximately 15% of trading partners identified as having substantial trade imbalances with the U.S., while tariffs on other nations may differ in scale.
If tariffs are lifted, it would likely benefit many semiconductor manufacturers, as a significant portion of chip production is concentrated in Taiwan and other East Asian locations. Both the Biden and Trump administrations have been actively encouraging investments to bolster domestic chip production, but establishing large semiconductor fabrication facilities takes considerable time and financial resources, often surpassing the costs associated with manufacturing in Asia.
Although TSMC recently announced a $100 billion investment plan in the U.S., most of its chip production remains based in Taiwan, leaving uncertainty regarding potential tariffs on its operations. Furthermore, it’s uncertain whether Taiwan would permit the production of its most advanced technology on U.S. soil first.
Simultaneously, AMD produces its cutting-edge CPUs and data center GPUs at TSMC facilities in Taiwan, making it vulnerable to potential semiconductor tariffs. Monolithic Power Systems sources its chips from various manufacturing locations, including China, Taiwan, South Korea, and Singapore. While new tariffs on China are expected to remain in place, chips produced in other countries may see temporary relief from additional duties.
Cautious Optimism
Despite the positive market response for semiconductor stocks today, it may be premature to celebrate a complete resolution. There remains ambiguity regarding the specifics of the tariffs set for April 2, as the administration continues to evaluate the applicability of tariffs and exemptions across different products and nations. Moreover, even if semiconductors are excluded from tariffs at that time, multiple products across numerous trading partners may still incur extra duties.
In the near term, such tariff impositions could drive up consumer prices, hinder economic growth, or stifle investment initiatives. A negative response from the economy to these tariffs might dampen the overall semiconductor market, known for its cyclical nature. Even the thriving AI sector could face challenges, as major investors in AI begin to evaluate the return on their investments in the technology.
Consequently, investors should exercise caution and not overinterpret today’s market results as an immediate indication of a stable environment. Those considering investments in semiconductor stocks should adopt a long-term perspective, focusing on fundamental trends such as advancements in AI, electrification, and other driving forces within the industry. The current respite from tariffs may not signify an end to volatility, and further fluctuations could lie ahead.
Disclosure: Billy Duberstein and/or his clients hold shares in Taiwan Semiconductor Manufacturing. The Motley Fool has financial interests in and recommends Advanced Micro Devices and Taiwan Semiconductor Manufacturing and recommends Monolithic Power Systems. The Motley Fool follows a disclosure policy.
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