Trump Announces Chips, Drug Probes, Opening Door to Tariffs

President Donald Trump’s administration pressed forward with plans to impose tariffs on semiconductor and pharmaceutical imports by initiating probes led by the Commerce Department.

The moves, announced April 14 in the Federal Register, are a precursor to imposing tariffs and threaten to broaden the president’s sweeping U.S. trade war.

The Commerce Department said it would be investigating the impact on U.S. national security of “imports of semiconductors and semiconductor manufacturing equipment” as well as “pharmaceuticals and pharmaceutical ingredients, including finished drug products” in a pair of notices posted to the Federal Register.

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The U.S. president has long decried foreign production of drugs and chips as a threat to national security and threatened to slap tariffs on imports in a bid to revive American manufacturing of those products. But the duties could also wreak havoc on supply chains and drive up costs for Americans.

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New levies threaten to roil a chips industry that notched more than $600 billion in global sales of chips essential to products ranging from cars to airplanes and mobile phones to consumer electronics. Semiconductor supply chains still feeling the effect of disruptions caused by the COVID-19 pandemic now could face new strains from the duties.

The administration’s announcement came days after it exempted semiconductors, mobile phones, computers and other electronics imports from 145% duties applied to China. That announcement was seen as a boon to tech giants like Apple Inc. and Nvidia Corp., but Trump and his advisers quickly said the relief would be short lived and that separate levies would be placed on chips.

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Tariffs would also be a blow to the world’s largest drugmakers, including Merck & Co. and Eli Lilly & Co., virtually all of which operate scores of manufacturing sites scattered across the globe.

Trump, who has repeatedly bemoaned U.S. drugmakers’ reliance on overseas production, is breaking decades of tradition. The pharmaceutical industry has long sidestepped trade wars, protected by international agreements that largely protected medicines from tariffs on humanitarian grounds.

Trump’s move on semiconductors is similar to the way he’s targeted other sectors, with imported steel, aluminum and automobiles already facing 25% tariffs and an ongoing Commerce Department trade probe expected to result in levies on foreign copper.

Under Biden, the U.S. already had doubled tariffs on so-called legacy semiconductors from China to 50% and in December launched a probe into Chinese concentration in the category that sets the stage for Trump to impose even higher levies. While not as advanced as chips driving artificial intelligence, the older technology is ubiquitous in autos, airplanes, medical devices and telecommunications.

Trump has cast reshoring chipmaking and revitalizing the U.S. industrial base as essential for the nation’s security. Winning a global race to dominate the AI industry is also a top Trump administration priority. Analysts have warned that bringing chip manufacturing to the U.S. will take years of hard work.

Worldwide Impact

The move on medicines will have an outsize effect on Ireland, with a $54 billion trade surplus with the U.S. that helped spur Trump’s wrath. The imbalance, heavily weighted by the pharmaceutical industry, stems from the country’s favorable tax regime and highly educated workforce. U.S. drug companies, including Lilly and Pfizer Inc., operate nearly two dozen factories in Ireland that ship drugs to the U.S., according to a TD Cowen analysis.

The U.S. biotech industry, which drives much of the innovation in drug development, is also vulnerable to the new tariffs. Nearly 90% of American companies rely on imported components for U.S.-approved products, according to a recent survey by the Biotechnology Innovation Organization. As a result, the supply of medicines for U.S. patients and families are particularly vulnerable to proposed tariffs on the EU, China and Canada, the group wrote.

Nearly all of the companies surveyed said they expect manufacturing costs to surge if import tariffs are placed on the EU. Half of the 42 companies said they’d be forced to scramble for new research and manufacturing partners, or they’d need to rework or potentially delay regulatory filings for new products.

“Re-onshoring key parts of the biotechnology supply chain to the U.S. and our allies and strengthening the American manufacturing base should be a high priority for both national and economic security,” BIO President John Crowley said in a statement. “It will take years, though, for this shift. We need to be mindful of the negative consequences of these proposed tariffs.”

Trump’s Exemptions

The U.S. president earlier April 14 announced that he would consider temporary reprieves from his 25% tariff on automotive imports to allow companies time to bring production to the U.S.

The announcement suggested that the president was willing to negotiate with industry leaders, and a similar push from technology and pharmaceutical executives is almost certain to follow.

“He’s going to get this onshoring to happen as soon as possible and as orderly as possible,” Trump economic adviser Kevin Hassett said April 14 on Fox Business. “And so when he talks to CEOs and they say, ‘Hey, I need a little more time with this, I need a little time more time with that,’ then he’s absolutely willing to listen. And if he’s convinced, then he’ll make the call to do something like he did today.”

Trump was asked what short-lived product exclusions he was considering but did not specify how long a potential pause or lowering of auto levies would remain in place.