(Bloomberg) — President Donald Trump’s administration pressed forward with plans to impose tariffs on semiconductor and pharmaceutical imports by initiating trade probes led by the Commerce Department.
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The moves, announced Monday in the Federal Register, are a precursor to imposing tariffs and threaten to broaden the president’s sweeping US trade war.
The Commerce Department said it had begun investigating the impact on US 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 register notices.
The probes, which began April 1 and were ordered under Section 232 of the Trade Expansion Act, could play out for months. Under the law, the Commerce Secretary is expected to deliver the results of his investigation within 270 days, though Trump and other officials have signaled these efforts could conclude more quickly.
The US 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.
New levies threaten to roil a chips industry that notched more than $600 billion in global sales of semiconductors essential to products ranging from cars to airplanes and mobile phones to consumer electronics. Supply chains still feeling the effect of disruptions caused by the Covid-19 pandemic now could face new strains from the US 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.
The Commerce Department investigation on semiconductors is designed to have a wide range, evaluating imports of both legacy and leading-edge chips that are coveted for artificial intelligence applications. The probe will span imports of all semiconductors and the equipment used to manufacture them as well as electronic products that contain the components, according to the government notice.
Tariffs on the semiconductor sector risk affecting a wide range of companies that send billions of dollars in microprocessors and related goods to the US each year. Foreign makers of advanced chips including Taiwan Semiconductor Manufacturing Co. and SK Hynix of South Korea could be forced to raise prices or accept smaller margins if Trump delivers on his threat of import levies.
The measures also threaten to impose higher costs on Trump’s vision for expanding domestic semiconductor production, especially if imported chip-manufacturing equipment from companies like ASML Holding NV gets hit with tariffs. Netherlands-based ASML is a leading provider of advanced lithography machines used to produce the smallest computer chips used in AI and other sensitive applications.
The separate drug probe will examine imports of all pharmaceuticals — both finished generic and non-generic medicines — as well as the ingredients used to make them. Investigators also will probe imports of critical pharmaceutical inputs. The public is invited to weigh in on both probes with comments over the next 21 days.
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.
Drug companies have raced to announce major investments in the US ahead of potential tariffs. Most recently, Swiss drugmaker Novartis AG said it plans to invest $23 billion in the US over the next five years, following earlier pledges from Eli Lilly, Merck & Co. and Johnson & Johnson.
But experts warned that likely wouldn’t blunt the impact of the tarrifs.
“There is no quick fix for exposed companies, in our view,” Leerink Partners analyst David Risinger said in a note to clients ahead of the announcement. “Redomiciling manufacturing would take years and be very costly.”
Drugmakers will face a choice between eating the costs of potential tariffs or raising prices for their medicines in what is already the most expensive market in the world.
“There’s a lot at stake politically I think for branded manufacturers to be increasing prices here,” said Marta Wosińska, a senior fellow at the Brookings Institution’s Center on Health Policy. “I do think there’s going to be reluctance to passing through price increases.”
Because there are some controls on the price of drugs, tariffs could end up hurting drugmakers’ bottom line, leading them to scale back research, according to Lilly Chief Executive Officer Dave Ricks.
“We have to eat the cost of the tariffs and make trade offs within our own companies,” Ricks recently told the BBC. “Typically that will be in reduction of staff or research and development (R&D) and I predict R&D will come first. That’s a disappointing outcome.”
Trump, who has repeatedly bemoaned US drugmakers’ reliance on overseas production, is breaking decades of tradition. The pharmaceutical industry has long side-stepped trade wars, protected by international agreements that largely protected medicines from tariffs on humanitarian grounds.
Worldwide Impact
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 former President Joe Biden, the US already had doubled tariffs on so-called legacy semiconductors from China to 50% and last 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 revitalizing the US chipmaking industry and 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 US will take years of hard work.
The move on medicines will have an outsize effect on Ireland, with a $54 billion (€47.6 billion) trade surplus with the US 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. US drug companies, including Lilly and Pfizer Inc., operate nearly two dozen factories in Ireland that ship to the US, according to a TD Cowen analysis.
The US 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 US-approved products, according to a recent survey by the Biotechnology Innovation Organization. As a result, the supply of medicines for US patients and families are particularly vulnerable to proposed tariffs on the European Union, 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 European Union. 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 US president earlier Monday announced he would consider temporary reprieves from his 25% tariff on automotive imports to allow companies time to bring production to the US.
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 Monday 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 more time with that,’ then he’s absolutely willing to listen.”
Treasury Secretary Scott Bessent, in an interview with Bloomberg Television, said the administration remained focued on negotiating deals that would benefit Americans.
“I think we’re going to start the negotiations, and just like with everyone else, I’m telling them, bring your A-game. We’ll see what you got, and we’ll go from there,” Bessent said.
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.
–With assistance from Michael Shepard, Annmarie Hordern and Hadriana Lowenkron.
(Updates throughout with additional context)
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