Source: Cointelegraph Original: "{title}"

Views from: Ahmad Shadid of O.xyz

Semiconductors have received a rare exemption from the fierce retaliatory tariffs imposed by U.S. President Trump, but this exemption is at best symbolic. Most semiconductors enter the U.S. as components of servers, GPUs, laptops, and smartphones.

These finished products still face high tariffs, with some tariffs reaching as high as 49%. This exemption looks good politically, but in reality, it offers almost no substantial benefits. Nvidia's DGX systems, which are crucial for training advanced AI models, do not qualify for the exempt HTS codes. Nvidia may have to pay nearly 40% in effective tariffs for these critical components. These costs threaten the progress of key AI infrastructure projects nationwide.

Semiconductor tariffs may hinder the goals of the CHIPS Act

The act promises to provide billions of dollars in subsidies to support domestic semiconductor manufacturing. However, advanced lithography machines from countries like the Netherlands and Japan—this critical equipment—face tariffs of 20% to 24%. Ironically, the tariffs intended to promote U.S. production have instead increased the costs of essential manufacturing equipment.

The impact of the new tariffs has already begun to slow the progress of critical supply chains—just as generative AI and large language models gain momentum in industries like finance and defense. Any delays or cost increases now could undermine the U.S.'s technological advantage.

Indirect costs undermine the benefits of the AI exemption

The modern semiconductor supply chain is global and tightly integrated. Even if raw material silicon wafers are exempt, the exemption is meaningless when servers, GPUs, and other finished products face high tariffs. Tariffs raise costs indirectly, eliminating any competitive advantage from domestic manufacturing.

The impact of tariffs is particularly severe on high-end systems. Their effects create a ripple effect through AI model training, data center expansion, and significant infrastructure project progress, significantly slowing momentum across the industry.

Tariff stalemate hinders investment

So far, it is evident that the president's tariff plan has not followed any traditional economic trends or calculated strategies. The uncertainty surrounding tariffs has stalled investment decisions in the tech industry. Companies need predictable costs to support large-scale capital expenditures. However, ongoing tariff fluctuations prevent them from allocating resources to new data centers and production lines.

This is reminiscent of the supply chain chaos in 2020. At that time, orders were massively canceled due to uncertainty, and the industry's recovery process was delayed for years. If tariff uncertainty continues, a similar wave of cancellations could occur in 2025. This would further exacerbate the existing inventory and revenue issues in the semiconductor industry.

Domestic production is not the optimal choice

Debates about these tariffs argue that they are meant to promote domestic production. However, these tariffs have not genuinely encouraged domestic semiconductor manufacturing. Despite subsidies under the CHIPS Act, most U.S. semiconductor companies still rely on international foundries for manufacturing. Instead, they face higher equipment and operational costs.

AI projects face higher risks

The blockchain and cryptocurrency sectors, especially AI-driven projects, are also feeling this pressure. Projects heavily rely on GPUs and high-performance servers for mining, transaction validation, and running decentralized AI computations. Increased hardware costs directly impact profitability and growth, potentially hindering innovation in blockchain applications.

Progress in AI within the blockchain and Web3 space is just beginning. A year ago, there was growing interest from investors and venture capital in the industry. Thus, many companies are still operating under tight budgets. However, rising costs may lead to stagnation. We may see innovators and developers exit the market. The impact will extend beyond the tech industry itself, potentially threatening the future of the digital economy.

Moreover, these cost pressures particularly affect startups and small tech companies. Industry giants can absorb the additional costs, but innovative small businesses face existential threats. This dynamic could stifle grassroots innovation and harm the entire tech ecosystem.

Future outlook

Semiconductors have temporarily escaped direct tariffs, but this exemption has not brought substantial benefits. Tariffs still affect finished products, raising indirect costs across the industry. These tariffs have not promoted domestic production; instead, they have created an economic stalemate, delaying the progress of critical infrastructure projects and threatening the U.S.'s leading position in AI innovation. Policymakers must recognize these realities and adjust policy directions to avoid irreparable harm to the nation's technological future.

Views from: Ahmad Shadid of O.xyz

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