AI industry says Trump plans to tax chips in the “single dumbest way imaginable” - Ars Technica
Overview
AI industry says Trump plans to tax chips in the “single dumbest way imaginable”var abtest_2169426 = new ABTest(2169426, 'click');
Tech industry is perplexed by Trump’s plan to win AI race by taxing data centers.
Details
Donald Trump may be preparing to announce sweeping new semiconductor tariffs at the absolute worst time, the tech industry fears.
On Thursday, Politico reported that a wide range of new semiconductor tariffs, which the tech industry expects will “doom” artificial intelligence innovation in the US, could be imposed in the coming “weeks or months.”
About eight people familiar with the Trump administration’s plans were granted anonymity to discuss how the tariffs might work. They suggested that the framework for tariffs may change as it becomes finalized, but one approach under consideration could “dramatically expand the number of tech products subject to the duties, hitting not just chips but potentially many of the goods made with them, such as gaming consoles or the servers that fill data centers.”
That scenario is the tech industry’s nightmare. Since Trump took office, trade groups have warned that imposing tariffs on both semiconductors and the many downstream products that use semiconductors—potentially even taxing used or refurbished products that contain chips—would be ruinous for the economy.
Most absurdly, given the priorities of Trump’s AI Action Plan, that tariff approach would cost the US about $90 billion annually in GDP losses and cause about 20 percent of data center projects planned through 2030 to be delayed or canceled, the Computer and Communications Industry Association (CCIA) estimated in June. The tariffs could even drive more data center development outside the US, the CCIA warned, which seems counterproductive, since Trump is imposing them in order to force more development into the US.
Beyond disrupting the momentum of data centers, the tariffs could have wide-ranging ripple effects if certain products aren’t exempted, the CCIA said in a May letter to Treasury Secretary Scott Bessent, which was cosigned by about 20 trade groups.
For consumers, prices of “everyday tools,” like smartphones, laptops, tablets, smartwatches, connected devices, and vehicles, could increase at a time when US households are already budget-strained. Tariffs could also limit technology choices for Americans by delaying new product launches, including devices featuring the latest AI technologies. And any dampened demand for popular tech risks further limiting innovation while seemingly working in lockstep with tariffs to slow AI adoption in the US, the letter warned.
“Consumer devices are the primary interface through which Americans access AI-powered tools. AI only delivers on its promise when people can actually use it—and tariffs that price consumers out of the device market would slow AI adoption at the very moment the United States is positioned to lead,” the letter said.
To shield AI firms, the Trump administration is mulling some tariff relief, but sources told Politico that it would likely be tied to foreign firms investing in US chip manufacturing, like Taiwan Semiconductor Manufacturing Co. Apparently, that’s the approach to relief that Commerce Secretary Howard Lutnick most favors.
Perhaps mindful of the data center development timeline—and possibly the upcoming holiday season, as Trump previously has exempted goods from tariffs to avoid consumer backlash that negatively impacted his approval ratings—the administration may impose tariffs in phases to avoid the worst impacts hitting all at once.
The global data center buildout already has the tech industry broadly scrambling for access to high-end semiconductors, which are forecasted to remain in short supply well into 2027. Just yesterday, Gartner forecasted that due to the shortage that’s driving price increases, global semiconductor revenue is expected to reach $1.6 trillion in 2026—much sooner than expected.
Economists expect that tariffs would only further increase prices for chips, which Politico reported could “hammer US chip designers such as Nvidia and Advanced Micro Devices, which rely on overseas manufacturers to produce their chips.” Tariffs could also hurt companies like Apple, which competes with foreign rivals overseas that wouldn’t have to deal with the tariffs. Chinese firms could benefit, Politico suggested, as chip suppliers potentially avoid tariffs by increasing business in China.
Politico’s sources confirmed that the tech industry is so panicked by the risk of semiconductor tariffs that it “launched a lobbying blitz” to guarantee that data centers at the very least would be exempted.
For the tech industry, the hope is that Trump will recognize an inherent tension at the heart of his semiconductor tariffs plan: Taxing data centers on chips during the key time they need to acquire as many as possible to scale AI infrastructure will not increase demand for chips produced domestically for a simple reason. Domestic chip plants take years to build, and the US can’t rush that timeline, so firms will remain heavily dependent on importing semiconductors. As a detailed report from The Next Web summarized the problem: “Taxing the imports in the meantime raises the cost of the thing the administration also says it wants, which is American AI infrastructure at scale. There is no version of the timeline in which domestic supply arrives before the buildout needs the chips.”
“This may be the single dumbest way imaginable to pursue American dominance in AI,” said one tech official who, Politico reported, is from a major industry group and also served in the first Trump administration. “It’s like kneecapping yourself at the starting line.”
However, even though industry representatives and lobbyists have met with Trump officials “with increasing frequency since the start of summer,” sources suggested that this time, the tech industry may not get the exemptions that they’re seeking. The talks have recently “trended in a negative direction,” sources told Politico.
Lutnick appears to be standing in the way. According to Politico’s sources, the Commerce Secretary thinks the US needs to apply the tariffs broadly to prioritize reshoring the domestic supply chain.
Four sources suggested that Lutnick plans to hold his ground and announce a system where the “US would let a set volume of chips enter the country duty-free, with the size of that allowance tied to how much companies pledge to produce on American soil.” Individual countries could also be hit with different semiconductor tariff rates, Trump officials have weighed, further complicating the math for companies trying to guess how tariffs might shake up their supply chains.
Critics are worried that the structure that Lutnick likes for tariffs “risks widening the gap between the supply of tariff-free chips and the volume US companies need,” Politico reported. One tech representative suggested more exemptions would be needed, since “the volume they’re talking about granting duty-free wouldn’t cover the hyperscalers alone, let alone the rest of the industry. Those are chips we physically can’t buy here, because the capacity doesn’t exist yet.”
“The math literally just does not work,” that source said.
Earlier this year, Trump imposed a narrow set of semiconductor tariffs that pointedly exempted data centers. As recently as May, US Trade Representative Jamieson Greer has said that “having semiconductor tariffs is important,” but they must be “on the right timing and in the right amount.” At that time, Greer said that the government wanted to ensure that “there are no immediate tariffs on companies that are producing semiconductors” and that the US “will allow companies to import an unspecified amount during that ‘reshoring phase.’”
It’s unclear what may have changed to shift the Trump administration’s position since then. However, The Next Web analyzed the upcoming phase of tariffs and noted that the Commerce Department submitted a report on July 1 that would determine if the data center exemption would survive. That report remains unpublished but is likely at the center of officials’ discussions with tech lobbyists.
The CCIA’s report suggested that the next round of tariffs could avoid the worst consequences by carving out exemptions for semiconductors used in AI servers and by lowering the tariff rate from a presumed 25 percent to 10 percent. That would supposedly ensure the “most fragile” projects aren’t disrupted and that GDP losses are minimized.
The best solution, their letter said, would be to avoid imposing tariffs on semiconductors and derivative products entirely. But if the administration must proceed, then trade groups hope they will consider applying tariffs in “a nuanced and targeted way,” their letter said.
That means perhaps excluding products from tariffs “with minimal semiconductor content or products whose semiconductor inputs are incidental to their principal use.” Or possibly setting a “de minimis” threshold where any product under a certain weight or value might be exempted. And at minimum, they should acknowledge that sellers of secondhand products may not have information on hand to establish the provenance of the chips contained inside. To ensure that there aren’t shipment bottlenecks, any tariff policy should only require paperwork that firms already have on hand, the letter said.
Finally, and likely the tech industry’s biggest ask: If tariffs are inevitable, don’t stack tariffs so that firms must pay a double tax on both the semiconductors within the derivative products and the products that contain them.
For the tech industry, the risk of tariffs coming at this key moment likely feels like Trump is adding a roadblock where he could be focused on cutting red tape that could expand US chipmaking capacity, data center development, and AI innovation.
Right now, investments in US chipmaking capacity are at a “historic high,” CCIA’s letter to Bessent said, and we need “policy measures that expand domestic capacity, accelerate permitting and infrastructure deployment, support advanced packaging and workforce development, and strengthen trusted supply chains [to] better advance US resilience without imposing economy-wide costs on downstream innovation.”
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Key Takeaways
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AI industry says Trump plans to tax chips in the “single dumbest way imaginable”var abtest_2169426 = new ABTest(2169426, 'click');
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Tech industry is perplexed by Trump’s plan to win AI race by taxing data centers
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Donald Trump may be preparing to announce sweeping new semiconductor tariffs at the absolute worst time, the tech industry fears
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On Thursday, Politico reported that a wide range of new semiconductor tariffs, which the tech industry expects will “doom” artificial intelligence innovation in the US, could be imposed in the coming “weeks or months
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About eight people familiar with the Trump administration’s plans were granted anonymity to discuss how the tariffs might work
