President Donald Trump has signaled plans to impose a 100% tariff on imported semiconductors, a move that could further disrupt the auto industry and raise new car prices across the United States. According to The New York Times, companies investing in domestic chip manufacturing could be exempt from the tariff.
Why This Matters
The U.S. currently produces only about one-third of the chips it consumes, according to Jason Miller, a supply chain management professor at the University of Michigan. This means domestic supply is far from meeting demand, especially in industries like automotive manufacturing that depend heavily on semiconductor imports.
A History of Chip-Related Price Hikes
The global chip shortage of 2022–2023 already sent vehicle prices soaring. Automakers had to scale back features and limit production to cope with supply constraints, driving up costs for consumers.
If a 100% tariff is applied to imported chips, it could trigger a similar — or even worse — wave of price increases.
Why Cars Are Vulnerable
While many new U.S.-based factories are being built to produce advanced, high-power chips for AI and electronics, automakers largely use older, low-power chips made in Asia.
These chips are essential for basic vehicle functions, such as:
- Engine management
- Power windows
- Safety sensors
- Climate control systems
Most vehicles contain thousands of these inexpensive chips, making them a critical but often overlooked cost factor in car manufacturing.
Industry Response & Adaptation
Some automakers are exploring designs that reduce chip count.
For example:
- Rivian uses fewer, more powerful chips in its EV designs.
- Volkswagen Group has invested $5 billion in Rivian to access this technology for future models.
However, most current vehicles remain highly dependent on imported, low-cost semiconductors. A tariff doubling their cost would almost certainly ripple through to higher sticker prices for consumers.
Could Automakers Be Spared?
Historically, Trump’s policy announcements have been broad, with final regulations often narrowing in scope. Some trade duty exemptions already exist, which could partially shield automakers from the full impact.
Still, industry experts warn that if implemented broadly, the tariff could compound existing supply chain pressures and push vehicle prices even higher in the coming months.
Key Takeaways for Car Buyers
- Expect potential price increases on new cars if the tariff is enacted.
- Vehicles with fewer chips or more integrated electronic systems (like Rivian’s designs) may be less affected.
- Tariff impact will depend heavily on final policy details and exemptions.
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