SIA Urges Elimination of Harmful Section 301 Tariffs

by Jennifer Meng, Director of Global Policy

SIA on Dec. 1 submitted comments to the Office of the United States Trade Representative (USTR) urging the elimination of harmful semiconductor tariffs that are exacerbating the ongoing chip shortage and slowing our economy. As SIA explained in the submission, Section 301 tariffs on semiconductors and associated products are contributing to the current global chip shortage, leading to higher prices, and worsening damage to U.S. consumers and manufacturers of autos, appliances, medical equipment, and other U.S. industrial and technology products.

[DOWNLOAD SIA’S COMMENTS]

While our country faces real and significant challenges posed by China’s unfair trade practices, SIA continues to strongly believe tariffs on semiconductors and associated products are, in effect, a damaging tax on U.S. chipmakers and consumers, creating unnecessary burdens on our economy. In addition, the tariffs undermine the semiconductor industry’s efforts to continue ramping up production capacity to meet soaring demand for semiconductors. We believe the Administration can eliminate tariffs on semiconductors and associated products in a surgical way without limiting its leverage to continue negotiating more favorable trade and economic terms with China.

Semiconductors are the bedrock of the modern economy, powering everything digital, from smartphones and cars to supercomputers and medical equipment. U.S. chip companies lead the world with close to half of global market share. Semiconductor exports eclipsed $49 billion in 2020, making chips a top-five U.S. export. The semiconductor industry also maintains a consistent trade surplus with China. Nearly half of the manufacturing operations of U.S. semiconductor producers are located domestically across 18 states. The semiconductor industry employs 277,000 U.S. workers in high-paying jobs and supports an additional 1.6 million jobs throughout the U.S. economy.

The widespread shortage of semiconductors that arose in late 2020 as a result of the pandemic continues to create significant challenges to our industry and has strained the resiliency of the global semiconductor ecosystem. The Section 301 tariffs add to supply chain disruptions. In their most direct effect, the additional U.S. tariffs add 25% to the cost of covered semiconductors, and subsequently contribute to inflationary price increases driven by global shortages and rising demand. This exacerbates the current global shortages, further disrupt our customers’ supply chains, and accentuates the damaging impacts of shortages in the U.S. These shortages are also contributing to factory shutdowns and impacting paychecks in the form of reduced wages and hours worked. While removal of the Section 301 tariffs would be an incremental step, in the current global shortage, even incremental steps to boost U.S. supply would make a difference.

Additionally, semiconductors are foundational to many medical devices, such as ventilators, being used to battle the ongoing COVID-19 pandemic. Lifting the Section 301 tariffs on semiconductors and associated products would help promote access to — and affordability of — healthcare products and services during this time of strained resources.

Lastly, the current tariffs applied on semiconductors and its supply chain are disproportionately harming the U.S. semiconductor industry and broader U.S. interests, all while failing to put real pressure on the Chinese government to change its unfair trade practices. The U.S. semiconductor industry maintains a consistent trade surplus with China. In fact, most of the chips imported from China were processed at assembly, test, and packaging plants owned and operated by U.S. semiconductor companies there. Assembly, test, and packaging is the lowest value-add stage of chip production, and most of these semiconductors are older, more basic, low-end, and lower-value technologies, but are still widely used in certain industrial applications, such as automobiles. Therefore, the 25% tariff on imports of U.S. semiconductor-and-related products from China is causing economic harm to U.S. manufacturers and innovators, while failing to create much, if any, incentive for China to address U.S. concerns about forced technology transfer and other unfair Chinese practices identified in the Section 301 report.

SIA looks forward to working with the Administration to broaden the tariff-exclusion process and eliminate tariffs on semiconductors and associated products from USTR’s Section 301 tariffs to help alleviate the existing semiconductor shortages, combat the ongoing COVID-19 pandemic, and maintain U.S. competitiveness and leadership in the global semiconductor marketplace.