How trade tensions are reshaping the global semiconductor landscape

The trillion-dollar chess game

The semiconductor industry stands at the epicenter of global trade tensions, with tariffs becoming powerful pieces in an international chess match. What was once the world's most globalized supply chain, with extreme regional specialization across design, fabrication, materials, and assembly, is now fragmenting under geopolitical pressures. Despite these challenges, we expect that the semiconductor market will be valued at $1 trillion in revenue by 2029, according to Omdia's Semiconductor Application Forecast (AMFT) 2Q25 report, this primarily driven by surging demand for AI chips and rising memory prices.

Price shockwaves through the supply chain

Immediate tariff impacts sent cost increases throughout the semiconductor ecosystem. NVIDIA, for example, has raised prices on nearly all its AI GPUs and graphics cards, with gaming models rising by 5–10% and high-end AI accelerators by as much as 15%. The company points to increased manufacturing expenses and new U.S. tariffs on imported parts and finished products, as the main reasons for these hikes.

TSMC, the top contract chipmaker globally, is also considering a 10% price increase for advanced wafers. At its Arizona facility, the cost to produce 4nm chips is roughly 30% higher than in Taiwan, reflecting the premium of U.S.-based manufacturing. "These higher costs are likely to be passed along to consumers, raising prices for electronics from smartphones to automobiles," notes Saloni Gankar, Senior Analyst at Omdia. "However, strong AI demand is currently offsetting any major negative effects."

The industry has seen sharp swings in response to tariff news. For instance, Tokyo Electron's shares initially dropped 8% on tariff announcements, only to rebound after a pause was declared. This unpredictability is causing manufacturers to delay equipment purchases and rethink global strategies, potentially reducing industry growth to single digits in the coming year.

Measurable tariff impact on semiconductor forecasts

Recently imposed tariffs have impacted forecasted unit shipment growth of products with high semiconductor content. Since April 2025, when the tariffs were in full effect, Omdia has adjusted forecasts in multiple application categories to reflect current conditions that will influence growth over the next five years.

"My argument is that semiconductor revenue for these products will increase largely because of the effect of the tariffs fully implemented in April of this year," explains Myson Robles-Bruce, Senior Principal Analyst at Omdia. "The increases in expected semiconductor revenues seem to correlate with declines in unit shipments for these products, which likely indicates that the additional tariffs have started to have a real market impact now and into the forecast period."

Comparison data between Omdia’s Application Market Forecast Tool (AMFT) 1Q25 edition published near the end of March 2025 and the 2Q25 edition released June 2025 provides evidence of tariff impact. Increased Semi I/O ratios (semiconductor revenue divided by OEM factory revenue) are compared to declines in unit shipments, both on a percentage basis, between the 1Q25 and 2Q25 editions of AMFT. The added tariffs raised the expected amount of semiconductor revenue in relation to factory revenue, which will likely result in lower demand and decline in unit shipment volume.

Although this analysis includes other factors such as product design innovation, cyclical changes in semiconductor component pricing and macroeconomic conditions, Robles-Bruce notes that the timing of these forecast revisions aligns with the implementation of new tariffs following the previous update in March 2025, indicating tariffs have had a significant impact.

Manufacturing as strategic asset

"I think we're seeing the whole manufacturing segment increasingly becoming a strategic asset," explains Joanne Goh, Senior Research Manager at Omdia. "Tariffs along with other policy shifts are being used not just as a protectionist tool, but it's also an incentive for reshoring to enhance the production capabilities."

This strategic shift is fundamentally changing how companies approach their operations. As Goh notes: "There is a clear shift away from optimizing purely for global efficiencies towards building more regionally resilient ecosystem in order to secure the supply chain."

The critical materials battleground

Perhaps most concerning is the growing competition for critical materials essential to semiconductor manufacturing. China controls most of the global mining production and processing capacity for many of these materials and has strategically restricted exports of critical elements like gallium and germanium in response to U.S. export controls.

"China isn't sitting back," notes Saloni Gankar. "Self-sufficiency in semiconductors has been their national priority and it's a central piece right now in their 14th five-year plan with a strong focus on compound semiconductors such as SiC and GaN.These restrictions have driven material costs up by 30–50%, creating significant vulnerabilities in supply chains. Countries are actively working to reduce this dependency, but alternative sources require time and massive investment to develop.”

Regional realignment: The end of global integration

The semiconductor industry is rapidly moving from global integration toward regional ecosystems that prioritize political alignment and supply chain redundancy. As Gankar observes, "We are seeing tighter export controls, more targeted tariffs, and increasing pressure to localize supply chains based on geopolitical alignment." This evolving landscape means that companies may soon need to adapt their chip design and manufacturing processes to meet the requirements of different regions, a change that is already driving significant strategic investments worldwide to bolster local production and reduce dependency on global networks.

United States: The silicon shield

The U.S. is tightening export controls on advanced technology to China and urging its allies to do the same, while also ramping up domestic semiconductor manufacturing. TSMC has announced a significant increase in its U.S. investment, now totalling $165 billion with plans for three new fabrication plants. The company began producing 4nm chips in late 2024 and aims to introduce 3nm and 2nm processes by 2028 and the end of the decade, respectively.

Meanwhile, the new U.S. administration has reversed the previous administrations AI diffusion policy and further tightened chip export controls to China, signalling a strategy focused on deepening AI partnerships with trusted nations and safeguarding sensitive technologies from strategic competitors.

China: The self-reliance push

China's response has been equally strategic. "Today almost half of the registered capital in China's chip industry is either state-owned or state-controlled," explains Gankar. "Through coordinated funding efforts, China is channelling resources into building domestic capabilities and pressuring domestic industries like EV makers to source more chips from local suppliers."

This self-reliance strategy extends to technology development, with a particular focus on compound semiconductors that might help circumvent some of the limitations imposed by export controls.

Europe: The Dresden Corridor

Europe is showing renewed urgency around the EU Chips Act, focusing on strategic projects like the Dresden Corridor in Germany to reduce reliance on Asia and the U.S. However, Europe still faces serious challenges, from energy costs to skilled labour shortages that impact its competitiveness.

Japan: The AI investment

Japan is making substantial commitments, planning to invest more than 10 trillion yen into semiconductors and AI over the next seven years. The 2025 budget alone allocates significant funding to Rapidus, an AI chip maker, with the government stepping in as a major shareholder.

India: The new contender

India is moving quickly to become a serious player in the global semiconductor race. Despite not being traditionally central in semiconductor production, India is actively courting international partners through strategic incentives. The government recently approved a sixth semiconductor fab, a joint venture between HCL and Foxconn, with five more under construction. Firms like Micron and Applied Materials have announced major investments in the country.

Impact on AI chip development

The tariff landscape is having profound effects on AI chip development, creating both challenges and opportunities in this critical technology sector. As AI becomes increasingly central to national security and economic competitiveness, the race to develop and control advanced AI chips has intensified.

The restrictions on advanced semiconductor equipment exports to China have created a bifurcated development path. While U.S. companies like NVIDIA and AMD continue pushing the boundaries with chips like the H100 and MI300, Chinese firms are pursuing alternative architectures that can deliver AI performance within the constraints of available manufacturing technology.

This divergence is accelerating innovation as companies on both sides seek competitive advantages through novel designs rather than relying solely on manufacturing process advances. The result is a more diverse AI chip ecosystem, with specialized architectures emerging for different AI workloads and deployment scenarios.

The increased costs and supply chain complexities are particularly challenging for startups developing new AI chip designs, potentially concentrating innovation power in larger companies with the resources to navigate the fragmented landscape.

Semiconductor companies are developing creative approaches to navigate this fragmented landscape:

Dual-shoring models

Companies like Analog Devices and GlobalFoundries are adopting dual-shoring models, splitting production between the U.S. and Europe to qualify for multiple subsidy programs under both the US CHIPS Act and the European Chips Act.

Strategic relocations

Samsung has relocated a share of its NAND flash production from China to the U.S. to leverage CHIPS Act incentives, demonstrating how companies are strategically repositioning manufacturing to align with political realities.

Non-traditional players entering the field

The competitive landscape is further complicated by non-traditional players jumping into semiconductor design. "It's not just governments that are competing–tech platforms, automakers, and even hyperscalers such as Google are now designing their own chips," notes Gankar. "That's heating up the competition for talent and transforming the semiconductor market in ways we haven't seen before."

Automation and advanced manufacturing

The tariff environment is driving increased investment in automation and advanced manufacturing capabilities. Goh notes: "We're expecting an increase in capital expenditure, especially in advanced machinery and automation. When we see domestic manufacturing scale up, particularly in the next generation of manufacturing sectors like EVs and advanced semiconductor packaging, we believe that there is a corresponding need for highly sophisticated production capabilities."

This shift extends beyond just reshoring production. As Goh points out: "BYD is very successful in the China domestic market. And with that, the development and the growth of BYD has brought up the supply chain, the automation vendors that work very closely with them. And with the reshoring or maybe with the rise of that demand in the European market, they set up a plant in Eastern Europe. And they kind of brought the entire supply chain to enter into the Eastern European market as well."

Technology acceleration amid uncertainty

Despite, or perhaps because of, these challenges, technological advancement continues at a breakneck pace. Last month, TSMC introduced the world's most advanced 2nm chip, promising 10–15% faster computing speeds or 20–30% power reduction compared to previous 3nm technology.

This advancement comes as demand surges for AI-optimized semiconductors, driving historic investments in production capacity. The race for technological leadership continues even as the industry fragments along geopolitical lines.

The data sovereignty dimension

Beyond physical components, data is emerging as another front in the semiconductor trade war. Anna Ahrens, Principal Analyst at Omdia points out: "We are not facing the tariffs on data yet, but we might face some local requirements to the data storage, to the data sharing, especially to the cross-border data sharing."

This is driving increased usage of industrial edge computing and localized cloud solutions. According to our research, over 50% of industrial manufacturers plan to increase edge computing usage within the next 18 months, accelerating a trend toward data localization that parallels the physical supply chain fragmentation.

Looking ahead: Resilience over efficiency

The semiconductor industry is undergoing a fundamental transformation from a model optimized for global efficiency to one prioritizing resilience and security. "Supply chain resilience and sustainability are no longer buzzwords," Gankar emphasizes. "They're now strategic priorities and companies are diversifying production, recycling materials, securing critical minerals, and even reviving older chips just to stay ahead."

Goh summarizes this transformation succinctly: "Manufacturing is no longer just a cost center. It's becoming a source of competitive advantage and reshaping the entire value chain."

While this transition creates significant challenges, from higher costs to technological fragmentation, it also presents opportunities for regions and companies that can successfully position themselves in this new landscape.

The decisions being made today will shape not just the immediate future but the long-term structure of an industry that powers virtually every aspect of modern life.

As tariffs continue to reshape global trade patterns, the semiconductor industry stands as both a catalyst and a casualty of these changes, navigating a complex path between technological advancement and geopolitical reality in a world increasingly divided into competing technological spheres.