US chipmakers can avoid China retaliatory tariffs – but only under one condition

China's semiconductor association on Friday announced that US chipmakers Qualcomm, Nvidia, AMD, and others will be exempt from China's retaliatory tariffs on US imports, but only if they outsource manufacturing. 'Made in America' chipmakers, such as Intel and Texas Instruments, are not exempt.

Given the highly specialized and multi-country nature of chip supply chains, there was uncertainty within the industry about how tariffs would be applied to chip imports.

"For all integrated circuits, whether packaged or unpackaged, the declared country of origin for import customs purchases is the location of the wafer fabrication plant," the state-backed China Semiconductor Industry Association (CSIA), which represents the country's largest chip companies, said in an "urgent notice" on its WeChat account.

For US chip designers such as Qualcomm and AMD that outsource manufacturing to Taiwanese chipmaking giant TSMC, Chinese customs authorities will classify these chips' place of origin as Taiwan, according to EETop, an information platform and forum for Chinese chipmakers.

This means China-based companies importing their chips will not be forced to pay China's retaliatory tariffs on U.S. imports, EETop said on its WeChat account.

Shares of AMD and AI chipmaker Nvidia - two of TSMC's significant customers - rose 6% and 2.6% respectively, while Qualcomm's shares were relatively flat.

"In contrast, chips made by... Intel, Texas Instruments, ADI, and ON Semiconductor - which operate their own U.S.-based fabs - may be classified as U.S. origin and be liable for tariff rates of 84% or higher," it added.

Shares of Intel fell more than 6%. Intel is one of the largest producers of personal computer chips and is the only American semiconductor firm gearing up to manufacture the most advanced processors in the U.S.

Analog chipmaker Texas Instruments' shares fell more than 8% and rival Analog Devices was down 3.3%. Shares of automotive chipmaker Onsemi fell 3.4%.

Beijing on Friday increased its tariffs on U.S. imports to 125%, hitting back against U.S. President Donald Trump's decision to hike duties on Chinese goods to 145%. EETop's analysis was published on Friday before Beijing's latest tariff hike.

After CSIA's clarification, the prospect of high tariffs on U.S.-origin chips led to a surge in Chinese chipmakers' shares on Friday.

"The notice from CSIA helps distinguish which U.S. chips will be hit with tariffs," said He Hui, semiconductor research director at tech research company Omdia, "It is clear that some chips made in the U.S. will still be taxed even if they are packaged in China."

He added that this could benefit China's domestic chipmaking and its supply chains as foreign semiconductor firms pursue a "China for China" strategy - manufacturing for the Chinese market in China.

Bernstein analysts said in a note that the CSIA's move was a big surprise to the market as investors generally considered the location of packaging to be the country of origin, not the fab, and it was way more difficult to shift fabs.

It would make it harder for the likes of Intel and Texas Instruments to avoid Chinese tariffs, or at least some rejigging of manufacturing location and logistics. And potential beneficiaries could include their Japanese semiconductor rivals, such as Renesas, they said.