AI & the Tariff War

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FUTURE

The New Tariff Regime and Its Implications for the AI Industry

Tariffs are unequivocally the word of the week, probably of the year. The markets have had the worst two-day streak since 1945, and both days are in the 99.9% percentile of worst trading days since, brace yourself, 1929.

$6.4 trillion, the combined valuations of Apple, Microsoft, and Berkshire Hathaway were wiped out in just two days. And this could just be the beginning. But this is an AI newsletter, so what are the repercussions on AI in general?

Today, you’ll learn the following:

Cover the state of tariffs in a digestible fashion, which is challenging in today’s world

We’ll analyze the direct impact on AI, breaking down the industry to its core: semiconductor supply chain, important countries, and company players at every layer in the AI supply chain, and the most likely impact on balance sheets of the most important companies.

And we’ll lay out the arguments around AI’s crucial strategic value for the West and, in particular, to the future of the US hegemony, which will help you understand the Trump Administration’s strategy; the why, the how, and the when.

Let’s dive in.

A Trip Down Memory Lane

If we want to understand where we are on tariffs, we need to know where we are coming from.

Section 301

Initially, tariffs were almost exclusively targeted at China. In 2018, the first Trump administration launched tariffs on $370B worth of Chinese goods in retaliation for what the US deemed unfair trade practices and intellectual property theft.

These tariffs applied broadly across industries and led to some diversification of supply chains ("China +1" strategies).

Far from reversing his predecessor's actions, the Biden administration doubled down. It kept most tariffs in place, initiating a review process rather than rolling them back.

But Biden took it a step further. Not a tariff per se, but extremely consequential to the current state of AI affairs. In 2022, the Department of Commerce (Bureau of Industry and Security) imposed export controls on advanced AI chips, equipment, and software.

Among other measures, they placed an export ban on companies like Nvidia or AMD from selling top-end AI GPUs (A100, H100) to Chinese entities.

As you can see above, these export controls have become more hawkish over time. Currently, the only GPUs NVIDIA can sell to China are the H20, which were automatically purchased in full by Chinese companies for a value of $17 billion (although they are based on escalation of tensions).

Didn’t DeepSeek claim we were overspending on GPUs? Maybe, just maybe, that claim was false and markets overreacted in February? But I digress.

Importantly, this ban has since gone beyond US companies and has also targeted other companies in the semiconductor supply chain, like the Netherlands’ ASML or Taiwan’s TSMC, both extremely crucial chokepoints of the overall chip supply chain (the reasons will make sense later).

ASML is the sole producer of Extreme Ultraviolet (EUV) lithography necessary for high-end chips.

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