Semiconductor Tariffs: 1:1 Chip Rule and U.S. Supply Chains

The U.S. semiconductor industry is on the verge of a major policy shift. Lawmakers are considering new semiconductor tariffs tied to a proposed 1:1 chip production rule - a measure that would require companies to manufacture in the United States as many chips as they import. Any company importing more than it produces domestically could face tariffs as high as 100%.

This combined approach of financial incentives for domestic production and semiconductor tariffs for excess imports is designed to accelerate reshoring, strengthen supply chain security, and reduce reliance on overseas fabs. Below, we explain how the 1:1 rule works, its impact on U.S. semiconductor manufacturing and the global supply chain, and what OEMs and design engineers can do to prepare.

Understanding the Semiconductor Tariffs and the 1:1 Chip Production Rule

Here’s how the proposal works:

Requirement: Companies must manufacture in the U.S. an amount of chips equal to what they import (a 1:1 ratio).

Penalty: Any imports beyond that limit would be subject to steep semiconductor tariffs.

These two elements are directly linked. The 1:1 chip production rule sets the production target, while semiconductor tariffs are the financial consequence if the target is not met.

This policy framework supports the goals of the CHIPS and Science Act 2025. Government funding and tax credits encourage companies to build U.S. fabs, while tariffs discourage heavy reliance on imports. Together, these measures aim to bring more semiconductor manufacturing onshore and improve long-term supply chain resilience.

Impact on U.S. Semiconductor Manufacturing

By tying semiconductor tariffs to the 1:1 production requirement, the policy strongly encourages new domestic fabs. Companies such as TSMC, Intel, and Samsung - all with multibillion-dollar U.S. projects already underway- stand to benefit from these changes.

This shift toward domestic semiconductor manufacturing promises to increase resilience and shorten supply chains. However, building advanced facilities is neither cheap nor quick. Producing 2 nm or 3 nm advanced node chips in the U.S. will require massive capital investment, years of construction, and a highly skilled workforce.

The cost structure will inevitably change. U.S. fabs typically face higher labor, energy, and permitting costs than overseas counterparts. Firms must weigh whether the long-term benefit of avoiding semiconductor tariffs offsets these higher expenses.

Global Supply Chain and Trade Implications

The ripple effects of semiconductor tariffs will extend worldwide:

Higher costs for imports: Companies exceeding the 1:1 ratio will see import prices rise, forcing a rethink of global sourcing and pricing strategies.

Possible trade retaliation: Major exporting countries - such as Taiwan, South Korea, and China may respond with their own tariffs or export controls.

Compliance complexity: Tracking chip origin through multi-country semiconductor packaging and testing will become more critical and more difficult.

Learn More: Country of Origin Data for Supply Chain Resilience

The combined effect of the 1:1 rule and semiconductor tariffs is likely to reshape not only U.S. production but also global trade flows and supplier relationships.

Key Risks and Implementation Challenges

While the goals are ambitious, implementation will be challenging:

Timing mismatch: Building and ramping up fabs can take years, but semiconductor tariffs could begin much sooner.

Cost and talent pressures: Higher wages, infrastructure costs, and a limited semiconductor engineering workforce may slow domestic capacity growth.

Legal ambiguity: Defining “domestic production” is complex when intellectual property, wafer fabrication, and final assembly involve multiple countries.

These hurdles mean that companies must start planning now to avoid getting caught between policy deadlines and production realities.

Strategies for OEMs and Design Engineers 

As semiconductor tariffs come into play alongside the 1:1 chip production rule, OEMs and design engineers need practical ways to stay on schedule and control costs. One of the most effective approaches is to partner with a trusted independent distributor like Microchip USA. 

Independent distributors play a key role in maintaining supply chain flexibility and reliability by:

Securing critical components quickly: Microchip USA specializes in sourcing hard-to-find and obsolete semiconductor components, ensuring production lines can keep running even when tariffs or policy changes tighten global supply.

Reducing tariff exposure through flexible sourcing: With global supplier networks and deep market insight, independent distributors can locate alternative parts or domestic stock that meet compliance requirements - helping OEMs limit the impact of semiconductor tariffs and avoid costly delays.

Providing inventory management and forecasting: Independent distributors offer tailored inventory services, helping OEMs and engineers better plan for supply fluctuations and tariff-related price shifts.

Learn More: The Importance of Open Market Distributors for Supply Chain Strategy

Action Steps for OEMs and Design Engineers

To protect operations and margins under the new rules, consider:

·      Conducting a supply chain audit to identify parts most vulnerable to semiconductor tariffs.

·      Working with Microchip USA to source key components.

·      Leveraging distributor expertise to streamline substitutions when a part needs to change to stay compliant.

By partnering with a reputable independent distributor like Microchip USA, OEMs and design engineers can strengthen their supply chains, lower risk, and remain competitive - even in a market shaped by new semiconductor tariffs and domestic production requirements.

Opportunities in a Tariff-Driven Market

While semiconductor tariffs present challenges, they also create important opportunities for companies that plan ahead:

Domestic ecosystem growth: Investments in U.S.-based fabs will drive demand for wafers, substrates, and advanced packaging. However, gaps in availability are inevitable during the transition, making independent distributors critical in bridging supply shortages.

Innovation push: Tools such as AI-driven electronic design automation (EDA) and advanced manufacturing methods will help offset higher U.S. production costs, but sourcing flexibility through distributors remains essential to keep projects moving.

Resilience as a differentiator: Companies that partner with trusted independent distributors can demonstrate supply chain strength by consistently securing components, even as tariffs and regulations reshape global trade.

By working closely with distributors who have broad networks and expertise, OEMs and design engineers can turn tariff-driven disruption into a competitive advantage.

Build Supply Chain Resilience Under Semiconductor Tariffs

The proposed 1:1 chip production rule and related semiconductor tariffs mark a turning point in how the U.S. sources and manufactures semiconductors. The rule defines the production benchmark, and tariffs enforce it. Together, they are driving companies to rethink supply chain strategies, rebalance global sourcing, and invest more heavily in U.S. manufacturing.

For OEMs and design engineers, this shift is both a challenge and an opportunity. The key is to prepare now: conduct supply chain audits, design for flexibility, and strengthen sourcing options.

Microchip USA, as a trusted independent distributor, is uniquely positioned to help. From sourcing hard-to-find semiconductor components to providing comprehensive services designed to streamline your supply chain operation, we ensure that manufacturers remain competitive and compliant in a tariff-driven environment. 

Partnering with Microchip USA means gaining resilience, reliability, and confidence in your supply chain-no matter how policies evolve. Contact us today!