The global trade war continues to intensify as U.S. President Donald Trump implements aggressive tariff policies. While the 25% tariffs on goods from Canada and Mexico have been postponed until early April, the additional 20% tariff hike on Chinese goods has already taken effect.
Previously, Trump also signaled plans to impose high tariffs on automobiles, semiconductors, and pharmaceuticals. This series of actions is widely interpreted as an attempt to address the U.S. trade deficit and incentivize manufacturing reshoring to the United States.
On March 4, Taiwanese semiconductor giant TSMC, in coordination with the White House, announced an additional $100 billion investment to build manufacturing facilities in the U.S., a move seen as a strategic response to avoid potential high tariffs. In light of these developments, the following analysis examines the potential impact of tariffs on key U.S. trade deficit partners, including China, Canada, and Mexico, as well as the implications for the automotive and semiconductor industries.
In recent years, the U.S. trade deficit has repeatedly reached record highs. The goods trade deficit alone has surged from $791.1 billion a decade ago to $1.2 trillion in 2024, underscoring the nation’s growing dependence on foreign goods following decades of manufacturing offshoring. Notably, automobiles, semiconductors, and pharmaceuticals—set to be subjected to tariffs in April—rank among the top five contributors to the U.S. trade deficit in recent years.
(Source: ITC, TrendForce)
On the other hand, according to WTO data, the simple average Most Favored Nation (MFN) tariff rate in the U.S. stands at approximately 3.3%, significantly higher than that of most major trade deficit countries.
It is evident that Trump aims to leverage tariff policies to address the severe trade deficit, rectify what he perceives as unfair trade practices, and reduce the overconcentration of production for strategically important goods in specific regions. At the same time, these policies are intended to incentivize the reshoring of both domestic and foreign manufacturers to boost employment within the U.S.
(Source: ITC, WTO, TrendForce)
The U.S.-Canada-Mexico Automotive Supply Chain Faces Collective Pressure
The deeply integrated automotive supply chain between the U.S., Canada, and Mexico is expected to bear the brunt of these tariff measures. According to the International Trade Center (ITC), U.S. auto-related imports amounted to approximately $391.46 billion in 2024, maintaining its position as the world's largest importer.
Among its key trade partners, Mexico ranks as the top source, accounting for roughly 35% of total imports. The automotive sector plays a crucial role in Mexico's economy, contributing approximately 7.3% of its GDP. Similarly, Canada, the fourth-largest source of U.S. auto imports, accounts for around 13% of the total, with the industry representing about 2.7% of its GDP.
Under the United States-Mexico-Canada Agreement (USMCA), Mexico and Canada have formed a highly integrated automotive supply chain with the U.S., leveraging geographical proximity and competitive production costs. More than ten major global automakers have chosen Mexico as a key manufacturing base, where over 30 vehicle assembly plants operate alongside hundreds of component suppliers.
The frequent cross-border movement of parts and components underscores the industry's heavy reliance on seamless trade. If tariffs are officially imposed, the cascading effect of multiple duties applied throughout the production and assembly process could significantly inflate overall vehicle costs, ultimately dampening U.S. consumer demand for imported new cars.
(Source: ITC, TrendForce)
This move could not only harm the export and economic momentum of Mexico and Canada but also expose the U.S. to risks of rising prices, weakened demand, and job losses in related industries. According to TrendForce, if the U.S. imposes a 25% tariff on imports from Mexico and Canada, soaring vehicle prices may lead consumers to delay car replacements or shift toward leasing and the used car market. As a result, U.S. auto sales in 2025 are projected to decline by 3% year-over-year, reversing the previously expected 1% growth.
Although Trump has postponed the imposition of a 25% tariff on certain imports from Canada and Mexico until early April, the Peterson Institute for International Economics forecasts that if the new U.S. tariff rates takes effect and both countries implement full-scale retaliatory measures, U.S. real GDP growth would decline by 0.5 percentage points compared to the baseline scenario. However, the impact on Canada and Mexico would be significantly more severe, with GDP growth contracting by 2.3 and 3.4 percentage points, respectively.
(Source: PIIE, TrendForce)
Meanwhile, research from Yale University’s Budget Lab indicates that under full retaliation, U.S. vehicle prices are projected to rise by 6.1%, while overall consumer prices in the U.S. would increase by 1.2%. This move may be intended to accelerate negotiations for relocating North American auto manufacturing to U.S. soil, while simultaneously addressing concerns over fentanyl inflows and illegal immigration.
(Source: The Budget Lab at Yale, TrendForce)
Potential Impact of High Auto Tariffs on Other Countries
For Japan, South Korea, and Germany, automobiles remain a cornerstone of their exports, with the U.S. being their largest single export market. While these three nations have globally diversified automotive supply chains, and their auto exports as a percentage of GDP in 2023 stood at approximately 1.2% for Japan, 2.3% for South Korea, and 0.8% for Germany, the potential expansion of high U.S. auto tariffs to a global scale would still exert significant pressure on their automotive industries, labor markets, and broader economies.
Taking Germany as an example, the country has faced mounting challenges since the outbreak of the Russia-Ukraine war, losing access to cheap Russian energy while also phasing out nuclear power domestically. Additionally, stringent EU mandates to transition toward electric vehicles and competition from China—where automakers benefit from lower labor costs and advanced technology—have increasingly eroded the competitiveness of German automakers in both technology and pricing.
According to ITC global export data, while Germany has remained the world's leading auto exporter, its share of global automotive exports has declined from 18.3% a decade ago to 15.6% in 2024, largely due to the rapid ascent of China's auto industry.
Meanwhile, Handelsblatt has reported that the market share of German-brand vehicles has slipped from 22% before the pandemic in 2019 to 20.4% in 2024, amid intensifying competition from China’s BYD, South Korea’s Hyundai, and the U.S.’s Tesla. If U.S. auto tariffs are fully implemented, the competitiveness of German exports in the American market could deteriorate even further.
However, tariff rates alone are not the sole determinant of new vehicle sales. The final terms of the tariffs, their implementation timeline, the pace of interest rate cuts, inflation trends, and automakers’ strategic responses will all play a crucial role in shaping future sales projections.
Taiwan’s Semiconductor Supply Chain Response
In the semiconductor sector, the rapid expansion of artificial intelligence (AI) has driven soaring global demand for high-end chips in recent years. According to ITC data, the U.S. imported approximately $485.8 billion worth of electronic machinery and equipment in 2024, ranking as the second-largest import category.
Among these, semiconductor products related to advanced chips accounted for roughly $9 billion, with Taiwan leading the market by supplying around 28% of these imports, thanks to its dominance in advanced semiconductor manufacturing.
(Source: ITC, TrendForce)
TrendForce data indicates that Taiwan is projected to hold a 71% share of the global advanced semiconductor manufacturing market by 2025, with major global IC design firms relying heavily on Taiwan’s advanced fabrication technologies, particularly those provided by TSMC.
The critical role of Taiwan in global semiconductor production is further underscored by a 2023 report from the U.S. International Trade Commission, which noted that 44.2% of the logic chips used in the U.S. originate from Taiwan, along with 24.4% of memory chips. This strategic importance has made Taiwan a direct target of former President Trump’s tariff proposals, including a previously floated idea of imposing a 100% tariff on Taiwanese semiconductors.
However, such a move is widely regarded as more of a negotiating tactic than a viable policy measure. ITC data shows that while semiconductors account for approximately 47% of Taiwan’s total exports, only 4.7% of these semiconductor products are directly shipped to the U.S., representing just 2.2% of Taiwan’s total exports.
The primary reason is that the vast majority of chips imported by the U.S. arrive embedded in finished electronic products rather than as standalone semiconductor components. Consequently, identifying and selectively imposing tariffs on Taiwanese-made chips would be both logistically challenging and economically costly.
(Source: ITC, TrendForce)
The proposed 100% tariff on Taiwanese semiconductors is largely intended as a negotiation tactic aimed at compelling TSMC and other key manufacturers to expand chip production within the U.S., particularly for advanced process node chips. This move is designed to ensure that the U.S. maintains domestic capabilities in cutting-edge semiconductor manufacturing.
In response, TSMC announced on March 4 that it will increase its investment in the U.S. semiconductor sector, committing an additional $100 billion to bring its total investment to $165 billion. This expanded investment will fund the construction of three additional advanced manufacturing sites, as well as two high-performance computing (HPC) advanced packaging facilities and an R&D center. According to TrendForce analysis, if the expansion proceeds smoothly, the new fabs are expected to begin mass production by 2030 at the earliest, with TSMC’s U.S. capacity share rising to 6% by 2035. However, the company’s production capacity in Taiwan is projected to remain at or above 80%.
While expanding U.S. production capacity could mitigate risks associated with excessive manufacturing concentration, the associated cost pressures may be passed on to American IC design customers. This could lead to increased component and end-product prices, ultimately dampening consumer purchasing power.
According to the latest TrendForce report, “Updates and Impacts Related to Effects of Trump Administration’s Tariffs on Canada, Mexico, China, and Taiwan” any severe disruption in Taiwan’s semiconductor supply would cause logic chip prices in the U.S. to surge by as much as 59%, triggering a cascading cost increase across various electronic products, including smartphones, laptops, and servers.
South Korean Semiconductor Giants Caught Between Intensifying Pressures
South Korea is a dominant force in the global memory chip industry, with Samsung and SK Hynix accounting for approximately 60% of the global DRAM and NAND Flash markets in terms of revenue. Many consumer electronics rely on memory chips from these two Korean giants. According to ITC data, memory-related exports accounted for around 10% of South Korea’s total exports in 2024 and contributed approximately 4% to the country's GDP.
Previously, geopolitical considerations and incentives from the Biden administration’s CHIPS Act encouraged Samsung to pledge a $44 billion investment to build two advanced semiconductor fabs and an R&D facility in the U.S. However, due to mounting financial pressures, the company later reduced its investment to $37 billion and ultimately secured $4.745 billion in subsidies from the U.S. government—26% lower than the amount initially outlined in the memorandum of understanding. SK Hynix, on the other hand, had announced a $3.87 billion investment to establish an advanced packaging plant in Indiana, scheduled for mass production by 2028, with approximately $450 million in subsidies.
With TSMC’s latest announcement of an additional $100 billion investment in the U.S., Samsung and SK Hynix may now face increased pressure to ramp up their own commitments. This could also serve as leverage for the Trump administration to push South Korean firms into expanding their U.S. investments.
At the same time, the imposition of high semiconductor tariffs could disrupt the existing production strategies of Korean memory manufacturers. Both Samsung and SK Hynix have concentrated their memory production in South Korea and China. For instance, Samsung manufactures 35% of its NAND Flash chips at its Xi’an facility in China.
However, the company is also facing increasing competition from Chinese rivals such as Yangtze Memory Technologies (YMTC). Reports from South Korean media suggest that Samsung is planning to produce 286-layer stacked NAND Flash chips at its Xi’an facility to counter YMTC, which has already begun mass production of 260-layer stacked NAND Flash.
Under the Biden administration, Samsung was granted permission to manufacture NAND Flash chips with more than 200 layers in China. However, with Chinese semiconductor firms rapidly advancing and Trump seeking to accelerate foreign semiconductor investment in the U.S., Samsung and SK Hynix could face growing operational pressure. They may be forced to either increase production of higher-layer NAND Flash and advanced-process chips in the U.S. or shift more of their manufacturing capacity away from China.
Overall, it is evident that Trump’s frequent introduction of various tariff measures is not solely aimed at increasing tax revenues. Instead, his strategy is primarily focused on reducing significant trade deficits with specific countries and incentivizing both foreign and domestic manufacturers to shift production back to the United States. By doing so, the administration seeks to enhance the competitiveness of U.S. industries and create more domestic employment opportunities.
However, should the U.S. impose high tariffs, countries such as China, Canada, and Mexico may retaliate with countermeasures, leading to a cycle of escalating trade tensions. Additionally, the cost increases associated with supply chain relocations would not only impact the targeted industries and nations but could also slow down U.S. economic growth, weaken job creation, and drive inflation higher.
Beyond these immediate concerns, multinational corporations facing tariff negotiations and supply chain restructuring pressures may adopt a more cautious approach toward future investments and capacity allocation. This heightened uncertainty could further accelerate a global realignment of trade flows and industrial supply chains, reshaping international economic and trade dynamics.