The Import Tariff That Acts Like an Export Tax

The simplest explanation for the Section 232 semiconductor tariff is ordinary protectionism: the Trump administration wants to restrict chip sales to China and collect some revenue while doing so. This reading is incomplete.

Protectionism aims to shield domestic producers from foreign competition. The United States currently manufactures a tenth of the semiconductors it consumes. There is no American fabrication capacity for Nvidia's H200 or AMD's MI325X to protect.

The same chips, when imported for domestic use in data centres, research, or consumer applications, face no tariff at all. The 25 per cent duty applies specifically to chips transiting the US en route to China.

Article I, Section 9 of the US Constitution states that 'No Tax or Duty shall be laid on Articles exported from any State.' When Trump announced that Nvidia would be permitted to sell H200 chips to China in exchange for a revenue share with the federal government, legal scholars immediately flagged the constitutional problem. The administration needed a mechanism to collect that money without calling it an export tax.

They found one. The Commerce Department's new export licensing rules, issued also on 15 January, require that China-bound chips undergo third-party testing in a US laboratory before shipment. Nvidia and AMD design these chips but do not manufacture them. TSMC fabricates them in Taiwan. Complying with the US testing requirement therefore means routing chips from Taiwan through the United States before onward shipment to China. The moment they enter US territory, they become imports subject to the Section 232 tariff.

The policy architecture combines three instruments. First, export controls create a licensing requirement that the administration can relax under specified conditions. Second, those conditions include mandatory US certification, which forces a physical detour through American territory. Third, Section 232 import tariffs capture revenue on that mandatory transit. The economic effect closely resembles an export tax; the legal form does not.

Whether the policy reflects deliberate design or policy drift is unclear. Regardless of intent, the template now exists. If Section 232 import tariffs can be applied to goods transiting the US for re-export, the executive branch has acquired a tool the Constitution reserved to Congress. That tool is the power to tax American exports. A firm wishing to sell abroad must now pay the federal government.

The industrial policy rationale is secondary but real. By exempting chips that 'support the buildout of the US technology supply chain,' the administration creates an incentive for Nvidia and AMD to relocate assembly and testing operations. Chips manufactured or processed domestically would not require the Taiwan-to-US-to-China routing that triggers the tariff. Whether this incentive proves sufficient to shift production decisions remains to be seen; semiconductor fabrication involves capital investments measured in decades, not electoral cycles.

The template is replicable. Pharmaceuticals are the obvious candidate: ongoing Section 232 investigations into drug imports could yield certification requirements mandating US laboratory testing before re-export to third countries. Critical minerals present another opportunity, particularly rare earths processed abroad but sold through American trading houses. Any sector where the administration can plausibly require US-based verification, testing, or certification becomes a potential target for the same three-part mechanism: export licensing conditions, mandatory US transit, and import tariffs on that transit.

Legal challenges may follow, though the companies most directly affected have shown little appetite for confrontation. Nvidia publicly welcomed the arrangement as striking 'a thoughtful balance.' Corporations calculating regulatory risk under this administration appear to have concluded that challenging executive action invites retaliation through unrelated channels. The constitutional question may remain untested.

What the policy reveals about the trajectory of American trade law matters more than its immediate effects on semiconductor supply chains. The Trump administration has demonstrated that combining export controls, certification requirements, and import tariffs can achieve outcomes that no single instrument permits. Analysts and governments should expect this template to be applied elsewhere.

Johannes Fritz is Chief Executive Officer of the St.Gallen Endowment for Prosperity through Trade, home of the independent monitoring initiatives Global Trade Alert, Digital Policy Alert and the New Industrial Policy Observatory.

Johannes Fritz is Chief Executive Officer of the St.Gallen Endowment for Prosperity through Trade, home of the independent monitoring initiatives Global Trade Alert, Digital Policy Alert and the New Industrial Policy Observatory.