Next week, the Trump administration is poised to use national security authorities to impose tariffs on semiconductors, key components in nearly all electronics. Hardware startups will experience higher costs, uncertainty, and snarled supply chains for these key inputs, and all startups—even those in the software space—should expect higher costs to hit parts of the technology stack they rely upon, like data centers and cloud computing.
On April 1, 2025, the U.S. The Department of Commerce launched a Section 232 national security investigation into imports of semiconductors and semiconductor manufacturing equipment. Section 232 of the Trade Expansion Act of 1962 allows the President to impose tariffs or other import restrictions if specific products are deemed a threat to national security. While these investigations typically run for up to 270 days, the Trump administration has signaled an accelerated timeline, with the President indicating he will announce semiconductor tariffs imminently. This is the administration’s ninth use of Section 232, marking an increasingly aggressive trade posture that could reshape global semiconductor supply chains—and by extension, the cost structure and operational strategy of startups across sectors.
The launch of this semiconductor-focused Section 232 investigation comes amid other tariff actions, rising trade tensions, and retaliation, especially with geopolitical adversaries like China. The U.S. earlier imposed tariffs on certain Chinese exports exceeding 100 percent, prompting retaliatory measures from China—most notably, restrictions on gallium and germanium exports, two raw materials critical to advanced semiconductor production and of which China controls over 95 percent of global supply. These restrictions could raise the cost and complexity of producing semiconductors, compounding tariff-related effects.
Past Section 232 actions offer a cautionary tale for enterprises navigating tariff-driven cost pressures, given the President's affinity for tariffs and how they’ve wielded the 232 authority. In June 2025, the Trump administration raised steel and aluminum tariffs to 50 percent, resulting in over $50 billion in added costs for U.S. businesses. Similarly, end consumers end up feeling the impacts—with auto and auto parts Section 232 tariffs leading to cost increases of over $2,000, and spiking to more than $12,000 in some cases.
These impacts are instructive for startups and other businesses because effects of the tariffs reach beyond those directly interacting with tariffed products and show how rising input costs have squeezed already tight margins, limiting companies’ ability to hire, invest, or scale. Moreover, tariff rates—or threatened rates—under Section 232 are generally very high, with Trump recently threatening 250 percent tariffs on pharmaceuticals in the same interview where he was discussing semiconductor tariffs, accentuating the impact they have.
Broad tariffs on semiconductor imports risk destabilizing global supply chains and undercutting U.S. competitiveness because sweeping tariffs will raise costs across a wide array of consumer and industrial technologies. Domestic chip manufacturing remains insufficient to meet current demand—especially as AI innovation and data center construction increase. Taiwan accounts for 90 percent of the world’s chip manufacturing (including for chips designed by U.S. companies, like Nvidia or Apple). That means tariffs on these inputs will ripple through supply chains without sufficient domestic alternatives, and shifting supply chains is a process that takes time, capital, and access to reliable alternative suppliers.
Semiconductor chips are integral in data center and cloud infrastructure, which is one of the main ways startups will feel the pain of semiconductor tariffs. Startups rarely use in-house infrastructure and instead rely on these cloud services. Cloud providers generally offer their services to early-stage startups for free, representing hundreds of thousands in value. With the AI boom, cloud providers are already at capacity and working to build more data centers. Chip costs for AI infrastructure account for over 80% of the Bill of Materials. Tariffs will add to these costs and may force providers to increase prices, threatening to undermine the availability of free and low cost services startups rely upon to get off the ground.
Beyond cost impacts, a broader risk lies in deteriorating trade relationships. Tariffs erode goodwill and can trigger retaliation beyond physical goods—such as restrictions on cross-border data flows, selective enforcement of domestic laws against U.S. tech companies, and tighter controls on digital trade. For startups, this creates a more hostile global environment: semiconductors become more expensive, and access to international customers, cloud infrastructure, or foreign markets becomes increasingly uncertain. The Trump administration’s goal to strengthen the U.S. technology sector is essential, but it’s clear from these foreseeable impacts that a more targeted, strategic approach is needed to avoid these negative implications.
Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.
