How will tariffs impact the semiconductor industry in Southeast Asia?

According to Kenneth Lee Wee Ching, CEO of Global TechSolutions, the tariffs would not have a big impact in the region because the industry is quite prepared to deal with it.

As the US imposes additional tariffs on China, some semiconductor companies have already begin implementing alternative plans to their supply chain to ensure their operations are not severely disrupted. The Trump administration has confirmed that tariffs will be implemented on China, Mexico and Canada.

But the impact on China is expected to have a bigger impact on the global semiconductor supply chain. To deal with this, some Asian firms are now looking to move more of their manufacturing capabilities out of China, with some even considering to just set up operations in the US.

TSMC, the world’s largest contact chipmaker, announced an additional US$100 billion investment to set up three new chip-fabrication plants, two packaging facilities, and a research and development center. Not only will the investment potentially add 20,000 to 25,000 jobs in the US state of Arizona, it also will see TSCM avoid paying more tariffs.

The move by TSMC could inspire other Asian semiconductor companies to do to the same as well. According to a report by SCMP, some South Korean chipmakers, like Samsung LG, could be considering the same moves as TSMC.

The impact on the supply chain

In Southeast Asia, the tariffs could have a mixed impact on the industry. According to Kenneth Lee Wee Ching, CEO of Global TechSolutions (GTS), the tariffs would not have a big impact in the region because the industry is quite prepared to deal with it.

“Even before tariffs, the COVID-19 pandemic presented strong logistical barriers for us which required us to have multiple routes of supply chain. Today, we have many different routes of supplies that come in to make sure it works. Hence, if anything happens to a country, in terms of imports that is affected by tariffs, we can switch to the local area,” said Lee.

This is also why Lee believes having a local presence is strong. Just as TSMC is investing in local plants in the US, GTS already has a strong presence in the country and is working with local vendors by using their engineering capability to enable them, even if they are not involved in semiconductors.

“They might be involved with oil and gas. But we basically teach them or educate them to produce their own products such that we can have a local presence and also to supply to the customers. So, if a lot of these parts are already onshore, they will not be affected by the tariffs. What I would say is we already have this three-pronged strategy in terms of supply chain which is onshoring, but there's no tension and also redundancy. With the tariffs that's coming in, I don't think it creates that much of a challenge for us because we are basically prepared,” explained Lee.

At the same time, Lee also pointed out that some partners and suppliers in the semiconductor industry will definitely be affected by the tariffs. Specifically, those that procure rare earth like high-priority ceramics, high-priority quartz, which come from only a few countries such as China, will definitely be impacted.

However, Lee also mentioned that GTS is able to provide customers with the ability to switch to a local product as they are sufficiently prepared to deal with this.

“I can tell my machining house, don't use the quartz from China, you can actually use the quartz from the US. But the problem is there might be certain price changes. So, this price delta needs to really be built in, in terms of negotiation, the engineering solution that we are working with the customer. So even before we provide an engineering solution for the customer, we will always be discussing the form, which is the build on the tariffs,” explained Lee.

Lee added that as customers look to switch their supply chain route to deal with tariffs, they need to be aware of the pricing changes as well, which will need to be set even before such switches are made.

“With that, it must already be highlighted and presented such that if we use this supply route, it's going to be A pricing. If we use the B supply route, it's going to be B pricing. It needs to be pre-negotiated and pre-prepared, so that the customer doesn’t get a big surprise if anything happens,” added Lee.

Tariffs to see increased chip smuggling?

Given the tariffs and also sanctions imposed on China, there have been reports of chip smuggling in the region. The most high-profile case currently being investigated involves the chips that are supposedly used to power Chinese AI DeepSeek.

According to a report by the Straits Times, police were investigating whether servers from US firms Dell and Supermicro containing the prized chips used AI applications ended up in unknown final destinations after being first shipped to Singapore-based companies and then exported to Malaysia.

Malaysian hardware manufacturer NationGate, which was mentioned to be involved, has since denied any involvement in an ongoing fraud case in Singapore related to the alleged movement of Nvidia chips.

Commenting on the incident, Lee felt that it may not exactly be smuggling as the chip movement would still need to go through the right impact-export controls and the right rulings.

“Being headquartered in Singapore, we are very sensitive and aware of this. Anything that works outside of our regulatory, or outside of import and export control, we will not be part of it,” said Lee.