In an era where innovation is the currency of global leadership, the Information Technology Agreement (ITA) once embodied a vision of a tariff‐free digital economy. By eliminating tariffs on a broad array of ICT products through a zero-in/zero-out approach, the ITA helped drive down costs, boosted reinvestment in R&D, and promoted a diversified global supply chain. The recent U.S. policy shifts – exemplified by Trump’s tariff announcement on April 2 and a de facto withdrawal from the ITA – pose severe risks not only to U.S. competitiveness but also to its long-term strategic position in the global tech war.
Although U.S. Customs and Border Protection (CBP) announced tariff exemptions on April 11 for key electronic devices – including smartphones, personal computers, servers, display units, and semiconductors – various electronic components, such as magnetrons, static converters, electric conductors with connectors, optical appliances, and printing machinery parts, are not exempt. Telecommunications equipment outside of switching or routing apparatus, broader categories of data storage media, and software remain unprotected under the CBP’s exemptions.
While the ITA covers 201 product categories and $3 trillion in global trade across 270 six-digit codes, the current CBP exemptions address only 20 categories, leaving significant gaps that impact consumer electronics, specialized equipment, and critical technology components. And more tariffs are on the way, with President Donald Trump and his commerce secretary both having announced that separate tariffs on semiconductors, computers, smartphones, and other currently exempted goods, are coming as soon as next week.
The Impact of Trump’s Tariff Announcements: A Self-Imposed Isolation
The ITA’s fundamental objective is to create an environment where ICT products can flow freely across borders. The original 1996 ITA eliminated tariffs on eight broad categories of ICT products, primarily semiconductors and computers. Building on this foundation, ITA-2 expanded coverage to include 201 additional ICT products such as advanced semiconductors, medical devices, and GPS systems. These combined agreements now encompass hundreds of ICT products worth $1.3 trillion in annual global trade – approximately 10 percent of total global trade. A WTO report shows that ITA participation reduced computer and semiconductor import prices by 66 percent between 1996 and 2016, while non-ITA countries continue to face tariffs of 45-87 percent on ICT goods.
These cost savings have not only allowed for increased reinvestment in R&D but also paved the way for enhanced technological innovation and job creation. Moreover, by extending tariff-free benefits to developing countries – nations that previously struggled under high tariff barriers – the ITA has helped diversify and fortify global supply chains. This integration has been key to bridging the digital divide and spurring economic growth worldwide, generating a ripple effect that increases tax revenues and reduces the need for tax cuts in technology-driven sectors.
Prior to Trump’s announcement of a 90-day negotiation period for 75 nations, the implementation of “reciprocal tariffs,” which established a baseline rate of 10 percent with significant increases of 30-45 percent specifically targeting East and Southeast Asian manufacturing centers, marked a stark departure from the multilateral spirit of the ITA. While intended to reinvigorate domestic manufacturers, these tariffs instead undermine the framework that has provided the United States with significant economic advantages for decades. As other nations continue to enjoy the benefits of a tax-free trading environment, the U.S. risks being sidelined in global ICT transactions. These additional expenses could translate into hundreds of billions of dollars in lost economic efficiency over the next decade. The diversion of funds from R&D to cover higher import costs could stifle innovation at a time when technological progress is more critical than ever.
A Closer Look at Semiconductor Tariff Policy: Confusion and Complexity
Recent developments further complicate the picture – especially in the semiconductor sector, an indispensable component of the modern tech ecosystem. According to White House’s Appendix III released on April 4, the administration has implemented a 20 percent country-of-origin threshold that offers potential relief to manufacturers. Under this provision, products containing at least 20 percent “U.S. content” by dutiable value will incur tariffs only on their non-U.S. components. For instance, if a product comprises 80 percent foreign components and 20 percent U.S. content, tariffs would apply exclusively to the foreign portion. Clearly, the “20 percent-U.S. content” policy aligns with the administration’s prioritized strategy to revitalize domestic manufacturing.
While companies could theoretically optimize their tariff exposure through strategic analysis of U.S.-origin content, industry stakeholders are proceeding with caution due to regulatory ambiguity and limited governmental guidance. The U.S. CBP’s pending determinations regarding content qualification standards and threshold calculation methodologies have created significant compliance uncertainties. Furthermore, the certification process for demonstrating 20 percent U.S. manufacturing content involves complex procedures that may extend beyond six months, leaving businesses in a prolonged state of uncertainty regarding supply chain adjustments and pricing strategies. This departure from the established ITA framework poses challenges to U.S. companies’ operational efficiency and competitive positioning in the global semiconductor market.
Complicating matters further, current semiconductor exemptions appear to be provisional and may be superseded by forthcoming semiconductor-specific tariffs, according to Bloomberg. Additionally, Reuters indicated the potential initiation of a national security trade investigation into the semiconductor industry, which could precipitate additional tariff measures. The uncertainty surrounding the ITA’s status under the current administration, coupled with potential policy reversals, raises serious concerns about the sustained technological leadership of the United States.
Tariffs Undermine Innovation in the U.S. Tech Industry
The broader strategic implications of dropping out of the ITA are profound. Historically, the United States has leveraged low-tariff environments to maintain its competitive edge in global technology markets. According to economic data, the U.S. ICT sector contributed $1.2 trillion in value added, representing 5.5 percent of GDP in 2020, while the broader digital economy generated $2.14 trillion (10.2 percent of GDP). U.S. ICT goods exports demonstrated positive momentum, reaching $161.8 billion in 2022, an increase from $158.9 billion in 2021. However, as the U.S. distances itself from this cooperative framework, its companies risk losing a crucial foothold in the global market.
The U.S. administration’s comprehensive tariff policies are driven by two interconnected yet competing objectives: stimulating domestic manufacturing capacity and increasing government revenue. This protective economic strategy aims to enhance industrial autonomy through financial incentives for domestic production, thereby creating employment opportunities and reducing dependence on volatile global supply chains. However, while Trump and related policymakers frame this as an investment in national economic security, such measures present significant challenges when considering the practical requirements of maintaining globally competitive technology industries. Critical sectors, particularly semiconductor manufacturing and AI hardware development, are inherently dependent on sophisticated, globally distributed networks of specialized suppliers.
These high-tech industries operate on principles of cost efficiency and rapid innovation, requiring seamless access to specialized components from global markets. The implementation of tariffs on critical inputs produces both immediate impacts and lasting repercussions.
In the short term, companies with limited pricing power must absorb these increased costs, often diverting resources from research and development to manage supply chain disruptions and elevated operational expenses. Although market leaders such as Nvidia possess greater capability to navigate tariff impacts through strategic supplier negotiations and price adjustments, they must still evaluate supply chain restructuring – either by identifying suppliers in lower-tariff regions or pursuing domestic alternatives – options that often prove less efficient, more expensive, and less aligned with their advanced technological requirements.
In the long term, diminished customer demand may result in revenue reduction, potentially compromising companies’ financial capacity to advance high-performance GPU development and expand cloud infrastructure, which are critical factors in maintaining AI competitive advantage. Furthermore, the necessity to mitigate tariff-induced costs threatens to destabilize the broader innovation ecosystem, as organizations are compelled to prioritize crisis management over strategic growth initiatives.
At the same time, China is strategically leveraging its position as Asia’s manufacturing hub. The nation’s state-backed R&D investments are projected to reach approximately $500 billion in 2024, representing an 8.3 percent annual increase. Furthermore, China’s ICT market is forecast to achieve a 10 percent compound annual growth rate (CAGR) from 2024 to 2032, expanding from $651 billion to $1.4 trillion. China is set to accelerate past the United States in key technological domains, including 5G infrastructure, artificial intelligence, and quantum computing. The United States’ inability to benefit from tariff-free access to the most cost-effective equipment may well mark the tipping point in the ongoing tech war.
A Call for Strategic Reassessment
The consequences of the U.S. de facto exit from the ITA extend far beyond national borders. For developing nations, continued participation in the ITA framework serves as a crucial pathway toward ICT sector modernization, global supply chain integration, and digital inclusion. Conversely, as nations increasingly embrace tariff-free frameworks and foster innovative ecosystems, the United States’ gradual isolation compromises its capacity to influence international trade regulations and technological standards – key components of global technological leadership. With U.S. firms increasingly excluded from these transactions, the balance of global technological power may shift decisively in favor of China, which is fully leveraging the benefits of multilateral cooperation to enhance innovation capacity.
The decision to withdraw from the ITA represents a significant strategic misstep. The foundation of U.S. technological leadership has been built upon a carefully calibrated equilibrium between domestic research and development and globally integrated supply chains. The current policy framework presents a fundamental contradiction: while tariffs are designed to revitalize domestic manufacturing, they simultaneously undermine the interconnected ecosystem essential for technological innovation. Measures intended to strengthen domestic economic capabilities may inadvertently weaken the collaborative advantages that have historically sustained U.S. global leadership in technology.
If the U.S. is to remain at the forefront of global technological innovation, it must balance short-term protectionist impulses with the long-term benefits of open, tariff-free trade among tech-democracies – lest it cede its competitive edge to emerging powers and jeopardize its standing in the global tech arena.
Chiang Min-yen, deputy director for Economic Security at DSET, and Ming-yen Ho, nonresident fellow for economic security at DSET, also contributed to this article.
