U.S. Tariffs and Manufacturing Shifts: Navigating Opportunities in Pharmaceuticals and Semiconductors

The U.S. government's ongoing Section 232 investigations into pharmaceuticals and semiconductors have created a high-stakes environment for investors. With tariffs of 25% or higher looming since early 2025—and no final determinations yet—the stage is set for a seismic shift in supply chains. For pharmaceutical and semiconductor firms, the calculus is clear: domestic manufacturing capacity is now a strategic imperative, while reliance on imports carries escalating risk. This article dissects the investment landscape, highlighting companies poised to thrive—and those likely to falter—as tariffs reshape industries.

Pharmaceuticals: Tariffs as a Catalyst for Reshoring

The U.S. pharmaceutical sector faces a dual challenge: supply chain fragility and the threat of tariffs on imported drugs. Companies are responding aggressively.

Key Opportunities

1. Johnson & Johnson ($JNJ)
2. Investment: Over $55 billion allocated to U.S. manufacturing over four years, including a $2 billion biologics plant in North Carolina.
3. Why It Matters: J&J's focus on domestic R&D and production positions it to avoid potential tariff penalties while securing first-mover advantage in AI-driven drug discovery.

5. Merck ($MRK)

6. Investment: A $1 billion vaccine facility in North Carolina, leveraging advanced AI and 3D printing.

7. Edge: Merck's emphasis on U.S.-based vaccine production aligns with geopolitical priorities, shielding it from supply chain disruptions and tariffs.

8. Industry-Wide Trends:

9. Over $270 billion in announced investments by 15 major firms since 2021 (JLL report).
10. Risk Mitigation: Firms like Roche ($RHHBY) and Novartis ($NVS) are pivoting to U.S. facilities to avoid the “double whammy” of tariffs and shortages.

Risks to Avoid

• Import-Dependent Competitors: Firms reliant on Chinese or Indian drug imports (e.g., generic drugmakers) face price hikes and potential shortages if tariffs materialize.
• Regulatory Lag: Even without tariffs, delays in FDA approvals for imported drugs could disrupt supply chains.

Investment Thesis: Long positions in J&J and MRK offer exposure to resilient supply chains and innovation. Avoid companies with >40% of API/drug production sourced abroad.

Semiconductors: A Gold Rush in Domestic Manufacturing

The semiconductor sector is undergoing a $230 billion reshoring boom, driven by fears of foreign supply chain dominance and U.S. tariff threats.

Key Plays

1. TSMC ($TSM)
2. Investment: $165 billion committed to U.S. operations, including three fabs and advanced packaging facilities.
3. Impact: TSMC's “U.S. first” strategy secures it a seat at the table for gen AI, defense, and high-end chip demand. Its CoWoS packaging capacity (90,000 wafers/month by 2026) is critical for AI chips.

5. Hyundai Steel ($005490)

6. Investment: $5.8 billion for a Louisiana steel plant, supplying semiconductor-grade materials.

7. Why It Matters: Steel is a hidden linchpin for semiconductor manufacturing; Hyundai's move shores up a bottlenecked resource.

8. Advanced Packaging Leaders:

9. Firms like Intel ($INTC) and Applied Materials ($AMAT) are investing in 2.5D/3D chiplet designs to meet gen AI demand, which now accounts for 20% of semiconductor revenue.

Red Flags

• Cyclicality: Semiconductor sales are projected to hit $697 billion in 2025, but a downturn in consumer tech (e.g., smartphones) could strain margins.
• Cost Pressures: R&D expenses hit 52% of EBIT in 2024—companies with weak balance sheets (e.g., small foundries) may buckle.

Investment Thesis: TSM and AMAT are core holdings for semiconductor exposure. Avoid pure-play memory chipmakers (e.g., SK Hynix) dependent on Asian supply chains.

Sector-Specific Risks and Mitigation

1. Tariff Legal Challenges: A court injunction briefly paused “fentanyl” tariffs in July 2025, but a stay keeps them active. Monitor litigation outcomes.
2. Drug Shortages: Even without tariffs, reshoring will take years. Investors in generic drugmakers face interim volatility as supply chains adjust.
3. Geopolitical Volatility: U.S.-China tensions could accelerate or stall reshoring.

Conclusion: Bet on the Reshored, Not the Risky

The writing is on the wall: domestic manufacturing is no longer optional—it's existential. Investors should prioritize companies like J&J, MRK, TSM, and AMAT, which are aggressively building U.S. capacity. Meanwhile, short positions in import-reliant firms (e.g., generic drugmakers, Taiwanese foundries without U.S. footholds) could yield gains as tariffs tighten.

For ETF investors, the VanEck Pharmaceutical ETF (XPH) and Semiconductor ETF (SMH) offer diversified exposure, but sector volatility remains high. The reshoring boom is a multi-year trend—pick winners with scale, tech leadership, and government support.

Final Call: Go long on reshored champions, stay cautious on global laggards. The tariff storm is coming—and only the prepared will weather it.