Donald Trump’s new stance on Taiwan signals an aggressive policy shift that could reshape the global semiconductor landscape. Once a campaign talking point, his proposal to impose steep tariffs on Taiwan-made chips aims to force TSMC to shift production stateside. Such measures risk upending supply chains, inflating consumer costs and may erode Taiwan’s silicon shield, ultimately transforming Trump’s chip dream into a strategic nightmare for Taiwan.
By Keoni Everington, Taipei, Taiwan, The News Analytics Journal Taiwan & China Correspondent
a 4 mins read.
Based on his rhetoric on Taiwan on the campaign trail and after the election, Trump is making a sharp departure from his previous term. His trade policy toward Taiwan will have potentially detrimental and dangerous consequences.
While on the campaign trail, Trump accused Taiwan of stealing America’s chip business. What has apparently made Taiwan a target is the fact that Taiwan, primarily TSMC makes over 90% of the world’s most advanced chips.
In Trump’s mercantilist mind, Taiwan is “taking advantage” of the US by enjoying a trade surplus of over US$80 billion. His strategy to balance the trade relationship with Taiwan was clear on the campaign trail.
TRADE AMBITIONS
During an interview with Joe Rogan, he criticised the CHIPS Act because he felt it was unnecessary to help fund TSMC’s massive fab investments in Arizona when they could be instead incentivised through tariffs. Demonstrating his lack of knowledge of the subject, he oversimplified the industry and compared the import of chips to the import of cars.
By pointing out that the US could impose tariffs of 100% to 200% on cars, the same percentage could be imposed on chips made in Taiwan. What Trump fails to realise is that semiconductors are not necessarily imported en masse but rather often come to the US in much more complex products such as smartphones, servers and automotive electronics.
Trump believes that if he imposes such high tariffs on Taiwan-made chips, it will force firms such as TSMC to move all of their plants to the US. This neglects the fact that tariffs will immediately be passed on to American consumers who will find all products that contain TSMC chips substantially more expensive, thus raising the inflation he threatened to lower.
Like other Asian Tigers, Taiwan can cancel out some of the cost of the tariffs by devaluating the New Taiwan dollar. Taiwanese companies can also work to lower costs by increasing automation or moving production to other countries with even lower production costs and are not subject to such high tariffs as Vietnam or India.
TARIFF THREATS
Just a week into his second term on Jan 27, Trump threw out the possibility of 25% to 100% tariffs on Taiwan-made chips. He also aimed at the CHIPS Act and ominously said that Taiwan companies will need to build new facilities in the US with their funds.
Amid rising pressure from Trump, TSMC held its first-ever board of directors meeting in the US on Feb 12. The company did not publicly announce further US expansion plans but there are rumours that to appease Trump TSMC could accelerate the timeline for bringing advanced production to its Arizona fab, commit to additional investments in the US, or build advanced packaging capabilities in the US.
On Feb 13 again accused Taiwan of taking the chip business away from the US. Indicating that a pressure campaign has begun, Trump said he wants the chip business to return to the US.
News broke on Feb 14 that the Trump administration is pushing TSMC into forming a joint venture with Intel. This has raised fears in Taiwan that this would lead to a large-scale handover of TSMC’s intellectual property to its American partner.
US tariffs may force TSMC to relocate, endangering Taiwan’s market dominance while straining US consumer budgets and hindering global technological progress amid trade tensions significantly.
SILICON SHIELD
The fact that 65% of the world’s semiconductors are made in Taiwan and 90% of the most advanced ones has given the country, what has been dubbed the ‘silicon shield’. The concept is that because so much of the world’s chip production is based in Taiwan, the US and other Western powers will do everything they can to protect it from a Chinese invasion.
When TSMC first announced the building of a chip-making plant in Arizona in 2020, there were concerns in Taiwan that this would weaken the silicon shield. Worries over the loss of the shield have only further worsened as TSMC increased the number of planned plants to three.
The fear in Taiwan is that if too many of TSMC’s key facilities are moved to the US and too much technology is handed over to US competitors, the country will be seen as less worthy of defending itself from a Chinese invasion.
In 2022, TSMC founder Morris Chang said that these efforts by the US to restore chip production are futile because the country lacks manufacturing talent. He also pointed out that the costs of producing chips in the US will be 50% higher than in Taiwan.
Chang also said it will take many years to build a significant chip manufacturing base in the US. TSMC’s first fab is set to begin production this year, four years after ground was first broken at the site, while the second fab will not go online until 2028 and the third by the end of the decade, after Trump’s second term ends.
US DILEMMAS
What Trump fails to understand is the vast sums of money and years it takes to build one fab. TSMC’s initial investment in the first Arizona plant was US$12 billion, but it rose to US$40 billion when the second fab was announced, and now US$65 billion when accounting for the third one.
Beyond the exorbitant cost and time needed to build semiconductor plants, the fundamental issue that Trump does not understand is that Taiwan did not “steal” the chip business from the US. What TSMC does, is it makes chips designed by American companies such as Apple, Nvidia, Qualcomm, and AMD.
These companies gladly outsourced the production of semiconductors to TSMC because it spared them the cost of building the fabs and hiring the workers and lowered the cost of the chips. By not having these expenses and having access to a steady supply of low-cost chips, these American companies can sell their products to consumers for a lower price and higher profit margin.
Because costs with everything, especially labour, are far higher in the US, the burden TSMC must bear to produce the chips in Arizona will be passed on to its US clients. Firms such as Apple will then have to pass the higher price of the chips on to the consumer, contributing to inflation, the very thing Trump vowed to bring down.
TSMC will be hard-pressed to fulfil Trump’s dream of moving all semiconductor production to the US, because of the vast expense of building such facilities in the US. He is not helping things by appearing to be less generous with US government funding and incentives, other than tariffs on Taiwan-made chips.
Shifts in TSMC’s production strategy could unsettle global semiconductor markets, potentially weakening the delicate balance of innovation, supply stability, and competitive advantage worldwide.
GLOBAL CHIP SUPPLY
TSMC also has to consider its customers in the rest of the world, which will not be willing to pay such the greatly inflated prices seen in the US. Therefore, the firm will have to keep some fabs in Taiwan and build facilities in other major countries to serve those markets.
By continually pressing TSMC to invest more of its own money into US plants and sell chips at a higher cost, it makes itself vulnerable to China’s cheaper, state-supported competitors. Over time, TSMC’s profit margins could drop and its ability to develop cutting-edge chips slowed, giving Chinese firms a chance to close the gap in the rest of the world outside of the US.
To stay competitive, it will be highly tempting for US companies to purchase chips from TSMC’s competitors that are not forced to set up factories in the US, such as Samsung.
To help maintain its edge and as a consequence, Taiwan’s silicon shield, TSMC is not building the most advanced semiconductors in the US, the 3 nm process, with the 2 nm slated for this year. Meanwhile, the Arizona fab is making relatively older 4 nm chips.
The danger is that Trump deems TSMC’s technology handover sufficient to meet US chip supply needs. But nothing could be further from the case.
TSMC’s first fab will not begin product until the first half of this year. Therefore, at the moment, the US is still completely reliant on TSMC’s Taiwan-based plants for all of its advanced chips.
The worry now in Taiwan is that in the coming years as TSMC ramps up its chip production in the US, Trump will see the country’s value decrease, diminishing its silicon shield.
Trump’s perception of Taiwan is also greatly imperilled by Elon Musk, who has become a top advisor. In 2023, Musk parroted the Chinese Communist Party narrative that Taiwan “integral part of China, that is arbitrarily not part of China.”
With Musk’s gigafactory in Shanghai and over 36% of Tesla sales coming from China last year, Musk has billions of dollars invested in and riding on China. Given Musk’s constant presence in Trump’s inner circle, it is probable that he will convince the president to take a stance on Taiwan that is increasingly ambivalent if not overtly in favour of Beijing’s narrative.
The combination of the weakening of Taiwan’s silicon shield and the influence of mercenary figures such as Musk could cause Trump to lose interest in Taiwan and tempt him into using the country as a pawn as part of a big deal with Beijing.
(Keoni Everington is a senior Taiwan journalist with 15 years of experience covering news about Taiwan and China. Everington specialises in subjects such as cross-strait relations, US-Taiwan ties and international geopolitics. The views expressed by the author do not necessarily reflect the views of The News Analytics Journal.)
