Brian Hioeby Brian Hioe
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Photo Credit: Gage Skidmore/WikiCommons/CC BY-SA 2.0
WITH US PRESIDENT Donald Trump having threatened to hit Taiwan with tariffs over semiconductors, it is unclear how this ill-baked idea of Trump’s will continue.
Trump’s worldview seems to be that Taiwan “stole” the US semiconductor industry. As such, as part of efforts to induce companies to build fabs in the US, Trump intends to threaten them with tariffs, believing that this will be enough to push such companies back to the US.
While a carrot-and-stick could be employed with this aim, Trump seems decidedly only interested in the stick. Trump has criticized the subsidies provided by his predecessor, Joe Biden, to TSMC under the CHIPS Act as extravagant and wasteful, in handing out money to a foreign power. Trump did not, of course, bring up that Intel also received billions of USD in funding under the CHIPS Act.
To begin with, it is unclear how tariffs on Taiwan will help the US. Many Taiwanese semiconductors end up in the US as part of products assembled in China.
Likewise, the demand for Taiwanese semiconductors will not evaporate overnight, with Taiwan producing over 60% of overall supply and 90% of advanced chips.
Tariffing Taiwan may not help the US, then, except to drive up prices for American consumers and companies.
It is possible that Trump hopes to induce TSMC into cooperation with American companies such as Intel regarding fab production. Yet Intel itself signaled in the last year that it was giving up on efforts to directly compete with TSMC through the ousting of CEO Pat Gelsinger and Intel will continue to buy chips from TSMC.
Photo credit: Briáxis F. Mendes (孟必思)/WikiCommons/CC BY-SA 4.0
TSMC is still many years ahead of US competitors and this advantage will not fade overnight, as a result of which US companies will continue to depend on TSMC semiconductors and simply have no cheap alternatives they can pivot to after the tariffs. Trump, ironically, would be better served by attempting to subsidize TSMC and other Taiwanese companies to build facilities in the US–as in the CHIPS Act–rather than threatening it with tariffs and suggesting that the US is interested in seeing domestic companies triumph over TSMC rather than seeing TSMC and other Taiwanese companies as allies.
After all, the danger for TSMC in cooperating with US companies is that it would lose the vital trade secrets that have made it vital to the world economy. TSMC would probably be all the more cautious of losing these advantages to the US given the tenor that Trump has taken against it. TSMC’s Arizona fab was already a risk for the company. Trump lashing against it as an initiative of Biden’s may make TSMC further wary of any further collaborative efforts with TSMC. TSMC will not want to kill its golden goose for the US.
TSMC’s relationships with US companies such as Apple–who are themselves likely to be on guard because of Trump’s actions–are critical for it. But there are other markets in the world for products that contain Taiwanese semiconductors.
In the meantime, it should be clear that the Trump administration’s trade policies are unstrategic in nature, even with US interests in mind. We are a far cry from the Biden administration’s 90-day supply chain review aimed at evaluating points of dangerous reliance on China, as well as potential chokepoints, so as to allow for efforts aimed at reducing such reliance down the line.
Instead, the attempt is to simply make the world fall in line through tariffs. This takes place without any effort to understand the structure of the American economy and, in this sense, takes place under false premises about the US’s relationship with other key players in the world economy.
It is to be seen how the Trump administration later tries to course correct once such policy backfires for it. Certainly, Taiwan has dispatched trade delegations intended to dissuade the US from such actions, but for now, the Trump administration is likely to perceive this as Taiwan begging for the US to relent–and be further convinced that it holds the cards–rather than be dissuaded from a foolish course of action.