Brian Hioeby Brian Hioe
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Photo Credit: Gage Skidmore/Flickr/CC BY-SA 2.0
SHARES FOR THE Taiwan Stock Exchange, or Taiex, plunged yesterday by 9.7% at opening. What ensued was the largest one-day drop on record for Taiex, triggering a circuit breaker that briefly halted trading. Tuesday proved similar, with steep drops at open.
The instability in Taiwan’s stock markets in the past few days took place after the announcement of 32% tariffs for goods from Taiwan. This is only 2% less than the tariffs that Trump imposed on China, which were 34%, though statements by Trump suggest he may ratchet up tariffs with China further by some odd 50%. Trump’s tariffs are scheduled to take effect tomorrow.
The calculation of tariffs by Trump seems to misunderstand trade deficits between the US and other countries. Panic over the tariffs has already led to trillions in losses, though Trump has to date signaled that he continues to see tariffs as viable and useful.
But this perhaps goes to further drive home the point of the instability of the Trump administration when it comes to US-Taiwan relations. The Trump administration previously suggested that it would impose tariffs of up to 100% on Taiwanese semiconductors, as well as that it would broadly impose tariffs across the board. Trump has a decided favoritism for tariffs as a means of economic coercion against countries that he seeks to bend to America’s will, in line with the protectionist undercurrent of a number of his policies–even if this is largely passing on costs to American consumers. Similarly, Trump lashed out at Taiwan for having “stolen” the US semiconductor industry, and suggested that Biden’s CHIPS Act was largely free cash thrown at Taiwan.
More broadly, Trump has accused Taiwan of freeloading on US munificence. This included alleging that Taiwan should pay the US for its own defense, though Taiwan already purchases billions of USD worth of arms from the US.
Trump seemed to back away from these threats when TSMC announced a 100 billion USD investment plan in the US. Trump quickly changed his tune, terming TSMC CEO CC Wei to be one of the “most respected” people in business. Yet evidently, this was not enough to prevent Trump from imposing tariffs on Taiwan, even if it actually continued to be unclear whether he would exclude the semiconductor industry from tariffs or not.
TSMC’s US investment is the largest foreign investment deal in American history, but it had mixed responses in Taiwan. Namely, the deal was largely understood as for security purposes, rather than economic interest. While TSMC is a private company, the largest individual stakeholder is the Taiwanese government, as a result of which the company’s direction often complies with the ruling party. During the Ma administration’s years in power, the company was very interested in building facilities in China, though TSMC being sold off to Chinese interests was ruled out by the KMT.
Photo credit: Wang Yu Ching/Office of the President/CC BY 2.0
Domestically in Taiwan, the KMT has taken Trump’s actions cue to again lean into US-skeptic narratives, which had already been in circulation at the time of the start of TSMC’s Arizona plant construction, to suggest that the Lai administration was trading away TSMC in return for flimsy security guarantees that would not hold water. It was suggested that TSMC would lose the vital trade secrets that keep the US and other countries invested in Taiwan’s defense through the company expanding its US presence, even though statistics suggest that the bulk of advanced chip capacity will remain in Taiwan, with only a decline of 10% in the coming years.
Similarly, as the impact of Trump’s 32% tariffs on Taiwan began to be felt, the KMT alleged this to be the fault of the DPP. The KMT has called for a cabinet reshuffle in response to the tariffs, though, of course, the impact of the tariffs is not exclusive to Taiwan and was felt across the world.
Major Taiwanese companies such as Formosa Chemicals, Formosa Plastics, and Nan Ya Plastics have been hit. Regular businesses, such as Taiwanese American restaurant Yun Hai, were also hit, seeing as they import Taiwanese products to the US.
Taiwan’s dominance of the semiconductor industry places it in a better position to weather the economic blow than many, in that it will remain a linchpin of the global economy. Yet Taiwan’s economic future is deeply intertwined with geopolitical perceptions of it. Previous cases of high-profile investors, such as Warren Buffett, deciding to get rid of TSMC stocks also had a notable impact on Taiwan, in that this was seen as reflecting a lack of faith in a stable geopolitical future for Taiwan that would make investment in it a non-risky investment.
With European nations framing themselves as willing to negotiate with the US, Taiwan has stated that it will not seek reciprocal tariffs with the US. The KMT has hit out at the Lai administration for in this way being lax on the US, while the pan-Green camp has criticized the KMT for insisting on this view while clamoring for trade with China.
Either way, even if the tariff debacle shows Trump’s lack of understanding of the world economy, Trump will likely hope for the optics of submission from Taiwan, and whatever occurs, the KMT is likely to weaponize the outcome as suggesting that the Lai administration has mismanaged the US-Taiwan relationship. But the Taiwanese electorate will likely be cognizant of the potential dangers to Taiwan from the Trump administration more than ever after the debacle, as a result of which the Lai administration must also tread carefully in avoiding the perception that it is simply deferring to the US in its actions, too.