As self-styled ‘Tariff Man,’ Donald Trump, begins his second term in office, one pledge in particular looks set to shake up the electronics sector: the US President’s threat to impose tariffs of up to 100% on Taiwanese made semiconductors.
Speaking to a meeting of Republicans on 27 January, Trump took aim at Taiwan’s tech industry, which he believes should shift production to the US. Criticizing his predecessor’s CHIPS and Science Act, which was established to spark investment in domestic chip manufacturing, Trump railed: “We want them to come back. And we don’t want to give them billions of dollars.”
Trump’s conclusion? “They already have billions of dollars.…They didn’t need money. They needed an incentive. And the incentive is gonna be they’re not gonna wanna pay 25, 50 or even 100% tax.”
What Trump’s tariff means for Taiwan
He’s right, of course – Taiwan would be severely impacted by the proposed tariff. According to a study by the US International Trade Commission, around 44% of logic chips and 24% of memory chips imported into the US come from Taiwan. In fact, the two countries are inextricably linked, with Taiwan’s chip industry playing a vital role in many US industries. According to a report by the Congressional Research Service, Taiwan is the eighth largest source of US imports at $44 billion and the tenth largest US export market worth $40 billion.
All told, that means any tariff imposed on imports from Taiwan would ultimately cause big problems for Taiwanese chip manufacturers. Specifically, it would be troublesome for Taiwan Semiconductor Manufacturing Company (TSMC), which currently produces around 95% of the world’s advanced chips. Bear in mind that US giant Apple comprises 25% of TSMC’s annual revenue, while NVIDIA makes up 11%, and it’s clear that the Taiwan chip tariff could indeed prompt TSMC to rethink its production strategy.
But it’s not just TSMC that will be impacted. Although TSMC or Foxconn might be the most notable, there are many other Taiwanese firms that will be affected. Some, such as Delta Electronics, also have operations in China or Mexico – countries that are facing their own Trump tariff controversy.
In order to prepare for the potential fallout, Taiwan’s external trade development council plans to set up a dedicated team to offer consultation services for affected companies. Taiwan’s economy ministry has also pledged to provide support for firms that want to relocate to the US, says Reuters, with the ministry offering information on prospective States, local laws, and help to find partners.
What Taiwan tariffs mean for the US
Unfortunately, if the Trump administration does, indeed, impose 100% tariffs on Taiwanese chips, it won’t just be Taiwanese semiconductor manufacturers that are affected. That’s because although tariffs are imposed to protect domestic industries, the cost is borne, not by the exporting country, but by the importer (i.e. US companies).
In effect, it will almost certainly have adverse consequences for US consumers, pushing up end-product prices and potentially unleashing another wave of inflation. What’s more, with restricted access to the kind of advanced chips that only Taiwan can currently produce, it could even reduce the US’s ability to compete in the AI race with China.
So, why does Trump think tariffs are such a good idea? Primarily, he’s keen to domesticate the US chip supply without providing CHIPS Act funding. To date, TSMC has been awarded $11.6 billion in funding through the CHIPS Act, including a direct grant of $6.6 billion and an additional $5 billion in low-cost loans, to support its chip manufacturing expansion in Arizona.
Costly as this may seem, the scheme has been effective. Since 2020, TSMC has announced $65 billion of investment in three semiconductor fabs in the US. The first is on track to start production this year, working to supply 4nm products, while the second, which will produce advanced 2nm and 3nm process technology, will come online in 2028.
To Trump’s thinking, however, cutting CHIPS funding while imposing steep duties makes sense. It provides increased government revenue, drives component purchasers to buy ‘home-grown’ goods, and encourages tech companies to migrate their chip manufacturing to the US. And if it works, what’s not to like?
Will Trump’s Taiwan tariff gamble pay off?
Here’s the tricky part. Right now, US companies have no choice but to buy chips from Taiwan, particularly for sub-4nm semiconductors. Although the CHIPS Act has strengthened US supply chains, many new plants are not yet operational. TSMC’s advanced fab won’t ramp up production until 2028 and even when the Arizona fab is up to full speed, it will only satisfy a fraction of US demand.
A 100% tariff would therefore undoubtedly impact the likes of Apple, Broadcom, Qualcom, Intel and NVIDIA. Placing tariffs on Taiwanese chip imports would drastically increase their costs and could even cause US companies that depend on these components to relocate outside the US.
As for Taiwanese chip manufacturers relocating production to avoid the tariffs – they might well do so, but not necessarily to the US. It could be more convenient to transfer their operations closer to home, opting instead for locations such as Malaysia or Vietnam, both of which are emerging as alternative semiconductor manufacturing hubs.
As Stephen Ezell, vice president for global innovation policy at the Washington-based Information Technology and Innovation Foundation, pointed out, Trump’s Taiwan tariff could actually “backfire,” unleashing “a global, cross-sector tariff war that would boost costs for Americans, hurt American tech firms, and damage relations with a key US ally at a vital time.”
Supply chain uncertainty 100% guaranteed
Whatever the outcome of Trump’s Taiwan tariff pledge, one thing is certain – Trump loves to keep the world guessing. With tariffs on Mexico and Canada issued and just as quickly paused, one has to wonder whether there is room for negotiation on a 100% tariff on Taiwanese semiconductors?
As a tactic for motivating change, it certainly favors the stick over the carrot, but as a means to reshape the industry, only time will tell if it is effective. Building a semiconductor fab facility takes several years and depends on a multitude of factors beyond tariffs including talent, trade and technology policies, as well as regulatory and environmental conditions.
In the meantime, component purchasers can expect disruption. Sure, higher import duties might eventually prompt a welcome expansion of US semiconductor manufacturing, but with their potential to ramp up costs and unravel complex supply chains in the short-term, there’s a strong probability they’ll also cause chaos.
Thankfully, AERI is here to help you navigate the uncertainty. If you need help to resolve supply issues or support to source components, you can depend on our stress-free service. Contact our sourcing experts at www.aeri.com today to see how we can help.
