The decisive Republican victory within the 2024 U.S. election has handed President Donald Trump a full mandate to implement his financial agenda. His plans for punitive world tariffs and prolonged company tax cuts are clear. Nevertheless, the way forward for Biden-era insurance policies, such because the CHIPS and Science Act (typically shortened to the CHIPS Act) and the Inflation Discount Act (IRA), stays unsure.
Taiwanese companies face two key issues beneath the second Trump administration. The primary is the sustainability of U.S. commitments to assist Taiwanese manufacturing beneath the CHIPS Act and associated incentives. Will federal and state-level agreements reached within the Biden period be honored? If new subsidies come up, Taiwanese companies want a stage enjoying subject with U.S. rivals. Taiwanese firms should stress their important position in bolstering the U.S. provide chain – a community important for allied nations. Favoring U.S. producers alone dangers inefficiency, greater prices for U.S. prospects, and misallocation of assets important for competing with China.
The second problem entails potential tariffs and commerce obstacles focusing on Taiwanese semiconductor and electronics provide chains. Trump’s previous suggestion that he would use tariffs to coerce investments stays salient. Historic precedent from the Japan-U.S. commerce battle exhibits this technique might stress Taiwanese companies, particularly in sectors with U.S. rivals. Preemptive funding within the U.S. could mitigate this threat whereas increasing enterprise alternatives.
The Carrots: The CHIPS Act and the Taiwanese Provide Chain within the U.S.
Taiwanese provide chains are already on the transfer to the USA. TSMC’s 4nm fab in Arizona started manufacturing final month, with associated packaging, testing, and meeting provide chains increasing within the U.S. and Mexico. To make TSMC Arizona’s chips absolutely U.S.-made, CoWoS superior packaging capability is expected to follow, drawing investments from Taiwanese equipment manufacturers. On the supplies entrance, World Wafers is setting up the primary U.S. 300mm silicon wafer plant in Texas and a Silicon-on-Insulator wafer plant in Missouri.
Additional down the availability chain, Foxconn, Quanta, Wistron, and Inventec function server meeting services within the U.S. and Mexico. Whereas their largest vegetation stay in Mexico and Southeast Asia, these companies can scale up U.S. capability if new tariffs or incentives arise. Foxconn leads with AI server and information heart services in Wisconsin and Texas and is expanding EV manufacturing in Ohio. After the fiasco surrounding its Wisconsin investment within the first Trump administration, Foxconn has a possibility to enhance its status by increasing U.S. manufacturing jobs.
The brand new Trump administration inherits a rising electronics provide chain able to producing AI servers and conventional electronics on U.S. soil, with Taiwanese companies enjoying a important position. A lot of this progress stems from Biden’s CHIPS Act, although Trump might claim credit for securing TSMC funding in Arizona and introducing Foxconn to Wisconsin. Trump’s return creates uncertainty across the CHIPS Act, prompting companies to finalize agreements rapidly. Republicans could revise terms tied to socioeconomic provisions like childcare and union communication, a change welcomed by cost-conscious Taiwanese companies so long as subsidies stay well timed.
Revised CHIPS Act guardrails prohibiting non-legacy semiconductor enlargement in China gained’t affect TSMC, as its Nanjing fab produces legacy chips beneath a everlasting tools import license. Nevertheless, Taiwanese companies should develop native employment. Counting on Taiwanese engineers and provide chains in the USA could face pushback from an anti-immigration administration. Companies ought to recruit native expertise, provide aggressive pay, and enhance visibility to draw high U.S. staff. Coaching U.S. staff to satisfy Taiwanese manufacturing requirements whereas adapting to native expectations stays a problem. Trump’s remarks on favorable immigration insurance policies for international graduates, supported by allies like Elon Musk, provide a possibility.
An even bigger concern is whether or not Taiwanese companies can compete with U.S. firms for future subsidies. A second CHIPS Act of comparable scale is essential for vital semiconductor enlargement. With superior chip demand outpacing provide and China poised to dominate mature nodes, the U.S. urgently wants to spice up capability. Intel’s excessive prices and low yields make TSMC indispensable for superior logic chips. TSMC’s delays in Arizona and workforce challenges spotlight the necessity for elevated subsidies to make sure enough capability. Along with the three deliberate Phoenix fabs, TSMC is rumored to be eyeing an enlargement into Texas. Main Taiwanese companies in different provide chain segments, resembling World Wafers, ASE/SPIL, and Foxconn, can even search incentives for development.
The U.S. authorities’s give attention to supporting home companies might divert assets. As CHIPS Act negotiations proceed, Washington is discussing a rescue package for Intel, with choices like merging with IC design rivals or spinning off its unprofitable manufacturing unit. Text messages between ex-Intel CEO Pat Gelsinger and Vice President-elect J.D. Vance reveal Gelsinger’s lobbying to place Intel because the administration’s champion, leveraging its Ohio investments. Gelsinger has criticized CHIPS Act subsidies for international companies like TSMC, echoing Trump’s view that tariffs might substitute subsidies to draw international funding. Different Taiwanese companies within the U.S. additionally face home rivals lobbying for preferential therapy.
Intel’s makes an attempt to leapfrog TSMC with large investments in high-NA EUVs and the 18A course of will exacerbate short-term losses. Low yields can not enhance with out extra buyer orders, mirroring Samsung’s struggles with its 3nm GAA process. Intel’s competitiveness in semiconductor manufacturing is more and more unsure, particularly after its product-focused board pressured Gelsinger’s retirement. Saving Intel and different struggling U.S. companies with taxpayer cash undermines fabless giants like Nvidia and Apple, which depend on TSMC’s superior capability. Intel’s capability, utilized by some cloud service suppliers (CSPs), primarily serves as a backup in case of a Taiwan Strait disaster.
Fabless and CSP companies are the crown jewels of U.S. tech competitiveness. The federal government ought to prioritize them to win the tech race with China. Taiwanese companies should emphasize their contributions to the U.S. financial system and tech management. Subsidizing Taiwanese companies advantages U.S. fabless and CSP companies, much like the success of Japanese auto investments within the U.S. A stronger Taiwan foyer in Washington might shift the administration’s focus from slender company pursuits to broader nationwide and strategic targets.
The Stick: How Tariffs Might Form Taiwanese Investments
Targeted on effectivity and U.S. pursuits, the Trump administration could resist subsidizing international companies. As a substitute, Trump has proposed utilizing tariffs to make U.S. manufacturing extra enticing. Historical past helps this strategy.
Within the Nineteen Eighties, Japan-U.S. commerce tensions led Japanese automakers like Toyota to put money into U.S. vegetation after import quotas restricted Japanese automobile exports. Rising Japanese competitiveness in autos and semiconductors pushed U.S. producers to foyer the Reagan administration for commerce restrictions. Japan’s reliance on the U.S. safety assure compelled it to conform to “voluntary export restraints.” Concurrently, Washington inspired Japanese automakers to construct vegetation within the U.S. to keep away from the quotas and create jobs for American staff.
Japanese automakers, together with Toyota, Honda, and Nissan, opened vegetation within the Midwest, creating 35,000 direct jobs and over 337,000 oblique jobs. No vital federal subsidies had been used, and Japanese companies stay main employers within the U.S. In contrast, U.S. automakers like Chrysler and GM required massive bailouts through the Nice Recession, exceeding the price of the CHIPS Act. If Intel and different U.S. IT companies foyer for comparable commerce protections, the Taiwanese provide chain, which closely exports to the U.S., might face dangers.
TSMC’s dominance in FinFET logic processes and superior packaging makes it higher positioned to deal with tariffs in periods of excessive demand. Its 60 % gross margins and skill to lift costs with out lowering demand imply U.S. prospects like Nvidia and Apple would bear some tariff prices. Nevertheless, TSMC’s pricing energy doesn’t lengthen throughout the whole provide chain. Tariffs on imported AI servers, for instance, may gain advantage U.S.-based OEMs like Dell and HP, prompting Taiwanese OEMs to speed up U.S. investments.
There’s rising stress for TSMC to carry superior course of node manufacturing to the USA, however Taiwan’s restrictions on outbound funding in bleeding-edge nodes complicate this. The Trump administration could use tariffs and different instruments to push for extra investments in superior processes and packaging. Nevertheless, maintaining R&D and modern processes in Taiwan advantages the U.S. by sustaining the alliance’s technological edge over China. The excessive prices and lengthy timelines of constructing U.S. fabs, mixed with the truth that most AI servers don’t require essentially the most superior nodes, also needs to be thought-about.
The Trump administration ought to prioritize smoothing the training curve for TSMC’s Arizona fabs, integrating Taiwanese experience with native situations to attain higher yields and decrease prices. Taiwanese companies and the federal government should tread fastidiously to keep away from scrutiny from U.S. regulators. Previous incidents, like Toshiba’s export management violations within the Nineteen Eighties and TSMC’s potential Huawei-related breaches, ought to function warnings.
One other threat to deal with is Taiwan’s structural commerce surplus with the U.S. The Taiwanese central financial institution ought to keep away from foreign money administration practices that would lead to a “currency manipulator” label. Commerce concessions in agriculture, vitality, and army items might assist ease tensions. Taiwan’s curiosity in superior U.S. army tools aligns with Trump’s purpose of shifting regional protection obligations to allies. Collaboration in shipbuilding, drones, and clever weapons affords a win-win state of affairs, bolstering the Taiwan-U.S. IT provide chain’s competitiveness whereas satisfying Trump’s protectionist financial agenda.
Trying Forward: Taiwan’s Historic Alternative
America’ IT manufacturing base is a joint legacy of two administrations. Trump’s tariffs and sanctions in opposition to China prompted provide chains to shift to Southeast Asia and Mexico, whereas Foxconn’s Wisconsin funding and TSMC’s Arizona fab signaled change. Biden’s industrial insurance policies, together with the IRA and CHIPS Act, embraced incentives for each U.S. and international companies. Collectively, these insurance policies reshaped provide chains and laid the inspiration for U.S. manufacturing. The second Trump administration will now resolve its path.
The Trump administration should select whether or not allied provide chains, together with Taiwan’s, obtain a fair proportion of alternatives. Isolationist insurance policies with tariffs and commerce obstacles threat encouraging U.S. companies to prioritize lobbying over innovation. In the meantime, China fosters intensive competitors amongst rising home companies to develop national champions. Supporting unprofitable U.S. companies with out market-driven incentives will hurt the U.S. and its allies. As a substitute, Trump ought to guarantee a stage enjoying subject, rewarding companies that contribute to U.S. manufacturing and competitiveness, no matter origin. This strategy advantages U.S. customers and downstream companies in search of inexpensive, high-quality expertise and strengthens the U.S. place within the AI race.
For Taiwan, this can be a historic alternative. A stronger Taiwanese manufacturing presence within the U.S. deepens American stakes in cross-strait affairs and raises Taiwan’s affect on U.S. public opinion. Investments and lobbying efforts in Washington might make the U.S. extra dedicated to Taiwan’s protection. U.S. superior manufacturing depends on Taiwan’s R&D and expertise. Better financial integration fortifies the “Silicon Protect.”
Countering Trump’s protectionist instincts ought to be Taiwan’s high precedence. Taiwanese companies should strengthen lobbying efforts, following the lead of TSMC. Smaller companies missing assets want authorities assist to type a commerce affiliation. This group might present authorized recommendation, resolve disputes, set coverage priorities, and advocate collectively in Washington. A unified voice will counter protectionist forces and safe Taiwanese competitiveness.
Republicans’ and Trump’s desire for tax cuts over subsidies presents a possibility. Taiwanese companies ought to advocate for tax insurance policies tied to development, manufacturing, and employment milestones. Uniform tax credit, relevant to all buyers, promote equity and market effectivity whereas aligning with Republican priorities.
Taiwan should additionally construct alliances with U.S. stakeholders. Partnering with Silicon Valley leaders like Elon Musk and China hawks within the Republican Social gathering is essential to swaying Trump from protectionist insurance policies. Highlighting shared pursuits between the U.S. and Taiwan will strengthen bilateral cooperation and assist a affluent Taiwanese financial system.
