The Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading advanced computer chip producer, announced plans on Monday to invest $100 billion in the United States to establish five new fabrication plants in Arizona. TSMC’s CEO C.C. Wei shared this information at the White House, where President Donald Trump emphasized the importance of domestic chip production for economic security.
Trump administration considers 100% tax on TSMC chips
Trump noted, “By doing it here, he has no tariffs,” referring to TSMC and its investment. However, discussions within the Trump administration continue regarding the possibility of imposing tariffs as high as 100 percent on TSMC and other Taiwanese chip manufacturers. One proposed plan includes imposing import duties not only on Taiwanese chips but also on electronic devices that include those chips, such as Apple iPhones.
The White House and the Department of Commerce did not respond to requests for comment, and TSMC declined to provide a statement. Earlier in January, Trump informed House Republicans about impending tariffs on foreign chip production, aiming to bring essential goods manufacturing back to the United States. Analysts have raised concerns about the viability of the proposed tariffs, considering the unique structure of semiconductor supply chains, which may render such trade policies ineffective. Increased tariffs could also raise costs for technology firms globally and make various consumer products more expensive for Americans.
Chris Miller, a history professor at Tufts University and author of “Chip War,” noted that such tariffs could diminish profits not only for TSMC but also for fabless companies that design chips and the end companies marketing the products containing those chips.
Experts indicate that implementing these tariffs could be logistically challenging for the U.S. government due to the globalized nature of the semiconductor industry, which offers numerous opportunities for firms to circumvent them. Miller anticipated notable resistance from the industry, particularly from companies that utilize chips.
There are two primary reasons why U.S. tariffs on Taiwanese chip imports may have limited impact and may not result in the increased manufacturing in the U.S. that Trump envisions. Firstly, TSMC chips are usually not imported independently, making direct taxation difficult. For instance, when TSMC creates chips for iPhones, the final products are assembled in countries like China or India and enter the U.S. as electronic devices from those locations.
Secondly, the efficacy of tariffs depends on whether it becomes more cost-effective for foreign firms to manufacture chips in the U.S. Higher labor costs and the United States’ lack of a well-developed semiconductor supply chain would require years, if not decades, to overcome, with no certainty of profitability for any resulting U.S. factories. Faced with U.S. tariffs, Taiwanese companies like TSMC might find it more advantageous to relocate manufacturing to third countries to avoid duty payments.
The Trump administration could also consider extending tariffs to all nations, effectively positioning U.S. production as the only feasible option. Alternatively, they may impose tariffs on finished goods containing Taiwanese chips.
This latter approach could significantly disrupt the semiconductor sector, as individual smartphones may contain numerous chips supporting various functions, and vehicles can have thousands. Determining which components are Taiwanese, the appropriate tax amounts, and sourcing replacements could create substantial operational challenges for companies manufacturing end products.
A semiconductor industry insider, using the alias Hsu Mei-hu, remarked that implementing chip tariffs is theoretically possible but highly impractical. Many in the industry have not faced tariffs on chips previously, making the potential introduction of such tariffs surprising and complex. Large companies like Apple would need to consult all suppliers to evaluate the cost implications of every chip type, complicating tariff declarations due to customs inspection challenges.
What does this mean for TSMC and its clients
While TSMC is less vulnerable to potential U.S. tariffs than other companies, due to its dominance in the industry—producing approximately 90 percent of the most advanced chips globally—arising costs could lead to a decline in orders. However, experts believe that American clients, such as Apple and Nvidia, are likely to continue relying on TSMC’s production despite potential price increases and would likely pass along these expenses to consumers.
In contrast, smaller Taiwanese firms involved in chip design, manufacturing, and related sectors may struggle to shift costs and are potentially more susceptible to the effects of tariffs. Arisa Liu, a researcher at the Taiwan Institute of Economic Research, highlighted the disparity between the intended targets of the tariffs and the companies that would truly be impacted. “What the U.S. wants is for TSMC to invest in manufacturing in the country—they don’t have much interest in other Taiwanese companies. But these companies will feel the ripple effect,” she stated.
President Trump has occasionally employed the threat of tariffs as leverage in negotiations related to TSMC and Taiwan. TSMC’s recent investment move indicates that it is responding to pressure from the Trump administration. Most of TSMC’s clients are American firms, and a significant portion of the core semiconductor technologies originates from the United States.
TSMC’s $100 billion investment aligns with previous activities, as the company has already opened one factory in Arizona, which began production last year. There are also potential arrangements unrelated to tariffs, such as a partnership with Intel, aimed at revitalizing the struggling U.S. firm. Should TSMC manage to engage its American clients—Apple, Nvidia, AMD, or Qualcomm—in the investment, it could maintain a stronghold without incurring excessive expenditures. Historical joint ventures in Europe and Japan indicate that TSMC often holds substantial stakes (over 70 percent) in local fabrication initiatives.
Featured image credit: Kerem Gülen/Ideogram
