Trump Still Wants Tariffs on Taiwanese Chips — $100 Billion TSMC Deal Hasn’t Changed Anything

The world’s largest semiconductor contractor TSMC promised on Monday, March 3, to increase its investment in U.S. manufacturing by $100 billion. The company’s CEO, C.C. Wei, made the announcement at a meeting with Donald Trump at the White House. But this did not resolve the issue of possible duties of up to 100% on foreign semiconductor products — the presidential administration continues to discuss this measure, Wired reports, citing an informed source.

Image source: tsmc.com

Chips made in the US will not be subject to tariffs, unlike those made abroad. The White House is considering imposing import tariffs not only on the Taiwanese chips themselves, but also on electronic devices containing them, including the Apple iPhone. Import tariffs have never been used on such a scale, and the unique supply chain schemes raise serious questions about how effective they will be as a trade policy. It is possible that this will result in increased costs for tech companies in many countries, while finished products for Americans will become more expensive.

Enforcing these standards could be a difficult and perhaps even impossible task for U.S. authorities, experts say. The semiconductor industry is so distributed and globalized that there are many ways for companies to avoid paying duties, and resistance from players is likely to be inevitable.

There are two good reasons why Trump’s plan might not work. First, TSMC’s chips typically don’t enter the U.S. in bulk: When the company makes iPhone chips, the phones are assembled in China or India. Once they pass through U.S. customs, they are subject to duties like electronic devices coming from those two countries. Second, the tariffs would only work if U.S. manufacturing were cheap enough. But U.S. labor costs are high, there is no semiconductor supply chain, meaning moving production would take years if not decades, and there is no guarantee that the new model will be profitable. It might be cheaper for a company like TSMC to move production to a third country to avoid paying the U.S. more.

The White House could extend the tariffs to all countries, making U.S. manufacturing the only viable alternative; and even impose them on any finished product that includes Taiwanese chips. That would significantly disrupt the entire semiconductor industry: there are dozens of chips in a smartphone, and thousands in a car. It would be extremely difficult for a manufacturer of a finished product to determine what fee to pay for these components, and where to look for American alternatives. Semiconductor manufacturers are not prepared for this scenario, because their products have previously been largely duty-free. Apple and other manufacturers would have to ask their suppliers about the cost of each chip used to figure out the amount of duty to declare, but then it is unclear how customs would be able to verify this calculation.

In the case of TSMC, there will probably be no tragedy: the company produces up to 90% of all advanced chips in the world, and its production lines are fully loaded. If Trump increases tariffs, TSMC will raise prices and give up some orders to competitors, but will continue to operate. But the company’s customers will have a much harder time: switching established production processes to Samsung or Intel lines will be expensive and risky. So Apple and Nvidia will probably simply pass on the increased costs to end customers. A more significant threat appears to be for small Taiwanese companies that design, manufacture and package chips, as well as assemble devices in related sectors – they will have a harder time passing on costs to customers.

In reality, experts point out, the US has no interest in small Taiwanese companies — Washington only wants TSMC to invest in production in the country. And Trump himself has repeatedly spoken about the threat of tariffs as a tactic in negotiations. But many companies could feel the effect of the US actions. TSMC can no longer ignore the signals from the White House — it has many American clients and is too dependent on American technology. It may attract its clients Apple, Nvidia, AMD and Qualcomm to the deal.