Trump, Tariffs, Taiwan & Chips

March 11, 2025

Rupert Hammond-Chambers
President
US-Taiwan Business Council

President Donald Trump has consistently spoken about the semiconductor industry’s importance to America’s future and the urgent need to broaden and deepen U.S. chip manufacturing – including high-end chips for cutting-edge applications in areas such as Artificial Intelligence (AI) and quantum computing. He has focused minds on his demand by threatening tariffs on chips ranging from 25% to 100%. This threat looms over Taiwan Semiconductor Manufacturing Company (TSMC), globally the largest and most advanced chip manufacturer, and indeed over America’s entire semiconductor ecosystem.

President Trump further weighed in on the state of U.S. semiconductor manufacturing on March 7, 2025, when he declared “[Taiwan] stole it from us. They took it from us, and I don’t blame them. I give them credit.” Four days earlier, President Trump hosted CC Wei, Chairman of TSMC, at the White House to announce a new U.S. investment of US$100 billion – adding to the US$65 billion TSMC had already committed to investing in Arizona. President Trump had previously been critical of Taiwan’s preeminence in the semiconductor manufacturing sector. Still, the investment announcement appears to have shifted his rhetoric regarding Taiwan and caused a delay in levying threatened tariffs on Taiwan-made chips.

Vice President JD Vance said in a February speech that “the Trump Administration will ensure that the most powerful AI systems are built in the U.S. with American designed and manufactured chips.” To achieve this goal, the United States must partner with Taiwan. TSMC currently operates a near monopoly on such high-end chips, holding over 90% of global production. Taiwan is already a key collaborator and can serve as the indispensable AI hardware partner in the U.S. effort to remain the global leader for this transformative technology.

A concern in the U.S. is that those high-end chips are almost exclusively made in Taiwan. The military threat posed by the People’s Republic of China (PRC) to the democratic island raises concerns about potential supply chain disruptions. Should the PRC successfully invade the island, Taiwan’s semiconductor industry may even be absorbed into China’s economy. The U.S. could conceivably go from a tight partnership with Taiwan to seeing its semiconductor industry absorbed by Beijing. The stakes are high.

Yet the strategy here must be about risk mitigation, not about moving TSMC’s entire ecosystem to the United States. The completion of TSMC’s Arizona campus, with six fabrication plants in total, will take well into the 2030s. During that time, the U.S. will remain deeply intertwined with the Taiwan technology sector. Indeed, once the U.S. campus is complete, most high-end chips will still be manufactured by TSMC in Taiwan. While some pending Trump Administration officials dismiss Taiwan as “not existential for America,” the complexity and interdependent nature of the industry nearly guarantees that to win VP Vance’s AI competition with China, a free and democratic Taiwan must remain allied with the United States.

The Taiwan government has agency in this process as well. President Lai Ching-te and his government have been clear that the island nation will keep leading-edge technology in Taiwan, only allowing technology 1-2 generations behind the most advanced production to head overseas. Premier Cho Jung-tai recently said that while the TSMC investment will “continue to create mutual benefits and a win-win situation with Taiwan’s allies,” Taiwan is determined to maintain its lead in critical technologies. TSMC needs permission from the Taiwan government to undertake these investments, and no government will export its crown jewels if it wants to remain in power. A delicate dance is therefore underway in Taipei to address President Trump’s concerns – thereby minimizing broad damage to U.S.-Taiwan bilateral relations – while also trying to ensure that TSMC remains headquartered in Taiwan as the most important semiconductor company in the world.

Additionally, not everyone in Taiwan sees TSMC’s investments in the U.S. as a clear-cut win. It is partly a political issue as moving high-end manufacturing off-island, at any percentage of total production, creates considerable anxiety. TSMC also holds preeminent national pride for its dominance in the sector and as the originator of the foundational fabless/foundry industry model. It is also of practical importance, given that the industry produces 15% of Taiwan’s total GDP and is broadly viewed as a “Silicon Shield” against Chinese attack.

China understands this vulnerability and seeks to capitalize on it. Beijing recently accused Taiwan of giving companies like TSMC away “as souvenirs.” The PRC’s effort to stir up domestic dissent causes real problems in Taiwan, exacerbating already fractious domestic tensions. However, China also recognizes that the U.S. and China are in the early stages of an economic struggle to dominate revolutionary technological change. Having Taiwan on your team is a must for the winning side.

President Trump’s tariff threat to the semiconductor industry is not likely to go away. He will leave it looming over the industry to keep companies and nations attentive, or to extract future concessions should his priorities evolve. With some luck, however, President Trump will take TSMC’s yes for an answer, shelve his chip tariffs, and let the U.S. semiconductor industry – in partnership with Taiwan – continue to create trillions of dollars in American wealth.