
On 1 February, US President Trump acted upon his promise to impose trade tariffs on Canada, Mexico and China despite hopes that the US would not dismantle free trade relationships with some of its closest international trading partners.
The realised tariff threats only strengthen the possibility that Trump may also act upon his 27 January proposal to impose up to 100% tariffs on Taiwanese made semiconductors.
Tariffs intended to drive Taiwanese semiconductor companies to the US are, instead, likely to instigate a cross border trade war that could drive up the cost of semiconductors for US technology companies.
According to a study by the US International Trade Commission on US exposure to the Taiwanese semiconductor industry, 44.2% of US logic chip imports and 24.4% of memory chip imports come from Taiwan. The study estimates that any form of semiconductor manufacturing disruption in Taiwan (which may include tariffs) could raise US chip prices by up to 59%.
Advanced chips are crucial to the production of goods ranging from computers, mobile phones and cars to the development of emerging technology such as AI, robotics and quantum computing.
One of Trump’s first executive orders that revoked the Biden era US CHIPS Act, a $450bn investment plan for onshoring semiconductor manufacturing, was a prelude to disruption of an already precarious global chip supply chain.
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By GlobalDataIf the Trump administration does, indeed, impose 100% tariffs on Taiwanese chips – essentially a tariff on Taiwan’s Semiconductor Manufacturing Company (TSMC) which produces 95% of the world’s advanced chips, then it will certainly have adverse consequences, including for US consumers, according to GlobalData Strategic Intelligence principal analyst Isabel Al-Dhahir.
Apple is highly dependent on TSMC and comprises 25% of TSMC’s revenue. Nvidia is TSMC’s second-largest customer accounting for up to 11% of TSMC revenue, noted Al-Dhahir.
“However, Apple’s CEO Tim Cook has a close relationship with Trump so maybe there will be some backdoor negotiation there,” said Al-Dhahir referring to the Silicon Valley tech community’s newly found favour with the Trump administration.
As the Big Tech leaders of Silicon Valley publicly pledge allegiance to Trump, large US corporations will not be the beneficiaries of tariffs imposed on Taiwan.
Apple, Broadcom, Qualcomm, Intel and NVIDIA, among others, make up around 65 percent of global demand for fabless semiconductor manufacturing. Increased tariffs on Taiwanese chips into the US would significantly increase their cost and may prompt US companies dependent on Taiwanese semiconductors to move outside of the US.
Another way Trump’s Taiwan tariff plan may misfire, is that Taiwanese companies could circumvent the penalties by moving operations to locations like Malaysia and Vietnam, for example, both emerging as alternative semiconductor production hubs.
US tries to domesticate chip supply
Since 2020, TSMC has announced $65bn of investment in three semiconductor fabs in the US state of Arizona, representing the largest foreign direct investment project in US history.
According to TSMC, the first Arizona fab is on track to begin production leveraging 4nm technology in first half of 2025. The second fab will produce the world’s most advanced 2nm process technology with next generation nanosheet transistors in addition to the previously announced 3nm technology, with production beginning in 2028.
And a third fab was announced in 2024 bringing the total number of jobs created to approximately 6,000 – and more than 20,000 unique construction jobs, as well as tens of thousands of indirect supplier jobs.
While TSMC has encountered problems with its US workforce as it expands its operations to the US, the company continues to build out its fab capacity in Arizona. “This could encourage greater chip production directly within the US as a means of avoiding tariffs but still, it would be a Taiwanese success more than a US one,” said Al-Dhahir.
Intel’s quarterly results were released on 30th January to, “an unsurprisingly lacklustre performance and they are halting the Falcon Shores AI GPU because it’s not going to plan, leaving only the struggling Gaudi processor as their AI offering,” said Al-Dhahir.
While TSMC builds its US chip manufacturing capacity, there is still no ready alternative within the US to replace TSMC, noted Signum Intel’s CEO and founder Mike Orme.
“The bulk of advanced foundried chips will still have to come from Taiwan as
TSMC’s Arizona plant is still not running at full throttle and is not making anything sub-4nm anyway,” said Orme who notes that even when the Arizona fab is up to full speed, it will only be able to supply a small fraction of total US demand.
“Trump will be hoping that whopping tariffs will ensure that TSMC gets on with its plans to build a further US plant and supply the likes of Apple and Nvidia with 3nm chips and below directly from the US plant,” said Orme adding: “Not something it wants to do. It’s In the US under duress.”
Whatever the outcome of trade tariffs on Taiwanese chips, if the free trade experiment of the last thirty years is indeed over, then the global chip supply chain will not be immune to the repercussions.