Secondly, implementing tariffs might only encourage foreign firms to relocate chip production to the US if it becomes more cost-effective than manufacturing elsewhere. However, the higher labor costs in the US and the absence of a well-established semiconductor supply chain indicate that such a transition could take years, or even decades, with no assurance of profitability for these facilities. Confronted with US tariffs, Taiwan-based companies like TSMC might find more advantageous to shift production to a third country to circumvent these charges.
The Trump administration could elect to broaden the tariffs to encompass all countries, effectively making production in the US the only feasible option. Alternatively, tariffs could be applied to any end products that incorporate Taiwanese chips.
This latter approach would significantly disrupt the semiconductor sector. A single smartphone may contain numerous chips that perform various functions; a vehicle could house thousands. Identifying which components include parts from Taiwan, determining the applicable tax for those components, and the challenge of sourcing replacement products would place a considerable strain on end product manufacturers.
Semiconductor firms are likely unprepared for such an eventuality, particularly as their products have largely avoided tariffs in the past. “The global industry has never faced chip tariffs of this nature before,” mentions a semiconductor industry insider based in Taiwan who writes public commentary under the pseudonym Hsu Mei-hu. “It’s theoretically possible, but nearly unfeasible in practice.”
This policy would compel companies like Apple to inquire with all their suppliers regarding the costs of the various types of chips they utilize, solely to ascertain the correct tariff amounts to declare. “And once it’s declared, how does customs verify it? If I just assign a random value, how would customs know?” Hsu wonders.
Previously, the Biden administration contemplated using component tariffs against Chinese chip manufacturers to undermine that nation’s semiconductor sector and bolster US national security. Yet, significant concerns were raised about the practical difficulties of implementing this strategy, according to Miller.
Miller notes that component tariffs are back on the table in Washington, but enforcing them on Taiwanese chip imports would be even more complicated due to their broader and more critical role compared to Chinese chips. “If you were worried about the administrative burdens of component tariffs specifically regarding China, you should be even more apprehensive about the administrative burdens concerning Taiwan,” he explains.
Major Victims
TSMC is positioned to suffer less from prospective US tariffs than other companies due to its unmatched prominence in the industry. Currently, TSMC produces approximately 90 percent of the world’s most advanced chips, and its manufacturing lines are at full capacity. Should Trump increase tariffs, pressuring TSMC to raise its prices, the company could lose some orders to competitors, but experts assert that this is not a significant worry.
However, it may be challenging for TSMC’s clients to swiftly secure alternatives. While firms like Samsung and Intel have made strides in achieving similar expertise in high-end chip production, transitioning mature manufacturing processes away from TSMC’s facilities would be time-consuming, costly, and fraught with risks. Consequently, rather than opting for another chipmaker, American corporations like Apple and Nvidia are likely to continue bearing the costs for TSMC products and eventually pass any increased expenses down to their consumers.
