Imposition of chip tariffs represents a significant obstacle
Taiwan's economy and trade relations could face significant changes if the US imposes tariffs of up to 100% on semiconductors, according to the president of the Chung-Hua Institution for Economic Research (CIER), Lien Hsien-ming.
The potential tariffs could lead to a reconfiguration of semiconductor manufacturing investment from Taiwan to the US. This shift could reduce semiconductor production in Taiwan, potentially impacting local employment, wages, and investment in the island’s semiconductor sector.
TSMC, one of the world's largest semiconductor manufacturers, has already committed billions to Arizona facilities and appears exempt from these tariffs. However, smaller suppliers and related firms might be compelled to follow suit, which could diminish Taiwan's role as the global semiconductor hub and affect its export-driven economy.
The tariffs are intended to encourage companies without US manufacturing bases to invest in the US. If more companies relocate operations, Taiwan could face economic strain from reduced domestic production and export volatility.
The tariffs could also have implications for US-Taiwan trade relations. While increased US investment by Taiwanese firms could strengthen bilateral ties through supply chain integration, Taiwan could face economic challenges. Additionally, tariffs on other Taiwanese exports, such as machine tools and agricultural products, further complicate the trade environment.
Semiconductors play a disproportionately large role in Taiwan's industrial and economic development. The US is the sixth-largest contributor to Taiwan's trade deficit, and information and communications technology (ICT) products account for more than 70 percent of Taiwan's exports to the US. Last year, Taiwan recorded a US$73.9 billion trade surplus with the US, up from US$47.8 billion in 2023, due to strong US demand for artificial intelligence (AI) servers and semiconductors.
President William Lai stated that the tariff is provisional and Taiwan would continue negotiations with the US to seek a lower rate. The US President, Donald Trump, has threatened to impose tariffs under Section 232 of the Trade Expansion Act of 1962, a tool he has used to pressure countries into making large-scale investments in the US.
Taiwan Semiconductor Manufacturing Co (TSMC) has warned Washington that imposing tariffs on Taiwanese semiconductors could dampen demand and jeopardize its expansion plans in Arizona. The initially proposed tariff on semiconductors was 32 percent, but it was later set at 20 percent.
The US Secretary of Commerce Howard Lutnick announced that the results of the Section 232 investigation would be released within two weeks, before any decision to impose tariffs on semiconductor imports. Taiwan's negotiating team will engage directly with its US counterparts on the semiconductor issue.
Chen Shin-horng, CIER vice president, asserted that sector-specific tariffs, such as those on semiconductors, are likely to be set higher than across-the-board levies. Chen Shin-horng also provided an example of the US's higher tariffs on steel and aluminum, despite a reduction in overall tariffs. He suggested that a tariff under Section 232 on semiconductors could start at a relatively low level and gradually increase over the next two to three years.
In sum, the potential tariffs may prompt a reconfiguration of semiconductor manufacturing investment from Taiwan to the US, with potential economic challenges for Taiwan’s local industry and complex consequences for US-Taiwan trade relations.
- The possible tariffs on semiconductors, a key sector in Taiwan's industrial and economic development, may also affect Taiwan's sports sector, as many electronic devices are used in sports technology, such as wearables and smart equipment.
- The US-Taiwan trade tension over semiconductors could potentially extend beyond this specific industry, impacting the broader technology sector, including sensor technology used in advanced sports equipment or virtual reality systems.
