It’s a coincidence that Taiwan’s deputy economic system minister Cynthia Kiang arrives in Washington on Tuesday, simply as Taiwan Semiconductor Manufacturing Co’s board meets for the primary time in Arizona.
However the purpose of Kiang’s talks with US officers is similar to that of board assembly at TSMC’s large new Arizona chip complicated: to minimise the menace posed by tariffs deliberate by US President Donald Trump.
Whereas governments and corporates worldwide are scrambling to regulate to the US president’s enthusiasm for erecting commerce obstacles, few have as a lot at stake as Taiwan and its flagship chip producer.
Trump needs to tax imported semiconductors and dismantle an incentive scheme below which Washington agreed to subsidise TSMC’s pledged $65bn funding in US manufacturing capability with grants value $6.6bn.
“In the very near future, we’re going to be placing tariffs on foreign production of computer chips . . . to return production of these essential goods to the [US],” Trump informed Home Republicans on January 27.
“They left us and they went to Taiwan . . . and we don’t wanna give them billions of dollars like this ridiculous programme that Biden has,” he mentioned, including that international chipmakers “didn’t need money, they needed an incentive. And the incentive is gonna be, they’re not gonna want to pay a 25, 50, or even 100 per cent tax”.
Trump has additionally advised that TSMC — which controls greater than half of the worldwide marketplace for made-to-order chips — “stole” the enterprise from the US. And he has accused Taiwan’s authorities of counting on US safety assist with out paying for it.
The views of Howard Lutnick, Trump’s nominee for commerce secretary, are additionally not reassuring for Taiwan and TSMC.
At his nomination listening to final month, Lutnick mentioned TSMC had “leveraged” the US to take chip manufacturing. “We are too reliant on Taiwan, we need to have . . . that production in [the US],” he mentioned.
Such sentiments strike on the coronary heart of Taiwan’s sense of safety. TSMC’s management of worldwide cutting-edge chip manufacturing is extensively seen as guaranteeing Taiwan’s significance to the US — and Washington’s backing towards the specter of annexation by China.
Kuo Jyh-huei, Taiwan’s economic system minister, advised final Saturday that the delegation led by his deputy Kiang would “try to explain things more thoroughly to our US friends”.
This consists of the truth that TSMC clients that concentrate on designing chips acquire a a lot bigger revenue share than the producer does — and function with out the dangers that stem from its huge capital investments in fabrication vegetation, Kuo mentioned.
Know-how trade specialists mentioned the notion that Washington might coerce TSMC with tariffs into shifting most of its operations to the US was illusory and primarily based on ignorance concerning the chip trade.
Though 70 per cent of TSMC’s income got here from North America final 12 months, “very few chips go [directly] to the US”, mentioned Dan Nystedt, vice-president at TriOrient, an Asia-based non-public funding firm. “Most will be shipped to China, India, etc, placed inside iPhones and servers, and then shipped to the US.”
Since US tariffs usually apply to completed merchandise moderately than subcomponents, it might be “tricky” for US customs to focus on the overwhelming majority of the chips TSMC makes for US clients, analysts advised.
However Trump tariff insurance policies have already had an impression on Taiwan’s exporters. The primary shot in his new commerce battle — a 25 per cent tariff on all imports from Mexico and Canada that was introduced on February 2 however then postponed till March 1 — has already compelled Taiwanese teams resembling Foxconn and Quanta Pc to think about shifting once more the manufacturing traces that churn out the lion’s share of the world’s servers.
When Trump slapped tariffs on a variety of know-how imports from China in his first time period, server producers shifted a sizeable portion of their meeting operations to Mexico. “Depending on the final tariff levels, we could shift some of that into the US, or elsewhere,” mentioned an govt at one Taiwanese contract electronics producer.
Trump’s method has spooked corporations in Taiwan’s chip sector, too. Rick Tsai, chief govt of MediaTek, the nation’s main chip design home, informed buyers final week the corporate was operating simulations of the impression of US tariffs, however their impact was “very unpredictable”.
TSMC’s administration faces a fragile balancing act.
On the one hand, the corporate has to persuade Trump to honour the Biden administration’s subsidies deal, which it must make its Arizona funding plans possible. On the opposite, TSMC executives imagine shifting an excessive amount of manufacturing to the US would undermine its enterprise mannequin and show politically too troublesome again dwelling.
“The company needs to be as sensitive to the Taiwan government as it is to the US government and US companies,” mentioned an individual near TSMC.
A crucial sticking level is TSMC’s Taiwan-based international analysis and growth centre.
The corporate has lengthy been in a position to shortly scale up manufacturing at every new technology of processing know-how whereas sustaining excessive yields, or the proportion of chips produced with out defects. It credit a lot of this success to its observe of sending analysis engineers to the fab flooring to tweak the instruments.
Managers imagine neither shifting R&D to the US nor organising a parallel R&D organisation there are alternatives.
Analysts mentioned that as a compromise, TSMC might speed up the timetable for its Arizona vegetation to deliver superior know-how to the US and probably decide to extra funding.
The corporate’s first Arizona plant is in industrial manufacturing with 4 nanometre chips, one technology behind probably the most superior know-how utilized in mass manufacturing in Taiwan. It has pledged to deliver 2nm chip manufacturing to the US in 2028, about two years after its begin in Taiwan, and to deliver a 3rd fab on-line in Arizona by 2030.
The board might additionally resolve to construct capability within the US for superior packaging, a fabrication part essential to probably the most superior chips that TSMC has stored in Taiwan, individuals conversant in the corporate mentioned.
Whereas that may enhance TSMC’s dedication to the US, it might nonetheless preserve Taiwan because the epicentre of worldwide chip manufacturing.
Observers imagine TSMC’s US clients must assist persuade Washington that such strikes are sufficient to justify holding off on the tariffs. “Apple and Nvidia and other chip designers, they would bear the brunt [of chip tariffs],” mentioned Nystedt.
