Taiwan’s Transnational Semiconductor Industry Highlights Flaws in Trump’s Tariff Policy

Trump has repeatedly reasoned that his “Liberation Day” tariff announcements would reshore manufacturing to the United States. The semiconductor industry in Taiwan provides proof of the extent to which this thinking is flawed.

In the wake of Trump’s claim that Taiwan needs to pay for stealing semiconductor manufacturing from the U.S., Taiwan Semiconductor Manufacturing Company, TSMC, announced that it would be investing an additional $100 billion in its proposed manufacturing facility in Arizona.

Trump and Lutnick, the Trade Secretary, boasted that this deal provides proof that the trade policy upon which the tariffs are anchored was working and would bring additional benefits.

However, these claims aren’t backed by the facts on the ground.

For example, TSMC plans to produce 3-nanometer semiconductor chips in Arizona within the company’s projected timeline of 2028. The reality is that Taiwan started manufacturing those 3nm chips back in 2022. For every advancement registered in the U.S. and other countries, you can be certain that Taiwan will have moved several steps further ahead and retain its leadership in that field.

Supporting this view, Parello-Plesner, a diplomat who served in Washington while Trump was at the White House during his previous term in office, asserted that Taiwan will retain “the holy grail” of industry-leading chip manufacturing. The former diplomat revealed that his conversations with Taiwanese policymakers indicate that the country is unwilling to relinquish its dominance and will do everything possible to retain its edge.

Another reality that the Trump administration seems to be disregarding is the cost of manufacturing chips in America. The primary reason why manufacturing shifted to Asia was because the costs there were significantly lower than the cost of manufacturing the same products in the U.S.

Given that companies now compete on a global scale, products made in the U.S. are going to be more expensive than similar products made in Taiwan or other Asian countries, and that means that American-made products will be outcompeted globally.

A partial remedy to this is offering heavy subsidies to manufacturers. As a matter of fact, the TSMC plant in Arizona was conceived after the Biden administration passed the CHIPS Act in which numerous incentives were provided to lure manufacturers to the U.S. It isn’t clear whether Trump is going to ramp up those subsidies in order to artificially make U.S. products competitive in terms of price. In contrast, he has even shown a determination to roll back the policies his predecessor enacted, and that raises questions about the continuity of the subsidies TSMC based upon when setting up the Arizona plant.

As things stand, American semiconductor giants like Nvidia Corp. (NASDAQ: NVDA) could all be wondering how Trump’s current rhetoric on reshoring manufacturing will be translated into tangible enabling policies. The bullying underpinning the tariffs can only go so far.

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