It’s a coincidence that Taiwan’s deputy financial 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 objective of Kiang’s talks with US officers is similar to that of board assembly at TSMC’s huge new Arizona chip complex: 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 boundaries, 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 underneath which Washington agreed to subsidise TSMC’s pledged $65bn funding in US manufacturing capability with grants value $6.6bn.
“Within the very close to future, we’re going to be putting tariffs on international manufacturing of pc chips . . . to return manufacturing of those important items to the [US],” Trump advised Home Republicans on January 27.
“They left us and so 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 want cash, they wanted an incentive. And the motivation is gonna be, they’re not gonna wish to pay a 25, 50, and even 100 per cent tax”.
Trump has additionally urged 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 help 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’re too reliant on Taiwan, we have to have . . . that manufacturing 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 broadly 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 financial system minister, urged final Saturday that the delegation led by his deputy Kiang would “attempt to clarify issues extra totally to our US pals”.
This contains the truth that TSMC prospects that concentrate on designing chips achieve a a lot bigger revenue share than the producer does — and function with out the dangers that stem from its monumental capital investments in fabrication vegetation, Kuo mentioned.
Expertise business specialists mentioned the notion that Washington might coerce TSMC with tariffs into shifting most of its operations to the US was illusory and based mostly on ignorance in regards to the chip business.
Though 70 per cent of TSMC’s income got here from North America final yr, “only a few chips go [directly] to the US”, mentioned Dan Nystedt, vice-president at TriOrient, an Asia-based personal funding firm. “Most can be shipped to China, India, and so on, positioned inside iPhones and servers, after which shipped to the US.”
Since US tariffs usually apply to completed merchandise relatively than subcomponents, it will be “tough” for US customs to focus on the overwhelming majority of the chips TSMC makes for US prospects, analysts urged.
However Trump tariff insurance policies have already had an influence on Taiwan’s exporters. The primary shot in his new commerce struggle — 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 comparable to Foxconn and Quanta Pc to contemplate shifting once more the manufacturing strains that churn out the lion’s share of the world’s servers.
When Trump slapped tariffs on a variety of expertise imports from China in his first time period, server producers shifted a sizeable portion of their meeting operations to Mexico. “Relying on the ultimate tariff ranges, we might shift a few of that into the US, or elsewhere,” mentioned an govt at one Taiwanese contract electronics producer.
Trump’s strategy has spooked corporations in Taiwan’s chip sector, too. Rick Tsai, chief govt of MediaTek, the nation’s main chip design home, advised buyers final week the corporate was working simulations of the influence 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 house.
“The corporate must be as delicate to the Taiwan authorities as it’s to the US authorities and US corporations,” mentioned an individual near TSMC.
A crucial sticking level is TSMC’s Taiwan-based world analysis and improvement centre.
The corporate has lengthy been in a position to shortly scale up manufacturing at every new era of processing expertise whereas sustaining excessive yields, or the proportion of chips produced with out defects. It credit a lot of this success to its apply of sending analysis engineers to the fab ground 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 convey superior expertise to the US and probably decide to further funding.
The corporate’s first Arizona plant is in business manufacturing with 4 nanometre chips, one era behind probably the most superior expertise utilized in mass manufacturing in Taiwan. It has pledged to convey 2nm chip manufacturing to the US in 2028, about two years after its begin in Taiwan, and to convey a 3rd fab on-line in Arizona by 2030.
The board might additionally determine to construct capability within the US for superior packaging, a fabrication section essential to probably the most superior chips that TSMC has stored in Taiwan, individuals aware of the corporate mentioned.
Whereas that may improve TSMC’s dedication to the US, it will nonetheless preserve Taiwan because the epicentre of worldwide chip manufacturing.
Observers imagine TSMC’s US prospects must assist persuade Washington that such strikes are sufficient to justify holding off on the tariffs. “Apple and Nvidia and different chip designers, they’d bear the brunt [of chip tariffs],” mentioned Nystedt.
