Trump's tariffs on Taiwan's chips likely to backfire: analysts

Taipei, Feb. 2 (CNA) United States President Donald Trump will "shoot himself in the foot" if he follows through on his recent pledge to impose higher tariffs on Taiwanese and other foreign semiconductors entering the U.S., according to analysts.

Trump's plans to raise tariffs on chips manufactured in Taiwan to as much as 100 percent would backfire, according to macroeconomist Henry Wu (吳嘉隆).

He will "shoot himself in the foot," Wu told CNA on Saturday, as such economic measures would lead Taiwanese chip suppliers to pass on additional costs to their U.S. clients and consumers and ultimately cause another wave of inflation.

Trump has claimed that Taiwan took up to 98 percent of the chip production business, which means U.S. companies have no choice but to buy chips from Taiwan, Wu said.

The U.S. president was likely referring to advanced computer chips, of which over 90 percent are currently produced in Taiwan, and according to Wu, companies like Taiwan Semiconductor Manufacturing Co. (TSMC) have "an absolute technological advantage and pricing power."

Speaking at a House Republican Issues Conference on Jan. 27 (Florida time), Trump said his administration would soon place "tariffs on foreign production of computer chips and pharmaceuticals to return production of these essential goods to America."

Taiwan has about 98 percent of the chip business, Trump said, adding "we want them to come back...they needed an incentive, and the incentive is going to be they're not going to want to pay a 25, 50 or even 100 percent tax."

In an article published a day later by the Information Technology and Innovation Foundation, Stephen Ezell, vice president for global innovation policy at the Washington-based think tank, said Trump's pledged tariff aimed at drawing chip manufacturing back to the U.S. would "backfire."

If the U.S. raises tariffs on Taiwanese chips to 100 percent but imposes smaller tariffs on chips from other countries, Ezell said, Taiwanese companies will move their factories elsewhere and not necessarily to the U.S.

The pledged tariff will not drive Taiwanese semiconductor and electronics firms to America but will instead "unleash a global, cross-sector tariff war that would boost costs for Americans, hurt American tech firms, and damages relations with a key U.S. ally at a vital time," he said.

Trump's comments were made just a few days before the U.S. imposed a 25 percent tariff on all Mexican and almost all Canadian imports, and an additional 10 percent tariff on Chinese goods, in the name of combating illegal immigration and illicit drugs.

Lien Hsien-ming (連賢明), president of the Chung-Hua Institution for Economic Research, also warned of an approaching "global tariff war," noting that Trump's tariffs could be all-encompassing given the actions taken against U.S. allies Canada and Mexico.

He said Trump's threat of imposing tariffs on Taiwan's semiconductor industry would have a more significant impact on mature chip producers than on advanced ones, as the former face a more competitive market and have less pricing power.

At the same time, Lien suggested that Taiwan should consider allowing the New Taiwan Dollar to appreciate and reduce the trade deficit with the U.S. as a way to avoid being hit with high U.S. tariffs.

Taiwan, Canada, Mexico and China are all in the top 10 list of countries with which the U.S. has a trade deficit.