ANALYSIS/If imposed, Trump's chip tariff could isolate U.S. economy, benefit China: Expert

Washington/Taipei, Feb. 13 (CNA) If U.S. President Donald Trump imposes tariffs on chips from Taiwan, it could not only isolate the United States' economy and disconnect the country from "global value chains," but also potentially push Taiwan closer to China, a U.S. expert told CNA.

With Trump planning a tariff of up to 100 percent on semiconductors produced in Taiwan, his nominee for Secretary of Commerce, Howard Lutnick, has also emphasized the need to strengthen domestic semiconductor manufacturing in the U.S. and said that the U.S. is "too reliant" on Taiwan for chip production.

The potential tariff has prompted Taiwan's Deputy Economics Minister, Cynthia Kiang (江文若), to visit Washington in an effort to meet with Trump's team to prevent the imposition of tariff.

Isolate the U.S. economy

Amid growing concern over the potential imposition of tariffs, Stephen Ezell, vice president for global innovation policy at the Washington-based think tank Information Technology and Innovation Foundation (ITIF), told CNA in an interview on Wednesday that if imposed, the tariffs would have "profound impacts across a number of U.S. industries."

"It would have a very significant and very deleterious impact on the business models of companies like Apple Inc. and Nvidia Corp. that rely on TSMC (Taiwan Semiconductor Manufacturing Co.) for their chip manufacture," Ezell said.

The tariffs would also impact "every downstream industry that uses semiconductors," Ezell said, citing the automobile industry, where an average car contains 1,500 semiconductors and an electric vehicle has over 3,000.

"It'll impact the consumer appliance industry, it will impact medical devices, aerospace," he added.

Since semiconductors are a critical component of the modern global economy, higher chip prices would also drive up the prices of all downstream products, making U.S.-manufactured goods more expensive, which would not only harm consumers but also reduce the competitiveness of U.S. products in global markets, Ezell said.

"What President Trump's plan would do, if it came to fruition, is really isolate the U.S. economy, disconnect it from global value chains," he said.

Chinese chipmakers would benefit

At a time when the U.S. is striving to maintain its dominance in AI, Ezell said that tariffs on chips from Taiwan could make China the biggest winner.

While the exact rate of the tariffs, if imposed, remains uncertain, Ezell hypothesized that if tariffs on Taiwanese chips rise to 100 percent while Chinese chips remain subject to a 25 percent or lower tariff, Chinese chipmakers would gain a competitive advantage over their Taiwanese counterparts.

"That would potentially have the effect of inducing a shift in sales from Taiwan to China -- so China would benefit," he said.

Ezell further elaborated that any country facing lower tariffs on its semiconductors than Taiwan would stand to benefit, including Japan and South Korea.

"He [Trump] likes tariffs in general because he thinks that they will induce a shift of manufacturing to the U.S.," Ezell said, noting that such a shift might happen in less technologically complex industries, such as the manufacturing of appliances like microwave ovens or washing machines.

However, he said that semiconductors are the "most complex, sophisticated product human beings make," requiring US$30 billion to launch a new fab, with at least five years of planning and three years of construction.

"So the notion that Trump's tariffs would induce this stampede of manufacturing from Taiwan or elsewhere to the United States, especially in the semiconductor sector, is completely fanciful," Ezell said.

"It will only harm the U.S., harm American consumers, harm the global economy and help our competitors," he added.

Best approach for dialogue with the U.S.

With the imposition of tariffs looming, Ezell suggested that TSMC and the Taiwanese government should highlight the fact that the U.S. does not need the tariffs to enhance its domestic semiconductor manufacturing capacity.

TSMC has already committed to investing US$65 billion in the U.S. and has planned or built three fabs in the state of Arizona, Ezell said, noting that there will also be incoming foreign investments from companies like Samsung Electronics and SK Hynix.

The global market share of U.S. semiconductor manufacturing is expected to rise back to about 20 percent by the end of this decade, including for the most advanced chips, Ezell noted.

In addition, Taiwanese companies have already been investing in the U.S., Ezell said, citing the example of TSMC's supply chain in the U.S., which includes 14 chemical, gas and component suppliers that have set up operations in the North American country.

"TSMC is the spearhead of a very significant investment being made by Taiwanese companies in the United States," Ezell said, suggesting that policymakers in the Trump administration need to focus on what has already been achieved and avoid potentially compromising those investments by proposing significant tariffs.

He also urged the Taiwanese government to emphasize to Trump's team that Taiwanese businesses are not only investing in semiconductors but also in the sectors of clean energy, automotive parts, pharmaceuticals, and solar cells in the U.S.

Highlighting those linkages and investments is "the best way to talk to Trump" and demonstrate that other countries take the competitiveness of U.S. manufacturing seriously, Ezell said.

"We like to say at ITIF that 'attraction is always a far better strategy than compulsion,'" Ezell said, adding that the Trump administration should focus on "an attraction strategy for foreign direct investment" rather than "forcibly compel[ling] it" through excessively high tariffs.

Push Taiwan closer to China?

Regarding Taiwan-U.S. relations, Ezell said that the information and communications technology (ICT) sector, including the semiconductor industry, is a "key source" of Taiwan's economic strength, and if the U.S. wants Taiwan to remain a strong partner, the island country's semiconductor industry and ICT sector must also stay strong.

Taiwan's economic and national security would be weakened if the U.S. weakens the semiconductor industry and ICT sector of the "critical partner in the region", Ezell said.

"If this were to happen, it would potentially run the risk of driving Taiwan more closely into the hands of the Chinese," he added.

"A weakening of Taiwan's security position in the region would be tied up to a weakening of the American security position in the region" Ezell said, noting that such a shift would be "quite a diplomatic and geopolitical concern."