Second, tariffs can only make foreign companies start producing chips in the US if it becomes cheaper than doing it somewhere else. But higher American labor costs and the country’s lack of a sophisticated semiconductor supply chain means moving manufacturing there will take years, if not decades, and there’s little guarantee that such US outposts will be profitable. Faced with US tariffs, it could make more sense for Taiwanese companies like TSMC to simply move production to a third country instead to avoid paying them.
But the Trump administration could choose to expand the tariffs to all countries, effectively making production in the US the only viable alternative. It could alternatively apply the tariffs to any end products that contain Taiwanese chips.
The latter idea would constitute a significant disruption to the semiconductor industry. A single smartphone can have dozens of chips inside responsible for a range of different functions; a car can potentially have thousands. Figuring out which of them have components from Taiwan, how much those components should be taxed, and how difficult it might be to find replacement products would put a heavy burden on end product companies.
Semiconductor companies are likely unprepared for such a scenario, especially since their products have been mostly spared from tariffs in the past. “The industry around the world has never dealt with chip tariffs like this before,” says a Taiwan-based semiconductor industry insider who publishes public commentary under the alias Hsu Mei-hu. “It’s theoretically possible, but nearly impossible in practice.”
The policy would force companies like Apple to ask every one of their suppliers about the cost of the many kinds of chips it uses, just to determine the appropriate amount of tariffs to declare. “And after it’s declared, how does the customs inspect it? If I just put a random value down, how would the customs know?” Hsu says.
The Biden administration had previously discussed using component tariffs against Chinese chipmakers to weaken that country’s semiconductor industry and protect US national security. But one of the main arguments against the idea was that it would be logistically difficult to implement, says Miller.
Miller says component tariffs are certainly under consideration in Washington again this time, but it would be even more challenging to enforce them on Taiwanese chip imports because they play a much wider and more important role than Chinese chips do. “If you were concerned about the administrative complexity of component tariffs solely vis-á-vis China, you ought to be even more concerned about the administrative complexity vis-á-vis Taiwan,” he says.
Biggest Losers
TSMC stands to lose less from potential US tariffs than other companies due to its unparalleled weight in the industry. TSMC currently makes roughly 90 percent of the most advanced chips worldwide, and its production lines are operating at full capacity. If Trump raises tariffs and that forces TSMC to increase its prices, the company could lose some orders to competitors, but experts say that isn’t really a big concern.
But it will likely be hard for TSMC’s clients to quickly find alternatives. Even though companies like Samsung and Intel have achieved comparable know-how in high-end chip manufacturing to some extent, it would be time-consuming, pricey, and risky to move mature production processes out of TSMC factories. So rather than going for another chipmaker, American companies like Apple and Nvidia are likely to keep footing the bill for TSMC products, and eventually pass on the higher costs to their customers.
