Taiwan Semiconductor Manufacturing Company, the world’s top producer of advanced computer chips, said Monday that it was planning to invest $100 billion in the United States to fund five new fabrication plants in Arizona. TSMC Chief Executive Officer C.C. Wei shared the news at the White House alongside President Donald Trump, who characterized producing chips in the US as “a matter of economic security.”
“By doing it here, he has no tariffs,” Trump told reporters, referring to Wei and TSMC. But the deal has not ended deliberations inside the Trump administration about potentially imposing tariffs as high as 100 percent on TSMC and other Taiwanese chip makers, according to a person familiar with the matter. One version of the plan, the person says, would involve placing import duties not just on Taiwanese chips themselves, but also on electronic devices that contain them, such as Apple iPhones.
The White House and the Department of Commerce did not immediately respond to requests for comment. TSMC declined to comment. In January, Trump told House Republicans that in “the very near future, we’re going to be placing tariffs on foreign production of computer chips,” in order to “return production of these essential goods” to the United States.
Wide-ranging chip tariffs like the ones Trump’s team have been considering have not been carried out in the past, and the unique way semiconductor supply chains work raises serious questions how effective they would be as a trade policy. Raising tariffs could also increase costs for tech firms in many countries and make a range of finished products more expensive for Americans.
“TSMC might make a bit less money, the fabless company that designs the chips might make a bit less money, and the end company that actually sells the products that the chip is assembled into might also find their product margin squeezed,” says Chris Miller, a history professor at Tufts University and the author of the book Chip War.
Experts say that actually enforcing the tariffs would also be an incredibly difficult and potentially impossible task for the US government. The semiconductor industry is so distributed and globalized that there are many potential workarounds firms could use to try to dodge them. “I’d expect a fair amount of pushback from the industry against these tariffs. Not only the chip industry, but probably more so the companies that use chips,” Miller says.
Unique Supply Chain
No matter how high they are, there are two main reasons why US tariffs on Taiwanese chip imports might not be very impactful and probably won’t succeed in increasing manufacturing in the US the way that Trump hopes.
First, TSMC chips are typically not imported to the US by themselves, making it hard to tax them directly. For example, when TSMC produces iPhone chips for Apple, those smartphones are typically assembled in factories located in China or India. When they eventually arrive at US Customs, they are taxed as electronic devices arriving from those two countries.
Secondly, 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 chip makers to weaken the 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-a-vis China, you ought to be even more concerned about the administrative complexity vis-a-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 currently 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 knowhow 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 chip maker, 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.
But other, smaller Taiwanese companies that work in chip design, manufacturing, packaging, device assembly, and related sectors are less able to pass down the costs to their clients, and therefore are more vulnerable to tariffs.
Arisa Liu, a researcher and director at Taiwan Institute of Economic Research says there’s a mismatch between what the tariffs are meant to achieve and which companies would actually feel the heat. “What the US wants is for TSMC to invest in manufacturing in the country—they don’t have much interest in other Taiwanese companies. But these companies will feel the ripple effect,” she says.
What Matters to TSMC
President Trump has repeatedly framed the threat of tariffs as a negotiating tactic, including in discussions about TSMC and Taiwan.
TSMC’s announcement on Monday shows that the company can’t afford to ignore pressure from the Trump administration. “The majority of TSMC’s clients are American companies, the US government is the most powerful government in the world, plus the core semiconductors technologies mostly come from the US,” Hsu says.
But TSMC’s $100 billion investment isn’t entirely unexpected. The company has already opened one Arizona factory, which started production last year. There are also reportedly other potential deals on the table that don’t involve tariffs, including TSMC forming a partnership with Intel to help revive the struggling US company. Hsu says if TSMC could get its American clients like Apple, Nvidia, AMD or Qualcomm to also invest in the deal, it could achieve a high level of control without spending much money. She points to TSMC’s joint ventures in Europe and Japan as examples, where the company holds over 70 percent stakes in local manufacturing plants.
But partnering with Intel would come with a multitude of challenges too, says Liu. TSMC would need to worry about protecting its trade secrets, preventing Intel from becoming a strong competitor one day, and also avoiding alienating TSMC’s established partners in chip design. For now, what’s clear is that TSMC will need to continue finding the best ways to navigate the chaos of the Trump administration while preserving its own interests.
Additional reporting by Louise Matsakis.