Taiwan’s chip dominance is an asset and a target in the Trump era

President Trump’s threat to use steep tariffs to break up what critics say is a virtual monopoly on the production of advanced microchips could become a reality in a matter of days, but Taiwan has dispatched a high-powered economic delegation to Washington this week in a bid to persuade the administration to change course.

Mr. Trump recently said he could put tariffs of up to 100% on semiconductor chips — the kinds that power smartphones and are indispensable for market-leading companies such as Apple and Nvidia — made by Taiwan Semiconductor Manufacturing Co. Critics say the Taiwan-based company has an essential monopoly on the global microchip market. About 90% of global leading-edge semiconductor chip production is concentrated in the island democracy.

Specialists see a significant security problem for the U.S. for multiple reasons, including TSMC’s operation of some facilities in mainland China. In the event of a Chinese military strike on Taiwan, they say, the global supply chain for high-end, cutting-edge chips would be severely disrupted and would put America’s technological and military power at significant risk.

All those factors have given TSMC remarkable and unique control over the crucial 21st-century industry.

“At this point, due to its market share dominance of high-end chips, TSMC is a de facto international monopoly with no U.S. counterpart to match its size and scope of production,” Andy Keiser, senior adviser to the National Security Institute at George Mason University, wrote in a recent analysis.

“TSMC also operates manufacturing facilities in mainland China. This exposes them to forced technology transfer to Chinese entities, IP theft and even sabotage,” he wrote in a recent piece posted on RealClearPolicy.com. “Even if manufactured outside of Taiwan or China, the chip’s intellectual property and likely the fabs’ operational capability is still directly tied to Taiwan.”

TSMC declined to comment when contacted by The Washington Times.

Taiwan’s government has backed the development of the semiconductor industry since the mid-1970s. Taipei provided about half of the initial $200 million in startup funding for TSMC.

100% tariffs coming?

Mr. Trump and other high-ranking administration officials have raised grave national security concerns about TSMC’s market dominance. The president has threatened to slap tariffs of up to 100% on Taiwanese chips as part of his broader tariff plan targeting goods from abroad.

Mr. Trump has also expressed deep reservations about the Biden administration’s moves to bring some TSMC production to American shores. The Biden policy called for a $6.6 billion incentive for TSMC to build an advanced semiconductor fabrication plant in Arizona. Last month, the plant reportedly began producing 4-nanometer chips for U.S. customers.

Mr. Trump has made clear that he opposes subsidizing TSMC’s U.S. operations. He laid out his thinking on the matter in a Jan. 27 speech to congressional Republicans blasting the 2022 CHIPS and Science Act, the bipartisan law that called for significant investments in U.S. chipmaking and laid the groundwork for TSMC’s investment in Arizona.

“In particular, in the very near future, we’re going to be placing tariffs on foreign production of computer chips, semiconductors and pharmaceuticals to return production of these essential goods to the United States,” Mr. Trump said in his address.

“They left us and went to Taiwan,” Mr. Trump said. “And we don’t want to give them billions of dollars like this ridiculous program that Biden has given everybody billions of dollars. They already have billions of dollars. They’ve got nothing but money. … They didn’t need money. They needed an incentive. And the incentive is going to be they’re not going to want to pay a 25, 50 or even a 100% tax.”

Howard Lutnick, Mr. Trump’s pick to head the Commerce Department, told a Senate confirmation hearing last month that U.S. firms are “too reliant on Taiwan.”

“We need to have … that production” in the U.S., Mr. Lutnick told lawmakers.

Well aware of the looming moves, the Taiwanese Ministry of Economic Affairs sent two top officials to Washington this week to meet with Trump administration officials, according to the news site Focus Taiwan.

Economics Minister Kuo Jyh-hue said the visit is aimed at making clear that Taiwan did not steal U.S. technology or otherwise snatch the chips manufacturing business from American shores.

“We paid for all intellectual property,” Mr. Kuo said, according to the news site. “Taiwan is the United States’ best partner.”

Some leading national security insiders point out that making significant changes to the global semiconductor chip business is an exceedingly tricky operation that would take years, regardless of the Trump administration’s broader policy aims.

“Semiconductors [are] an unbelievably complicated business,” said Anja Manuel, executive director of the Aspen Strategy Group and the Aspen Security Forum. “The United States absolutely leads in design of chips, and we lead … on creating the machines that make the chips. We are not as good at the fabs, which is actual manufacturing of the chips, because that was considered low margin. Our companies didn’t want to do it.

“So, mostly they get designed here, the chips get made in Taiwan — famously by TSMC, they’re the best in the world — and then they get put in all of the electronics that are in our pockets all over the world,” she told Threat Status in an exclusive video interview. “Undoing that ecosystem and bringing all of it back to homegrown American companies here, I think, is unfeasible in the short and medium terms. So that’s a long way of saying we really should be partnering with TSMC. There’s no problem with that.”

Many analysts see Mr. Trump’s tariff threat as a way to force TSMC to boost its investments inside the U.S. Applying the import duties would have severe consequences for American firms dependent on TSMC chips. U.S. companies, they argue, would end up paying virtually all the tariff surcharge if Mr. Trump goes through with his plan.

“TSMC’s chips cannot be easily replaced; even Intel struggles to produce them,” Darson Chiu, an economics professor at Taichung-based Tunghai University and director-general of the Taipei-based Confederation of Asia-Pacific Chambers of Commerce and Industry, recently told the Taiwan Times.

National security implications

What could be a problem, other analysts contend, is a Chinese military move on Taiwan. Beijing considers Taiwan part of its sovereign territory, and President Xi Jinping has reportedly ordered China’s commanders to be prepared for military action against the island by 2027.

“It’s not a matter of if China acts, but when. Whether military action, technological warfare and sabotage, or a combination of both, such aggression would inevitably disrupt, if not sever, the U.S. semiconductor supply chain,” said Aiden Buzzetti, president of the nonprofit advocacy group the Bull Moose Project.

“It’s time policymakers get tough and hold TSMC accountable to the geopolitical situation. Fortunately, President Trump has the chops to do it,” he wrote in a recent piece for The Blaze. “He has been vocal about using tariffs to stop the flood of foreign-made chips and support U.S.-based manufacturers.”

Another deep concern is Beijing’s access to U.S. technology at facilities in Taiwan.

“TSMC’s most significant and technologically advanced capabilities (e.g., 2-3 nanometer fabrication) are in Taiwan,” according to a 2023 Congressional Research Service report, which warned that China appears to be fabricating such advanced semiconductors at TSMC in Taiwan.

“Many [Chinese] firms and institutes — including some that are listed on the U.S. Department of Commerce’s Bureau of Industry Security’s Entity List — appear to be using membership in U.S. open-source technology platforms to access the U.S. technology and capabilities to design advanced semiconductor chips that they can then fabricate in Taiwan,” the report said.

Reuters reported in November that the Commerce Department had ordered TSMC to halt shipments of advanced chips to companies in China. These chips are often used in advanced artificial intelligence applications.

TSMC appears to have cooperated with U.S. officials on the matter. Reuters maintained that Commerce Department officials issued their order after TSMC notified the department that a chip fabricated by the company was found in an AI processor maintained by Huawei, a China-owned telecommunications giant on the U.S. restricted trade list.

A spokesperson for TSMC told the news agency that the company is “law-abiding” and “committed to complying with all applicable rules and regulations, including applicable export controls.”

The Commerce Department moved in 2022 to restrict U.S. semiconductor design and American manufacturing companies Nvidia and Advanced Micro Devices from exporting AI-related microchips to China. Still, those companies’ chips have not been reported to turn up in Huawei processors. The department also issued restrictions on Intel and Qualcomm, two other key players in the U.S. chip sector.

• Guy Taylor and Bill Gertz contributed to this report.