Trump’s stance on Taiwan could be devastating for the US economy
Former President Donald Trump in a recent Bloomberg Businessweek interview called for Taiwan to pay the US for its defense.
Former President Donald Trump during a recent interview with Bloomberg Businessweek waded into the US-Taiwan relationship head-on, suggesting he might upend their long-standing economic relationship. Trump said Taiwan took the US chips business and that it should pay the US for defense.
“They did take about 100% of our chip business. I think, Taiwan should pay us for defense. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything,” Trump said in the interview published on Tuesday.
“Taiwan is 9,500 miles away,” he continued, highlighting its significant distance from the US. “It’s 68 miles away from China.”
China continues to view Taiwan as a breakaway province. But Taiwan has long defended its right to self-rule, away from the grips of Beijing.
Trump’s stance could also have major implications for Taiwan’s dominance in semiconductor chip manufacturing should any potential conflict arise between Taiwan and China. Such a scenario would likely have a cataclysmic effect on the US economy should the global chip supply chain be disrupted.
It is worth noting Trump’s “make them pay” rhetoric isn’t new, or unique to Taiwan. He’s said similar things about NATO for years, and he campaigned in 2016 on making Mexico pay for a border wall (Mexico did not pay for the wall).
And there’s also Trump’s new pick for vice president, JD Vance. The Ohio senator, on paper at least, appears to have a different view on Taiwan and its importance than the former president. A critic of US support of the war in Ukraine, Vance has called China as “the real issue,” and argued that key American weapons being used by Ukraine should be preserved in case war breaks out between China and Taiwan.
President Joe Biden, for his part, has said the US would defend Taiwan “if there was an unprecedented attack” from China.
The semiconductor influence
Taiwan manufactures more than 60% of the world’s semiconductors and produces about 92% of the globe’s advanced semiconductors, according to Foreign Policy.
And Taiwan’s microchip production is anchored by the Taiwan Semiconductor Manufacturing Company, or TSMC, a global powerhouse.
A study authorized by the US State Department found that any temporary halt to Taiwan’s chip production from a Chinese blockade could result in roughly $2.5 trillion in annual losses globally, according to the Financial Times.
It’s the sort of impact that would surely reverberate for years.
Trump said in the Bloomberg interview that Taiwan “took” America’s microchip business and claimed that they had gotten rich by doing so.
“How stupid are we?” he asked the publication.
The ex-president’s remarks are significant because the US has a vested interest in preserving strong ties in the Indo-Pacific region given the disproportionate impact that Taiwan has on the US economy.
Taiwanese chips are used in everything from cell phones and electric vehicles to microwaves and manufacturing equipment. This reality has made many US policymakers even more aware of Taiwan’s huge role in America’s economic vitality.
Becoming a major chip player once again
The CHIPS and Science Act, which was passed by Congress and signed into law by President Joe Biden in 2022, was crafted to boost semiconductor manufacturing in America. The law set aside $39 billion in manufacturing incentives for chip production in the US.
Biden heavily pushed the legislation as a way to bolster supply chain resilience while also keeping the US competitive against China.
The Biden administration recently floated using a stringent trade restriction known as the foreign direct product rule to block China from utilizing advanced chipmaking tools, according to Bloomberg.
CJ Muse, the senior managing director at Cantor Fitzgerald, told CNBC that “the potential for more restrictions is real.”
“The intent is really to limit China’s ability to build leading-edge semiconductors, and I think that the efforts the Department of Commerce and BIS [Bureau of Industry and Security] have put through have done that,” he said.
A recent report released by the Semiconductor Industry Association revealed that America’s share of global chip manufacturing is set to increase to 14% by 2032. Currently, the US has a 10% share, reflective of years of manufacturing operations being sent offshore — which put the country at a competitive disadvantage.
But the US still faces an uncertain future regarding chip production should Trump sit in the White House again, as fears have risen of supply chain disruptions in a potential conflict involving Taiwan.
After Trump’s latest remarks about Taiwan and the potential for tighter trade curbs on China, global chip stocks fell, with notable declines for Nvidia, TSMC, and Qualcomm, among others.
