TAIPEI (Taiwan News) — A US expert says Trump’s plan to tariff Taiwan chips may compel the American tech industry to accelerate offshoring.
Stephen Ezell, vice president for global innovation policy at the Washington-based technology think tank Information Technology & Innovation Foundation, said on Jan. 28 that Trump believes raising tariffs on Taiwanese chips to 100% would force Taiwanese firms to move production to the US to avoid paying the tax. However, Ezell pointed out that if the US imposes lower tariffs on chips from other nations such as India or Japan, Taiwanese companies might choose to shift their operations there instead.
Furthermore, Ezell said that a 2023 study suggests that a major disruption in Taiwanese semiconductor manufacturing, whether due to natural disasters, military conflict, or the proposed Trump tariffs, could increase US logic chip prices by as much as 59%. Because chips are crucial components in many products, Trump's proposed tariff hike would quickly drive up the cost of everyday goods in the US.
Ezell predicted that American companies that rely on Taiwanese chips would face higher costs unless they relocate production abroad to evade the tariffs. He argued that under such a scenario, it would be “economically rational” for US firms that rely on Taiwanese chips to shift production abroad.
He also criticized the notion that the tariff burden could be shifted entirely onto foreign companies or US importers rather than American consumers. He recalled that during the 2021 US-China trade war, economists found that American consumers bore the brunt of higher prices on imported goods, and that the aggregate real income in both the US and China fell as a result.
The expert noted that a study from October 2019 similarly showed that tariffs on Chinese products were largely absorbed by US importers.
Ezell further argued that tariffs on Taiwanese semiconductors would have only a limited short-term effect on boosting domestic semiconductor production in the US, and even under the most favorable conditions, any such boost would take years to manifest.
Ezell said no semiconductor manufacturer would simply shut down a multi-billion-dollar wafer fabrication plant and relocate it to the US, nor would they construct a replacement facility in the US.
He pointed out that semiconductor manufacturing is an extremely complex and expensive endeavor, with most advanced fabs costing over US$30 billion (NT$992.1 billion) to build, and companies carefully considering up to 500 factors—including, availability of skilled labor, tax policies, trade and technology policies, regulatory conditions, environmental standards, and labor market conditions before choosing a site.
Ezell said, “Tariffs alone aren’t enough to justify relocating a $20 billion fab or choosing the US over another location for a new facility.”
Ezell warned that if Trump's policy were to significantly raise the cost of chips used in information and communications technology (ICT) products, it would likely harm American manufacturers across the board, not only those in the tech sector but also in other industries that depend on ICT products. Such increased costs could accelerate the offshoring of manufacturing rather than encourage its return to the US, said Ezell.
He cited a 2019 study as indicating that US manufacturing sectors facing higher tariffs generally experienced job losses, as the advantages of import protection were surpassed by higher input costs and retaliatory tariffs.
The analyst said, “Trump appears to think that computer chips are just like potato chips,” in that raising tariffs high enough would compel American firms to only make them in the US. However, Ezell explained that with semiconductors, companies rely on global supply chains to source a wide variety of specialized inputs from across the world, as well as large international markets to recoup the tremendous cost to develop and manufacture semiconductors.
Ezell stressed that imposing tariffs on Taiwanese semiconductors would be counterproductive and would weaken the competitiveness of the US technology sector and further expedite the offshoring of industries.
He emphasized that there is no need for Trump to resort to tariffs because the US is “already one of the world’s most attractive locations for semiconductor manufacturing.”