TSMC Making A Risky Bet On MAGA

Having visited the construction sites and conversed with TSMC employees, I can report that the project continues to be fraught with delays, cost overruns, skilled labor shortages, disgruntled workers, logistical inefficiencies and an immature supply chain ecosystem.

The foundry's Arizona operations will undoubtedly bleed money for the foreseeable future. Just ask Morris Chang, TSMC's founder and former CEO, who admitted that the cost of making chips in Arizona was at least 50% higher than in a Taiwanese foundry. Tellingly, the company's stock price sank almost 5% the same day Trump announced the latest factory deal.

If logistics and profitably were TSMC's primary considerations, it surely would put more factories in Kumamoto, Japan. Its two factories there were built on schedule and on budget. Unlike Arizona, Japan has an existing semiconductor ecosystem with experienced chip engineers and manufacturers along with proven logistics and supply chains.

TSMC's Japanese factories also have the full support of the community, including the local government, public schools and even small businesses. I visited Kumamoto last year and found supermarkets stocked with common Taiwanese foods like chicken feet, pig liver and live fish as they prepared to welcome TSMC's Taiwanese workers.

Taipei would be wise to consider Trump's true priorities, a task that admittedly is easier said than done. We all know how Trump's mood swings wildly from day to day.

Consider Mexico and Canada: tariffs on, tariffs off. Right now, Trump's line on Taiwan seems to be that it treats the US unfairly – it“stole our chip business,” he alleged – but that its leading chip company, TSMC, nevertheless is on the level.

“You're not in a good position,” Trump vociferated during his infamous dressing-down of Ukrainian President Volodymyr Zelensky at the White House.“You don't have the cards right now.” In the end, what makes Taiwan so different than Ukraine in the eyes of Trump?

Does Trump really care about Taiwan's long-term autonomy? Once Taiwan surrenders its high-tech advantage to the US, would Trump be willing to barter Taiwan off to Beijing for, say, a big trade deal?

The odds are that TSMC has only temporarily appeased Trump with its latest pledge. Trump might again turn on TSMC and make more demands.

For instance, he may continue to pressure TSMC to take over Intel's failing chip plants in the US, which would require tens of billions of dollars and many years to overhaul and modernize.

Already, the evidence suggests that TSMC's deference isn't paying off. Sources within the Trump administration say that it still may impose tariffs of up to 100% on Taiwanese chip imports.

And Trump is calling on Congress to scrap the CHIPS Act, which was passed in 2022 under the Biden administration to subsidize domestic chip manufacturing. It's thus unclear whether TSMC will receive the $6.6 billion it is promised under the act.

TSMC's deal still needs final approval from the Taiwanese government. Passage is not a slam dunk. Former president of Taiwan May Ying-jeou claimed the deal threatened to create a“major national security crisis” and would have negative consequences regarding“Taiwan's future geopolitical position.”

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Many Taiwanese citizens are wondering whether the government will capitulate to Trump's tough talk or choose instead to protect Taiwan's chip manufacturing monopoly and safeguard its geopolitical importance in the world.

If there is a silver lining here, it is that Taiwan is accustomed to making difficult decisions. Remember, this is a self-governing archipelago that has formal relations with only 13 nations, lacks a seat in the United Nations and has been on the brink of war for two generations with the second-most-powerful country in the world.

Taiwan's very existence as a self-governing entity requires a willingness to live on the edge. One can thus imagine a scenario where Taiwan takes a page from Trump's playbook, investing $100 billion while covertly holding back on the most advanced chip technologies or, better yet, delaying the overall project.

Maybe Taiwan and TSMC can bluff their way through the next four years. Maybe the Trump administration will turn a blind eye or fail to track TSMC's compliance.

Maybe. But Tawain ultimately will need to convince Trump that it has additional cards to play.

Stanley Chao was previously executive vice-president of US chipmaker Kingston Technology and is the author of“Selling to China: A Guide for Small and Medium-Sized Businesses.”

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