As Trump 2.0 looms, Taiwan’s chip industry braces for upheaval

Taipei, Taiwan – With just weeks left in office, outgoing United States President Joe Biden and his team are scrambling to lock in billions of dollars in funding to re-shore chip manufacturing to the US.

Signed into law by Biden in 2022, the CHIPS and Science Act set aside $280bn in funding to boost domestic semiconductor research and manufacturing in the US, including $39bn in subsidies, loans and tax credits for both US and foreign companies.

The law received bipartisan support in Congress and was broadly welcomed in both Democratic and Republican-leaning states eager to lure cutting-edge manufacturing facilities and create jobs.

But with President-elect Donald Trump set to take office on January 20, the future of the CHIPS Act now looks uncertain, leaving Biden’s administration racing to wrap up complex negotiations with chipmakers and distribute funds.

During an appearance on the Joe Rogan Experience podcast shortly before the election, Trump blasted the legislation as being “so bad”.

“We put up billions of dollars for rich companies,” Trump said.

Trump has also accused places such as Taiwan, home to the world’s top producer of advanced semiconductors, Taiwan Semiconductor Manufacturing Company (TSMC), of “stealing” the chip industry from the US.

Most of the 24 recipients of funds under the CHIPS Act are US companies, chief among them Intel, which last month secured nearly $7.9bn in direct funding from the US Department of Commerce.

Four East Asian companies have also signed on to the CHIPS Act: TSMC and GlobalWafers of Taiwan, and Samsung and SK Hynix of South Korea.

In recent weeks, the Commerce Department has finalised its deals with TSMC and GlobalWafers, after earlier signing nonbinding memorandums of agreement.

TSMC locked in $6.6bn in grants and $5bn in loans to build four facilities in Arizona, while GlobalWafers finalised a deal to receive $406m to build facilities in Missouri and Texas.

Trump cannot unilaterally repeal the CHIPS Act because it was passed by the US Congress, but analysts say he could make it difficult for the law to function as intended.

As president, he could block or delay the Commerce Department in distributing funds, possibly as part of cost-cutting efforts spearheaded by the new so-called Department of Government Efficiency, to be led by tech mogul Elon Musk and entrepreneur Vivek Ramaswamy.

Dan Hutcheson, vice chair of California-based Tech Insights, said Trump could also simply try to renegotiate some of the terms of the CHIPS Act or repackage elements of it under new legislation.

Trump pulled a similar manoeuvre in 2018, with the signing of the US-Mexico-Canada Agreement to replace the substantially similar North American Free Trade Agreement, Hutcheson said.

The Trump administration borrowed heavily from the wording of NAFTA and the Trans-Pacific Partnership, a free trade deal with Asia proposed by former President Barack Obama, for the revised agreement.

“What [Trump] really wants is to get his brand on everything … and you see that with all of his hotels and resorts and everything else,” Hutcheson told Al Jazeera.

“It’s his typical modus operandi, which I think you can expect will happen with the CHIPS Act.”

Among the CHIPS Act’s Asian partners, Taiwan’s TSMC has made the most visible efforts to ramp up US investment.

After earlier signing a non-binding memorandum of agreement, the Taiwanese company last month locked in $6.6bn in grants and $5bn in loans to build four semiconductor fabrication plants in Arizona.

Other Asian companies have moved less quickly, put off by the delays of the past two years and their own business challenges, according to Chim Lee, a senior analyst for China and Asia at the Economist Intelligence Unit.

In April, Samsung signed a nonbinding deal to spend $45bn expanding its production facilities in Texas in exchange for $6.4bn in grants.

Eight months later, there has been no announcement of any progress on the agreement.

In October, the South Korean tech giant issued a rare public apology after posting disappointing third-quarter results blamed on competition from its Chinese rivals.

There have also been no further updates on the status of nonbinding agreements, announced in April and July, respectively, for SK Hynix to build a $3.87bn facility in Indiana and GlobalWafers to invest $4bn in the production of silicon wafers in Texas and Missouri.

Yachi Chiang, a professor in tech law at National Taiwan Ocean University, said many people in Taiwan think that the Trump administration will ask TSMC to invest more than the $65bn it has pledged to build three Arizona plants in exchange for US subsidies.

With the change of administration, companies may be less eager to extend negotiations further, said the EIU’s Lee.

“Renegotiations can prolong the distribution of funds, if not undermine some of it. The allocation [of funds] has already taken more than two years since the bill’s passage. Businesses don’t like to wait, and they don’t like uncertainty,” he told Al Jazeera.

“Of course, this goes both ways. For some companies, production in the US is so costly that they will not commit to investment unless there are strong incentives.”

Asia’s tech companies have other incentives to keep production closer to home.

South Korea and Taiwan last year enacted their own equivalents of the CHIPS Act to boost subsidies and tax breaks for firms that invest locally.

Japan earlier this year approved $3.9bn in subsidies to domestic chipmaker Rapidus, and Tokyo aims to spend as much as $65bn through public and private sector funding to catch up with its chip-making neighbours.

Meanwhile, China recently pledged $45bn to shore up its chip industry in the face of US export controls and other attempts to curb its acquisition of advanced technology.

Taiwan’s Ministry of Economic Affairs told Al Jazeera it would not be appropriate to comment on the CHIPS Act before Trump takes office.

Taipei, however, has signalled to Trump that it is listening to his concerns.

Shortly after Trump’s election win, The Financial Times reported that Taiwan was considering a $15bn weapons purchase deal to show the president-elect that it was “serious” about its defence following his criticism that it should spend more on its military.

At the same time, there is political gridlock across East Asia, creating further uncertainty about how governments will respond to the Trump administration and its economic demands.

While Taiwanese President William Lai Ching-te can engage with Trump as the head of state, he is constrained at home policy-wise by an opposition that holds a majority in the legislature.

In South Korea, Han Duck-soo is serving as a caretaker leader as the country’s Constitutional Court considers whether to remove Yoon Suk-yeol from office following his impeachment over a short-lived declaration of martial law.

In Japan, Prime Minister Shigeru Ishiba is leading a minority government after his Liberal Democratic Party lost its majority in parliament following a snap election in October.

A second election is scheduled for next year for Japan’s upper house of parliament, portending further uncertainty ahead.

William Reinsch, a senior adviser with the economics programme at the Center for Strategic and International Studies, said the CHIPS Act was just one of many issues on the minds of East Asia’s leaders.

“I would expect Korea, Taiwan and Japan to look at the big picture of how best to maintain good relations with the US rather than focusing only on the CHIPS Act,” Reinsch told Al Jazeera.

“You should expect them to think seriously about more investment in the US, spending more money on their own defence budgets, and thinking about how best to align themselves with US policy with respect to China.”

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