For Taiwan’s crucial chip industry, both Trump and Harris pose risks | Business and Economics

Taipei, Taiwan – For engineers working in Taiwan’s semiconductor industry, the past few years have been difficult.

United States efforts to curb the growing power of Taiwan’s neighbor China by cutting off its access to cutting-edge chips have put the island’s chip sector in the crosshairs of the world’s most serious geopolitical rivalry.

For Taiwan, the US-China rivalry for dominance is a double-edged sword.

On the one hand, U.S. efforts to contain China’s growing power and influence serve to counter the risk of a possible future Chinese invasion of the self-governing island that Beijing considers its territory.

On the other hand, they have made doing business more difficult for semiconductor and equipment manufacturers in Taiwan, which sell much of such “critical technology” to China.

Despite its small size, Taiwan produces nearly 60 percent of the world’s supply of semiconductor chips and nearly 90 percent of the cutting-edge chips needed to power everything from smartphones to artificial intelligence.

Following US President Joe Biden’s signing of the Chips and Science Act in 2022, which encourages US chip manufacturing while limiting technology transfer to China, Taiwan’s semiconductor sector has had to adapt to a changing regulatory environment.

Many companies have shifted their business focus away from China, diversifying into the US and Southeast Asia.

Some rank and file in the industry felt a sense of whiplash.

“There is a clear direction. (The US) would like to compete with China and limit its development. However, this policy is never consistent, it is dynamic,” a Taiwanese engineer at a European multinational chip manufacturer told Al Jazeera.

“It’s difficult for us to know what our policy is (regarding) our Chinese business in these circumstances because the rules are changing quickly. Today it’s like this, tomorrow it’s like that,” said the engineer, asking not to be named for professional reasons.

After the turmoil of the last two years, more turmoil may be upon us as the US presidential election takes place on November 5th.

Whether Vice President Kamala Harris or former President Donald Trump is elected, analysts widely expect new restrictions on Chinese technology that will have spillover effects on Taiwan’s chip industry.

“The theme is that Trump and Harris are tightening the screws on China and Taiwanese firms will have to adapt. Some will benefit and some will suffer, but they will all have to adapt,” Chris Miller, author of “The Chip War: The Fight for the World’s Most Critical Technology,” told Al Jazeera.

While Harris and Trump have significant differences on domestic issues, anti-China sentiment increasingly reflects a consensus among both Democrats and Republicans.

During his tenure as president, Trump launched a trade war with Beijing, imposing tariffs on about $380 billion of Chinese goods, according to a Tax Foundation analysis.

US President Joe Biden, a Democrat, kept those tariffs in place after winning the 2020 election and earlier this year added tariffs on another $18 billion in imports including steel, semiconductors and electric vehicles after a lengthy investigation by the US Trade Representative.

With trade protectionism back in vogue in Washington, D.C., hints have emerged about the likely trajectory of China’s policy under a Trump or Harris presidency, said Chim Lee, senior analyst at the Economist Intelligence Unit.

“The overall trajectory under both presidents is not too bad, but under Trump the impact will be a little more volatile. Regardless of who wins the election in November, the priority will be to re-industrialize and improve the US manufacturing sector. They are both looking at protectionist measures,” Lee told Al Jazeera.

The main difference, Lee added, is that Harris will be more “advisory” while Trump will be more “volatile.”

In Taiwan, opinion polls showed the public favoring Harris to win, as well as a significant amount of ambivalence.

In a poll conducted by Taiwanese broadcaster TVBS in July and August, 46 percent of respondents preferred Harris to win, compared with 15 percent who backed Trump. Notably, 39 percent said they were undecided.

During the campaign, Trump accused Taiwan of “stealing” the chip industry from the United States decades ago.

Trump also called for a 60 percent tariff on all Chinese goods, which would shift costs to numerous Taiwanese suppliers doing business with China.

In an interview with The Wall Street Journal published Saturday, the Republican said he would not have to use military force to break the blockade of Taiwan because Chinese President Xi Jinping “respects me and knows I’m crazy.”

He also said he would impose even higher tariffs of 150 to 200 percent on Chinese goods if Beijing ever invaded.

Harris was more reserved in her comments on Taiwan-China relations.

In an October interview with CBS’s “60 Minutes,” the Democrat said she couldn’t discuss “hypotheticals” when asked whether the U.S. would defend Taiwan in the event of a Chinese invasion.

But she added that she would ensure Taiwan’s “capacity to defend itself,” echoing language in the 1979 Taiwan Relations Act, which requires Washington to “provide to Taiwan such defense articles and defense services in such quantities as may be necessary.” .

In her trade policy, Harris is expected to be more focused in her approach to Chinese tariffs, following the tone set by Biden, whose administration has prioritized “relocating” chip production to the U.S. and keeping cutting-edge semiconductors out of Chinese hands. .

For Taiwan, the CHIPS Act has been controversial, giving a boost to some of Taiwan’s nearly 300 semiconductor-related companies while creating difficulties for others, depending on their position on the industry ladder.

“Taiwan has been hugely impacted by US export controls,” Christy Tsung-Tzu Hsu, director of the Taiwan Center for ASEAN Studies at the Taipei Chung-Hua Institute of Economic Research, told Al Jazeera, explaining that Taiwanese firms were previously large companies. suppliers for Chinese giants such as Huawei.

Companies such as leading chipmaker TSMC have adjusted their business model to suit US requirements.

In 2020, the company suspended all new orders from Huawei, which was its second-largest customer at the time, after new export control rules were announced.

Since then, TSMC has gravitated toward its U.S. business, which is now three times the size of its Chinese counterpart, Xu said, as a result of demand from tech giants such as Apple and Nvidia.

Under the CHIPS Act, the company would receive $6.6 billion in direct financing and $5 billion in loans to help it build three facilities in Arizona to “diversify” its supply chain, as well as spend $65 billion of its own money on the project.

TSMC has received US permission to continue manufacturing its 12, 16, 22 and 28nm chips at its plant in the Chinese city of Nanjing, although its most advanced chip production remains outside China.

The most advanced offering, a 2nm chip, will be manufactured in Taiwan.

Other companies have faced fallout from the unrestricted market for “legacy chips” (a term for less advanced but ubiquitous chips that can be found in everything from smart refrigerators to electronic vehicles).

Cut off from supplies of cutting-edge chips and equipment, Chinese tech companies have begun spending money on machines to make legacy chips.

As Chinese production capacity increased, smaller Taiwanese chipmakers suddenly found themselves in a market teetering on the edge of overcapacity.

Many Taiwanese companies fear Chinese competitors will completely flood the market in three to five years, Xu said.

There are also concerns about Washington’s next moves in the chip manufacturing equipment supply chain.

Under U.S. pressure, the Dutch government earlier this year announced export restrictions on advanced semiconductor manufacturing equipment like those made by Veldhoven-based ASML, the sole supplier of cutting-edge chip-making machines.

In September, Morgan Stanley cut its earnings estimate for ASML amid concerns about weaker demand from Chinese chipmakers, which has led to a surge in orders for legacy chip-making machines.

A Taiwanese engineer at ASML said he was concerned that Harris would pursue policies similar to those promoted by Biden, while Trump was a source of concern for him due to his mercurial reputation.

“I think most engineers will want Harris to win the election because… Trump is not very friendly to Taiwan. For example, I still remember him claiming that Taiwan stole America’s chip business,” the engineer told Al Jazeera on condition of anonymity.

“Harris has a stronger relationship with Silicon Valley. I think it will be more beneficial for Taiwan’s high-tech industry.”

Trump’s proposed blanket 60 percent tariff on Chinese goods in particular poses risks to Taiwan’s trade.

An analysis published by UBS in July estimated that the tariffs would more than halve China’s gross domestic product growth by 2.5 percentage points over the next 12 months.

Such a slowdown would have negative consequences for Taiwan’s economy, even as Taiwanese companies gradually move many of their operations out of China amid rising prices and geopolitical tensions.

Trump’s ongoing complaints about trade deficits with other countries have also raised fears that he could impose trade restrictions on Taiwanese goods to address the US’s $47 billion trade deficit with the island.

Amid such uncertainty, the best Taiwan can do now is prepare for change, said Yachi Chang, a professor of technical law at National Taiwan Ocean University.

“The biggest worry for (Taiwan) now is that we may not be able to rely on our first experience with Trump because he is really unpredictable,” Chiang told Al Jazeera.

“If Harris wins, even if she follows most of Biden’s policies, she will still have her own opinions. In her case, Taiwan must be ready for change.”