Shares of Taiwan Semiconductor Manufacturing Co Ltd (TSMC) experienced a notable decline on Wednesday after comments by Republican presidential candidate Donald Trump during a Bloomberg Businessweek interview on June 25, suggesting that Taiwan should financially compensate the United States for its defense support. The interview, which was published on Tuesday, captured Trump’s assertion that Taiwan has effectively monopolized the U.S. chip industry and should, therefore, contribute towards its defense costs much like a premium to an insurance company.
Trump’s statement, “They did take about 100% of our chip business. I think Taiwan should pay us for defense,” underscores a complex geopolitical scenario wherein the U.S., despite lacking a formal defense treaty with Taiwan akin to those with South Korea and Japan, remains a pivotal military ally and arms provider. Under American law, the obligation to ensure Taiwan can maintain its self-defense is clear. Responding to these dynamics, Taiwan’s Premier Cho Jung-tai articulated the island’s proactive stance on defense responsibilities, highlighting ongoing enhancements to their military budget and the development of indigenous defense technologies, including submarines.
The reaction from Taiwan’s foreign ministry to Trump’s comments was notably muted, reflecting the strained geopolitical climate surrounding Taiwan, especially considering China’s view of Taiwan as a part of its territory and its escalated military maneuvers around the island. This tension is further magnified by remarks from U.S. President Joe Biden that suggest a deviation from the U.S.’s traditional policy of “strategic ambiguity,” hinting at potential military support for Taiwan in the event of an attack.
TSMC’s Market Response
The market reaction was swift, with TSMC shares dropping 2.4% immediately following the publication of Trump’s comments. The semiconductor giant, renowned as the world’s foremost contract chipmaker with key clients including Apple and Nvidia, also saw a broader market downturn with a 1% decline. Despite the market tremors, industry analysts like Allen Huang from Mega International Investment Service view Trump’s remarks as “political rhetoric” without long-term impact on TSMC’s robust market position. The firm is amidst a quiet period as it prepares for its upcoming second-quarter earnings release and continues to invest in significant expansions such as the $65 billion initiative to build three new plants in Arizona, though maintaining the majority of its production in Taiwan.
Defense and Diplomatic Context
On the defense front, Taiwan faces a substantial backlog in U.S. arms deliveries, now valued at around $19 billion. Efforts by U.S. officials to fast-track these deliveries have intensified, especially given the current global allocation of resources to regions like Ukraine. Recent legislative actions in April by the U.S. Congress to pass a foreign aid package have underscored the commitment to military support for Taiwan among other strategic partners.
China’s response remains aggressive, characterized by ongoing grey zone warfare tactics and frequent military incursions near Taiwan. Following the inauguration of President Lai Ching-te in May, China escalated its military posturing by staging war games around Taiwan and sharply criticizing President Lai’s policies, which it perceives as separatist. Despite Beijing’s repeated rejection of dialogue overtures, the threat of force remains a consistent element in its strategy to assert sovereignty over Taiwan.
Conclusion
Donald Trump’s provocative suggestion for Taiwan to remunerate the United States for its defense support has stirred significant discussion, influencing the financial markets and highlighting the intricate dance of diplomacy and international relations in the Asia-Pacific region. As Taiwan fortifies its defense capabilities and deepens its strategic ties with the U.S., the trajectory of its relations with China remains fraught with uncertainty, reflecting the broader complexities and volatile dynamics of cross-strait interactions.
