Trump’s Threatened Tariffs Could Trigger Inflation, Taiwan Chip Manufacturer Says
Taiwan-based chip manufacturer Vanguard International Semiconductor has issued an inflation warning. According to Reuters, the chip maker says that Trump’s threatened tariffs on imported chips could trigger inflation and affect economic growth globally negatively. While raising the alarm, Vanguard said it does not expect the tariffs to have a far reaching impact on its business.
A Wait and See Situation
Last week, President Donald Trump expressed intentions to impose US tariffs on imported chip autos amounting to 25%. In his latest threats that could affect global trade, the US president also plans to introduce similar duties on pharmaceutical imports.
Speaking to analysts during a post-earnings call, Vanguard chip manufacturing chairperson Leuh Fang said his company was monitoring the situation. He said it was still unclear whether the Trump administration will follow through with the threats.
“If tariffs are implemented, it will cause many impacts, from inflation to a decline in end-product purchasing power, and even affect expected economic growth. This will have some impact on the global semiconductor industry, but we currently lack the ability to predict how the potential impact will develop,” Fang said.
Vanguard manufactures mature node or legacy chips that car makers use. These chips are also used in display panels. Fang expects US tariffs to present minimal direct threat to his company. This is because the proportion of semiconductor products that Vanguard exports directly to the US market is very low.
New Complexities
Trump tariff threats on semiconductor chips has introduced new intricacies into Taiwan’s ambitions of maintaining its global powerhouse status in the critical sector. The Taiwanese government is assessing the potential effects of US tariffs. The government has already expressed support for industries that are affected by the tariffs.
Since he assumed office last month, Trump has threatened to introduce tariffs against the US largest trade partners in a bid to push manufacturing to shift production to the country and reduce the big trade deficit. Taiwan is an essential player in the global chips supply chain. The Island country manufactures over 50% of the world’s chips and close to all advanced semiconductors. Its economic significance has earned it the ‘Silicon Shield’ tag.
“Taiwan’s economic security depends heavily on its leadership in semiconductor manufacturing, which it has been using strategically to maintain its importance in global supply chains. I think that Trump’s tariff threats make this strategy much more complicated. For instance, Taiwan could face pressure to make concessions,” City University of Hong Kong International Trade Expert Julien Chaisse said.
China claims that Taiwan is part of its geographical territory. Previously, the Chinese have threatened to use military force to get it under its control. Despite the bipartisan support that Taiwan enjoys in the US Congress, concerns that Trump may not see it necessary to defend the Island in the event of attack by China remain rife.
The US President has accused the country of stealing the chip industry from the US and even suggested that it should pay the US for protection. The Taiwanese President has committed to increase investments in the US to lessen the trade imbalance.
Market Share Shift
Unlike other Taiwanese chip manufacturers like TSMC, Compal and Invantec, Fang said his company is not looking to set up manufacturing plants in the US. TSMC has a 27.15% stake in Vanguard. As the largest contract semiconductor manufacturer that makes advanced chips, TSMC is setting up production facilities in Arizona.
Vanguard is one of the Taiwanese companies that see Chinese rivals taking their market share through aggressive expansion and price reduction. But Fang looks at Chinese competition and the US-China trade war differently. He says starting 2024, these factors have prompted some US customers to shift from China
“Chinese companies are building up unneeded capacity in mature processes, leading to vicious price competition and a lack of trust among many customers. The trend of order transfers is more evident among American customers, and it involves multiple customers, not just one,” Fang added.
Vanguard reported a 19.4% annual revenue increase to hit the $353 million mark. The company’s gross profit for the quarter ending December 31 increased by 48.7%.
