Trump's stance on Taiwan could be devastating for the US economy

• Former President Trump's remarks about Taiwan have raised uncertainty within the chip industry.
• In a recent Bloomberg Businessweek interview, he said Taiwan should pay the US for its defense.
• Taiwan's semiconductor dominance could make a supply-chain disruption perilous for the US economy.

Former President Donald Trump during a recent interview with Bloomberg Businessweek waded into the US-Taiwan relationship head-on, suggesting he might upend their long-standing economic relationship. Trump said Taiwan took the US chips business and that it should pay the US for defense.

"They did take about 100% of our chip business. I think Taiwan should pay us for defense. You know, we're no different than an insurance company. Taiwan doesn't give us anything," Trump said in the interview published Tuesday.

"Taiwan is 9,500 miles away," he added. "It's 68 miles away from China."

China continues to view Taiwan as a breakaway province. But Taiwan has long defended its right to self-rule away from the grips of Beijing.

Trump's stance could also have major implications for Taiwan's dominance in semiconductor-chip manufacturing should a conflict arise between Taiwan and China. Such a scenario would likely have a cataclysmic effect on the US economy if the global chip supply chain was disrupted.

It is worth noting Trump's "make them pay" rhetoric isn't new, or unique to Taiwan. He's said similar things about NATO for years, and he campaigned in 2016 on making Mexico pay for a border wall (Mexico did not pay for the wall).

And there's also Trump's new running mate, JD Vance . The Ohio senator, on paper at least, appears to have a different view on Taiwan and its importance from the former president's. A critic of US support of the war in Ukraine, Vance has called China "the real issue" and said that key American weapons being used by Ukraine should be preserved in case war breaks out between China and Taiwan.

President Joe Biden, for his part, has said the US would defend Taiwan "if there was an unprecedented attack" from China.

The semiconductor influence

Taiwan manufactures more than 60% of the world's semiconductors and produces about 92% of the globe's advanced semiconductors, Foreign Policy reported in February 2023.

And Taiwan's microchip production is anchored by the Taiwan Semiconductor Manufacturing Co., a global powerhouse.

A study authorized by the US State Department found that any temporary halt to Taiwan's chip production from a Chinese blockade could result in roughly $2.5 trillion in annual losses globally, according to the Financial Times.

It's the sort of impact that would surely reverberate for years.

Trump said in the Bloomberg interview that Taiwan had gotten rich as it "took" America's microchip business.

"How stupid are we?" he asked.

The ex-president's remarks are significant because the US has a vested interest in preserving strong ties in the Indo-Pacific region given the disproportionate impact that Taiwan has on the US economy.

Taiwanese chips are used in everything from cellphones and electric vehicles to microwaves and manufacturing equipment. This reality has made many US policymakers even more aware of Taiwan's huge role in America's economic vitality.

Becoming a major chip player once again

The CHIPS and Science Act, which Congress passed and Biden signed into law in 2022, was crafted to boost semiconductor manufacturing in America. The law set aside $39 billion in manufacturing incentives for chip production in the US.

Biden heavily pushed the legislation as a way to bolster supply-chain resilience while keeping the US competitive against China.

The Biden administration recently floated using a stringent trade restriction known as the foreign direct-product rule to block China from using advanced chipmaking tools, Bloomberg reported.

"The potential for more restrictions is real," CJ Muse, the senior managing director at Cantor Fitzgerald, told CNBC .

"The intent is really to limit China's ability to build leading-edge semiconductors, and I think that the efforts the Department of Commerce and BIS have put through have done that," he added, referring to the Bureau of Industry and Security.

A recent report released by the Semiconductor Industry Association said that America's share of global chip manufacturing was set to increase to 14% by 2032. Currently, the US has a 10% share, reflective of years of manufacturing operations being sent offshore — which put the country at a competitive disadvantage.

But the US still faces an uncertain future regarding chip production should Trump sit in the White House again, as fears have risen of supply-chain disruptions if there's a conflict involving Taiwan.

After Trump's latest remarks about Taiwan and the potential for tighter trade curbs on China, global chip stocks fell , with notable declines for Nvidia, TSMC, and Qualcomm, among others.