Posted originally on Jan 29, 2025 by Martin Armstrong 

The chip shortage has been at the top of mind over the last week after the launch of DeepSeek, a novel AI service intended to compete with ChatGPT. Semiconductor manufacturers have left the US and previous plans to attract domestic production have failed. President Donald Trump has proposed a new idea to force production back to the states through tariffs.

The CHIPS and Science Act launched under the Biden Administration injected $52 billion into American chip manufacturing. Intel was awarded $7.9 billion in 2024 to boost factories in Ohio, Oregon, New Mexico, and Arizona. Still, these incentives have not been sufficient to attract new chip manufacturers to the US, with the bulk residing in Taiwan.

Trump believes that throwing cash at companies is not enough to boost domestic production. “They’re gonna build their factory with their own money. We don’t have to give them money,” Trump added, later claiming: “They’re giving the money, they don’t even know what they’re going to do with it.” Instead, he is proposing tariffs between 25% to 100%, believing companies will come to the US to avoid these impossible taxes.

“The only way you’ll get out of this is to build your plant —if you want to stop paying the taxes or the tariffs— you’ll have to build your plant right here in America,” Trump added. “That’s what’s going to happen at record levels.”

Now, Taiwan hoped to strengthen trade with the US through these highly demanded chips. “In the face of authoritarian expansionism and the challenges of the post-pandemic era, Taiwan seeks to bolster cooperation with the United States in the semiconductor and other high-tech industries. This will help build more secure and more resilient supply chains. We look forward to jointly producing democracy chips to safeguard the interests of our democratic partners and create greater prosperity,” Taiwan’s President Tsai Ing-wen stated.

Democracy is exactly what China does not want Taiwan to have. Russia means nothing to China. The one aspect that China has repeatedly warned the US not to meddle in is its One China policy. Chinese President Xi believes he can reunify Taiwan with mainland China in a “peaceful” manner. Taiwan’s president Tsai Ing-wen has been deemed a terrorist of sorts by China as no president has ever been so outspoken about securing Taiwan’s sovereignty. The main reason that he was able to speak bluntly was US protections, with former President Joe Biden ensuring the protection of Taiwan at all costs and US politicians like Pelosi flocking to China with open discussions of neutralizing Chinese threats.

Trump has told Taiwan that it must raise its own defense budget from 2.45% of GDP to around 10%. Remember that Trump is a businessman who happened to become involved in politics. He has likened America to “an insurance company” for Taiwan and believes the nation should pay for protection. Moreover, he is now accusing Taiwan of stealing America’s chip manufacturers and reducing its competitiveness in the tech race.

The US undoubtedly needs to boost chip manufacturing as geopolitical tensions may dampen the already strained supply. Yet, it takes about a year to get a plant up and running. Businesses will need to move now and fast to avoid not only potential tariffs but also Chinese influence over Taiwan.