To The Moon

On April 2, 2025, U.S. President Donald Trump signed an executive order imposing steep tariffs on imports, targeting key semiconductor supply chain nations: Taiwan (32%), South Korea (25%), Japan (24%), and Malaysia (24%). Effective April 5, these measures signal a return to Trump’s “America First” trade strategy, aiming to pressure Asian economies into concessions while bolstering U.S. manufacturing. For the semiconductor industry—a global oligopoly dominated by U.S. design giants like AMD and NVIDIA, yet reliant on Asian production—the stakes are immense. This article examines how these four nations might respond, the potential impact on the chip sector, and early indicators of their strategies, such as the Intel-TSMC joint venture.

Trump’s High-Stakes Bet: Maximum Pressure

Trump’s tariffs are a classic “maximum pressure” tactic: impose punishing rates to create economic urgency, then extract trade or investment concessions at the negotiating table. The semiconductor industry, critical to everything from smartphones to defence systems, is a prime target. Taiwan’s TSMC produces over 50% of the world’s chips, South Korea’s Samsung and SK Hynix dominate memory, Japan supplies essential equipment and materials, and Malaysia anchors back-end assembly. By threatening their access to the lucrative U.S. market, Trump bets these nations will “surrender” rather than risk prolonged losses.

Potential Responses: Four Scenarios

How Japan, South Korea, Taiwan, and Malaysia react in the coming weeks—particularly by April 11—will shape the semiconductor landscape. Here are four plausible scenarios:

1. Retaliation: These nations impose counter-tariffs on U.S. goods (e.g., agriculture, energy). While this could escalate into a trade war, it risks alienating the U.S., a key security ally for Japan and Korea, and a vital market for all. Chip costs would soar, and supply chains could fracture further—a lose-lose outcome.

2. Passive Acceptance: Accepting the tariffs without retaliation preserves diplomatic ties but cedes leverage. Taiwan’s TSMC, facing a 32% cost hike, might shrink profit margins unless it raises prices, potentially losing competitiveness to U.S.-based Intel. This scenario delays inevitable restructuring, leaving these economies vulnerable.

3. Preemptive Concessions: Lowering their own tariffs on U.S. goods (e.g., to Trump’s 10% benchmark) could soften American pressure. Malaysia, with weaker bargaining power, might pioneer this approach, trading market access for tariff relief. While stabilizing chip exports, it sacrifices domestic protections—a short-term fix.

4. Bilateral Negotiations: The best outcome is engaging the U.S. in talks to secure exemptions or reductions. Taiwan could leverage TSMC’s U.S. investments, Korea's Samsung factories, and its technological edge. Success here could preserve supply chains and even deepen strategic ties with Washington.

Impact on the Semiconductor Industry

The tariffs’ effects ripple across the chip ecosystem:

• Cost Pressures: A 32% tariff on TSMC’s chips could raise AMD’s procurement costs by a third, squeezing margins unless passed to consumers. NVIDIA’s high-profit GPUs might absorb more, but price hikes risk demand erosion.

• Supply Chain Shifts: Sustained tariffs may accelerate “friendshoring” to the U.S., as seen with TSMC’s Arizona plants. However, new factories take years and billions, leaving short-term gaps.

• Oligopoly Limits: While U.S. chip giants wield pricing power, competition (e.g., Intel vs. AMD) and downstream resistance (e.g., Apple’s self-designed chips) cap their ability to fully offset costs. Profits may erode, spurring long-term restructuring.

Stock Price Trends: A Market Under Pressure

Recent semiconductor stock performance reflects the uncertainty. Until the tariff situation is clarified, the industry is likely to remain under pressure, with rallies muted:

• Intel ( $Intel(INTC)$ ): A 6% after-hours surge on April 3 followed news of its TSMC venture, but gains tapered as investors weighed broader tariff risks. Its 2024 foundry losses ($13.4 billion) underscore vulnerability.

• TSMC: Shares have been stable but lack momentum, as the 32% tariff clouds its U.S. revenue outlook (60% of sales). Any rally hinges on negotiation breakthroughs.

• Samsung: Korean markets show cautious trading, with Samsung’s memory dominance offset by tariff threats. A weak rally suggests investor hesitation.

• NVIDIA and AMD: Both saw volatility post-tariff announcement, with NVIDIA’s high margins offering some cushion, while AMD’s reliance on TSMC fuels downside risk. Without concrete signals—be it tariff relief or firm commitments from Japan, Korea, Taiwan, or Malaysia—market confidence will falter. The coming week’s developments will dictate whether pressure persists or a rebound takes hold.

Intel surged 2.05% on Thursday

Early Indicators: Intel-TSMC and Beyond

Signs of capitulation or resistance are already emerging:

• Intel-TSMC Venture: On April 3, The Information reported a preliminary deal for a joint foundry company, with TSMC taking a 20% stake to bolster Intel’s struggling manufacturing arm. Backed by U.S. policy, this hints at Taiwan’s willingness to deepen American ties—potentially a bargaining chip for tariff relief.

• Samsung’s Moves: Samsung’s Texas factory expansion, underway since 2021, could accelerate if Korea signals negotiations. CEO statements decrying “unsustainable” tariffs may precede formal talks.

• Market Sentiment: Beyond Intel’s spike, TSMC’s stability and Samsung’s muted response suggest a wait-and-see approach. Watch for cues from Japan’s Tokyo Electron or Malaysia’s assembly players.

Country-Specific Outlooks

• Taiwan: With TSMC’s dominance, Taiwan is most exposed. Expect a swift push for talks, leveraging its U.S. investments and geopolitical value. A breakthrough here could set the tone.

• South Korea: As a U.S. ally, Korea may pair diplomatic overtures with Samsung and SK Hynix commitments, balancing trade and security interests.

• Japan: Subtler but proactive, Japan might use its equipment prowess (e.g., Nikon, Shin-Etsu) to negotiate quietly, avoiding escalation.

• Malaysia: Less influential, Malaysia may align with ASEAN or follow Taiwan’s lead, prioritizing its assembly niche.

Conclusion: A Week of Reckoning

The next week—April 5-11—will be pivotal. If Taiwan, Korea, Japan, and Malaysia signal negotiations (Scenario 4) or concessions (Scenario 3), Trump’s gambit may succeed, stabilizing chip costs and reinforcing U.S. leverage—potentially lifting stocks from their current malaise. Retaliation (Scenario 1) or inertia (Scenario 2) risks a trade war or prolonged uncertainty, deepening pressure on an industry already stretched thin. For semiconductors, the stakes transcend tariffs: they herald a potential reordering of global tech power. Watch for government statements, CEO remarks, USTR responses, and stock movements—they’ll reveal who blinks first in this high-stakes standoff.

@TigerWire