Trump's controversial statement on Taiwan defense plummets TSMC stock

Republican presidential candidate Donald Trump made a bold statement regarding Taiwan’s defense, suggesting that the country should pay the U.S. for its protection. This remark caused shares of Taiwanese chip manufacturer TSMC to take a sharp decline.

Trump expressed his belief that Taiwan should contribute financially for defense support, citing the significant role they play in the chip business. He emphasized that the United States should be compensated for its defense efforts, comparing the situation to that of an insurance company. Trump argued that Taiwan does not provide anything in return for the U.S.’s support.

While the United States is Taiwan’s primary international supporter and arms supplier, there is no formal defense agreement between the two countries, unlike the agreements the U.S. has with South Korea and Japan. However, the U.S. is legally obligated to provide Taiwan with the means to defend itself.

The Taiwanese government has prioritized defense modernization and has taken responsibility for its own security. Taiwan’s Premier Cho Jung-tai responded to Trump’s comments by highlighting the strong relationship between Taiwan and the U.S., despite the absence of formal ties. He assured the international community of Taiwan’s commitment to strengthening its defense capabilities.

It is worth noting that Taiwan has refrained from commenting on Trump’s remarks, and the Chinese government considers Taiwan as its own territory. China has displayed increased military activity near Taiwan, attempting to exert pressure on the democratically governed island. The U.S. has recently deviated from its traditional stance of “strategic ambiguity” and indicated a willingness to defend Taiwan if it were attacked, causing displeasure from the Chinese government.

TSMC, the leading manufacturer of advanced chips used in various applications, including AI and smartphones, is heavily dependent on Taiwan. Analysts warn that any conflict involving Taiwan could severely impact the global economy. TSMC has not yet responded to Trump’s comments, as the company is currently in a quiet period ahead of its second-quarter earnings report.

While Trump’s comments have created uncertainty, many experts view them as political rhetoric. TSMC has established itself as an exceptional company and has outperformed many U.S. competitors in the market. The company has also made significant investments in new factories, including three plants in Arizona with a total investment of $65 billion, while maintaining the majority of its manufacturing operations in Taiwan.

Taiwan faces a backlog of approximately $19 billion in arms deliveries from the United States, and there have been delays in receiving essential weapons, such as Stinger anti-aircraft missiles. The U.S. has pledged to expedite these deliveries, but the focus has been on supplying Ukraine in its conflict with Russia.

In recent months, China has conducted military exercises near Taiwan and engaged in grey zone warfare, utilizing irregular tactics to keep Taiwan on high alert. China has not ruled out the use of force to bring Taiwan under its control, while Taiwan’s President Lai Ching-te has repeatedly offered talks, which have been rejected by China.

The situation between Taiwan, the U.S., and China remains tense, with potential implications for global security and economic stability.