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Fact of the Week: A Significant Disruption to Taiwanese Semiconductor Production Could Increase the Prices of US Logic Chips by 59 Percent

Fact of the Week: A Significant Disruption to Taiwanese Semiconductor Production Could Increase the Prices of US Logic Chips by 59 Percent

February 3, 2025

Source: Lin Jones, et al., U.S. Exposure to the Taiwanese Semiconductor Industry,” (working paper, U.S. International Trade Commission, Washington, D.C., November 2023).

Commentary: Semiconductors are essential for almost every modern activity in America. They are vital inputs for driving cars, using a personal computer, scrolling on social media, and searching on AI chatbots. Taiwan, a country about the size of Maryland, produces 18 percent of global semiconductors but holds 92 percent of the worldwide manufacturing capacity for the most complex logic chips. The United States’s share of the worldwide manufacturing capacity was 0 percent in 2022.

Should a major disruption come to U.S. semiconductor trade with Taiwan, such as international conflict, natural disasters, or significant trade barriers, including the up to 100 percent tariffs proposed by President Trump, there will be significant downstream effects for consumers and businesses. 44.2 percent of logic chip imports in the United States are manufactured in Taiwan. A major disruption in this trade would result in a 59 percent increase in the price domestic producers have to pay. These price increases would inevitably be passed on to consumers. Faced with such trade disruptions, economic theory would suggest U.S. producers would increase production. But turning on a $30 billion fab isn’t like adding anything akin to adding another production line to an extant factory. That’s why the analysts estimated that capacity and production constraints would support domestic production to increase by 5 percent, at most, replacing only a fraction of imports.

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