Trump has also pointed out that the trade relationship between U.S. and Taiwan is unbalanced and that Taiwan has posted a large trade surplus of  $111.4 billion last year, primarily from semiconductors. This has led to more discussions  on the economy of Taiwan and calls for a change of the trade relations. This is more consequential given  that Trump seeks to alter the nature of the relationship with Taiwan; thus, Americans may continue supporting Taiwan  only if the latter agrees to make significant changes in trade and investment. to the United States’ interests.

One of the biggest problems for Taiwan is the threat of the imposition of tariffs on  semiconductors. Taiwan is a small island and the leading player in the semiconductor industry; TSMC produces chips that are used in almost every area of life, including smartphones and military equipment. However, Trump has complained about what he terms as Taiwanese’s strength in semiconductor production and their reluctance to locate more advanced manufacturing facilities in the United States.

According to the sources close to the negotiations, the Taiwanese officials  are preparing for the consequences of the tariffs and are trying to work out new ways. This entails seeking  for possible exemptions, FDI with the US, and producing new products so as to reduce vulnerability. 

The Taiwanese Economic Minister, J.W. Kuo stated that the semiconductor industry is one of those that  is beneficial to both parties of the two nations since many chips manufactured in Taiwan are designed and sold by  American companies. Nevertheless, the U.S. demand for onshore manufacturing has made Taiwan to consider increasing  the chip production facilities in Arizona and other US states.

In addition, apart from the effects of the  tariffs on the semiconductors, Taiwan is also preparing for the changes in the global semiconductor value  chain. The new administration in the White House has begun the process of changing the landscape through the passage  of the CHIPS Act. Now that Trump is back in office, it is expected that the pressure  on Taiwan to relocate some of its production elements to the U.S. soil will be intensified. Some  analysts have pointed out that, in case the tariffs are put in place, they may lead to the  fragmentation of the semiconductor industry, which in turn may force Taiwan to look for new markets for its  exports, not only in the US but also in other countries.

Apart from the economic issues, there  is also another issue that is of concern to the Taiwanese government and that is the issue of defense  spending. The administration of Trump has accused the island of not investing enough in its defense, and that the  U.S. should not carry the burden of defending Taiwan from China.

According to defense analysts,  Washington has for a while now encouraged Taiwan to strengthen its defense systems. Some of the US officials have  recommended that Taiwan should spend at least 5% of its GDP on military which is almost double the  current spending. Although Taiwan has agreed to raise its defense budget, domestic opposition and legislative challenges are major  challenges to addressing these concerns. The Taiwanese leadership also has to consider the domestic perspectives because the rise in  military expenditure may lead to domestic debates regarding the distribution of resources between defense and social welfare.

In response to these challenges, Taiwan is using its economic power to try and still influence the relationship with Washington. Taiwanese business people have also come up with new partnerships in areas like LNG and renewable energy and this is something that may be of interest to Trump.

Kuo pointed to Japan’s recent decision to increase U.S. energy imports as an example of how Taiwan could also respond to U.S. expectations. Currently, Taiwan is trying to diversify its imports of liquefated natural gas (LNG) from the United States, from the current suppliers, Australia and Qatar.

Moreover, there is investment cooperation with the USA, for instance, in the energy sector, and the purchase of American products and services. These efforts show that Taiwan is ready to meet the new demands of the US administration without jeopardising its economic credibility. Some people even think that Taiwan can enhance its economic cooperation with the U.S. through FTA which will provide some sort of protection to Taiwan against the volatility of trade relationships.

However, there is one major problem that is likely to affect Taiwan in the future. The trade and foreign policy of the Trump administration is quite dynamic, which puts the Taiwanese policymakers in a rather defensive position. However, it is suggested that Taiwan may have to plan for a more independent security strategy, should the United States decline to intervene on its behalf.

Moreover, changes in the U.S. government, including the changes in the security and trade issues, may affect the policies toward Taiwan. The Taiwanese officials are also paying much attention to the developments and trying to keep on the good side of the right people in Washington. Another factor that has made the situation in Taiwan more complicated is the departure of some pro-Taiwan officials from the previous administration of Trump, including former Secretary of State Mike Pompeo.

The rising anxiety of Taiwan over the shifts in the U.S. policy is not only significant for Taiwan itself, but also for other strategic issues in the Indo-Pacific. Though Trump’s first term has largely continued to support Taiwan through arms sales and diplomatic support, his second term is likely to be marked by new challenges.

In the past, the language used in Washington has been that Taiwan needs to be a more significant economic and military partner to keep the privileged relationship with the U.S. going. Therefore, it is suggested that Taipei should not rely on Washington only but diversify its friendships and enhance cooperation with countries such as Japan, South Korea and other countries in Southeast Asia. However, China is very much interested in the change in the relationship between Taiwan and the United States and if there is any reduction in the support from the United States, then China may adopt a harder attitude towards Taiwan.

Taiwan is at the junctions where it has to tackle the challenges of the new U.S. president Donald Trump’s first term. In addition, as a result of the tariffs on semiconductors, the pressure on the defense budget, and the change of the relationship with the USA, Taiwan is implementing a multi-level strategy.

As Taiwan navigates an increasingly unpredictable U.S. administration, its future hinges on strategic adaptability. Whether through trade diplomacy, security assurances, or economic concessions, Taiwan must recalibrate its relationship with Washington while safeguarding its national interests. Whether these efforts will be enough to help Trump’s hardline economic policies is yet to be seen. Therefore, Taiwan’s reserve and diplomatic dexterity will be crucial in determining the role of the country in the new world order.

By Keyeon Fan