Trump’s Tariff Flooding Puts Taiwan at the Center of a Supply Chain Crossroads

The recent escalation of US tariffs under the second Trump administration is a major blow to Asian, and thereby global, supply chains. But among the many economies affected, Taiwan faces perhaps the most delicate and complex challenge of all.Trump has imposed high import tariffs across Asia—maybe not as high as the reciprocal tariffs announced on April 2, Trump’s self-styled “Liberation Day,” but certainly higher than ever. China tops the list with 30% additional tariffs (around 50% overall when including previous tariffs from Trump 1.0 and Biden). Singapore sits at the bottom with 10%. India fares particularly poorly, with tariffs raised to 50% after it persisted in buying oil from Russia, while Southeast Asian economies like Vietnam (20%) and Indonesia (19%) fall into the lower range. Taiwan’s tariff level, for now, matches Vietnam’s at 20%.As if this were not enough, Trump has announced 40% transshipment tariffs aimed at countering goods routed through intermediary countries to evade higher duties—targeting, without naming, flows from China through other Asian economies.In addition, major Asian net creditors like Japan and South Korea—and soon also Taiwan, once its deal is finalized—will be expected to invest hundreds of billions of dollars in the US. The explicit goal is to create a US-centric supply chain and reduce reliance on China. A newly announced 100% tariff on semiconductors exempts only TSMC, Taiwan’s flagship chipmaker, precisely because of having invested over USD 60 billion in Arizona and having announced a further USD100 billion more after Trump took office for his second administration.These developments are seismic for Asia’s economic landscape. For Taiwan, the shock is magnified by its unique position: deeply embedded in both the China-centric supply chain and the growing Southeast Asian network, while also increasingly dependent on the US market for its exports.Taiwan’s role in China’s supply chainFor decades, Taiwanese firms have been the quiet architects of China’s manufacturing ascent. Their investments in the mainland—particularly in electronics, semiconductors, and precision manufacturing—have created a deeply integrated cross-Strait production network. Taiwanese capital, management expertise, and supplier networks are woven into the fabric of Chinese industry, from coastal factory hubs to inland assembly plants.This integration has not been without diversification. In recent years, many Taiwanese manufacturers have moved some operations to Southeast Asia—especially Vietnam—both to hedge against rising costs in China and to manage geopolitical risk. The “China+1” strategy was already well underway before Trump 1.0; his first wave of tariffs accelerated it.From China+1 to US+1?The new tariff regime challenges that model. By raising tariffs not just on China but on most of emerging Asia, Washington is narrowing the scope for production relocation within the region. Multinationals—and Taiwanese companies in particular—may now need to think beyond “China+1” and move toward a more complex “China+US+1” structure, where both the China-centric and US-centric supply chains must be served in parallel.The US-centric supply chain will not be built solely on trade flows; it will be anchored in foreign direct investment. Japan has pledged US$550 billion, South Korea US$350 billion, and the EU US$600 billion to the US. Taiwan is expected to follow suit, with TSMC’s massive Arizona project serving as a model. Trump’s tariff exemptions for TSMC’s chips are a clear signal: invest in the US, and market access will be protected.The Mexico factorIf Taiwan is to remain competitive in the US market under these new rules, investment in Mexico—and potentially other US-aligned economies—will become critical. Should the US-Mexico-Canada Agreement (USMCA) be renewed with favorable terms, Mexico could offer tariff-free access to the US and a manufacturing base well within Washington’s strategic orbit.For Taiwanese electronics, machinery, and consumer goods exporters, the logic is compelling. Vietnam, Malaysia, and Thailand have served well as China+1 destinations, but under Trump’s broader tariff net, their cost advantage for US-bound goods is shrinking. Mexico could emerge as the “Vietnam of the US-centric supply chain” for Taiwanese manufacturers—close to the market, politically aligned, and tariff-safe.China’s Southeast Asia integrationMeanwhile, China’s presence in Southeast Asia continues to deepen. Supported by free trade agreements and a surge of greenfield investment, China is building a dense web of production and assembly in Vietnam, Malaysia, and Thailand. For Taiwanese firms already in these markets, the question becomes whether they can remain viable under higher US tariffs or whether they will be increasingly drawn into an “Asia for Asia” strategy—producing within Asia to serve Asian markets, while shifting US-focused production elsewhere.The danger for Taiwan is that it could become caught in the middle: too embedded in China to pivot fully to the US supply chain, but too dependent on the US market to rely solely on China and Southeast Asia. Balancing these two gravitational pulls will require both corporate agility and strategic government policy.India: the uncertain variableIndia’s role adds another layer of complexity. Initially seen as a potential major winner in the US’s effort to diversify away from China, India’s now-punitive 50% tariffs make it a non-starter for most Taiwan-to-US production. However, if New Delhi were to realign geopolitically toward Washington, Taiwan could find in India a long-term partner for certain manufacturing and technology investments—though this remains speculative for now.Policy unpredictability and strategic hedgingThe financing and know-how to build a US-centric supply chain will likely materialize, but the most disturbing factor is policy unpredictability. Trump’s sudden changes in tariff levels, reciprocal measures, and exemptions make long-term planning difficult. Taiwanese firms, already skilled at operating in uncertain environments, will need to step up their scenario planning—anticipating not just one possible tariff regime, but several.This means mapping out multiple supply chain configurations: one that maximizes China and Southeast Asia for Asian and EU markets; one that routes US-bound production through tariff-safe zones like Mexico; and one that integrates deeper into the US manufacturing ecosystem through direct investment.The test ahead for TaiwanFor Taiwan, the stakes are unusually high. Its semiconductor sector—led by TSMC—gives it leverage, but also paints a target on its back. Taiwan’s manufacturing base is both its greatest strength and its greatest vulnerability, as it is entrenched in the China-centric supply chain that Trump is no longer ready to accept so Taiwan needs to diversify and not only from China but also from those Southeast Asian economies that are an intrinsic part of the China-centric supply chain, including Taiwan. How Taiwan copes with a bifurcating global economy, especially supply chains, will determine not just its trade future, but its geopolitical position for decades to come.*This article is a reprint and originally published by CommonWealth Magazine: Trump’s Tariff Flooding Puts Taiwan at the Center of a Supply Chain Crossroads