Trump's Remarks on Taiwan's Defence Payment Cause TSMC Stock to Drop
Donald Trump's suggestion that Taiwan should pay for its defence has caused a decline in TSMC stock. Taiwan and the US have a strong relationship despite the absence of formal ties. China's increased military activity near Taiwan has strained relations with the US.
Trump stated, "I know the people very well, respect them greatly. They did take about 100% of our chip business. I think, Taiwan should pay us for defence." These comments, published on Tuesday, sparked concerns and impacted the stock market.
Trump compared the US-Taiwan relationship to that of an insurance business, stating that Taiwan provides little in return for US backing. While the United States is Taiwan's most significant international sponsor and arms supplier, the two countries do not have a formal defence agreement, as South Korea and Japan have. However, the United States has a legal obligation to equip Taiwan with the tools to defend itself.
In response to Trump's remarks, Taiwanese Premier Cho Jung-tai underlined the close relationship between Taiwan and the United States, despite the lack of formal connections. He added that Taiwan has consistently increased its defence spending and accepted responsibility for its own security. The Taiwanese government has prioritised defence modernization, particularly the creation of submarines.
China, which claims Taiwan to be its own territory, has increased military action near the island in recent years. This has increased pressure on Taiwan, which opposes China's sovereignty claims. US President Joe Biden's remarks that the US would defend Taiwan if attacked have strained relations with China. Biden's departure from the US's long-held posture of "strategic ambiguity" has alarmed the Chinese authorities.
The stock market reacted to Trump's statements, with shares of Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's largest contract chipmaker, falling 2.4% on Wednesday. TSMC is an important player in the development of sophisticated processors for a variety of applications, including AI and smartphones. Analysts fear that a fight over Taiwan may have serious ramifications for the global economy.
TSMC, which is now in a quiet time before of its second-quarter earnings report, has yet to reply to Trump's comments. The corporation is investing billions of dollars in new factories overseas, including three in Arizona, the United States. However, TSMC has claimed that the majority of its manufacturing will remain in Taiwan.
Taiwan is likewise experiencing delays in getting arms supply from the United States, with a backlog totaling around US$19 billion. These delays have been linked to producers preferring supply to Ukraine during its confrontation with Russia. However, the US Congress recently approved a foreign aid package that includes military assistance for Taiwan, indicating a willingness to expedite these delivery.
China has been conducting grey zone warfare against Taiwan, employing irregular methods to keep the island on alert without resorting to open combat. This involves launching balloons over the island and flying frequent air force missions near Taiwan. Beijing has never ruled out using force to take control of Taiwan, while Taiwanese President Lai Ching-te has frequently offered talks but has been turned down.
Donald Trump's suggestion that Taiwan should pay for its defence has caused a decline in TSMC stock.
Taiwan and the US have a strong relationship despite the absence of formal ties.
China's increased military activity near Taiwan has strained relations with the US.
Source: REUTERS