Taiwan's Collective Anxiety over Semiconductor Tariffs: What is the U.S. "Section 232"?

The U.S. trade tariff on Taiwan was announced at 20% on the 1st, but the technology industry waited for the "Section 232" investigation to be released after the announcement of the "Section 232" investigation, and the semiconductor tax that may be levied is the tax that really determines whether to cut the flesh and bleed. (Synopsis: The United States teaches Taiwan's 20% tariff is higher than that of Japan and South Korea!) Lai Qingde stressed that as temporary, Taiwan stocks fell industrial pressure and negotiation prospects) (Background supplement: The United States reaches into the departure exchange: taxpayers must declare "overseas account crypto assets") At TSMC's headquarters in Hsinchu, to the board of electronic five brothers in Taipei's Neihu Science and Technology Park, everyone is waiting with bated breath, waiting for a report that will soon come from Washington, D.C. The contents of this report could trigger an earthquake that will upend the global technology supply chain, and the epicenter is Taiwan. Why did the United States initially announce a 20% tariff on Taiwan, but the technology industry is waiting for "Section 223"? The source of this provision, commonly known as the semiconductor tax, is a sixty-year-old U.S. trade act called Section 232 of the Trade Expansion Act of 1962. Why has this seemingly outdated law become the most important industry in Taiwan and the most feared black swan in the global technology industry? Section 232: The U.S. President's Trade Weapon To understand the power of Section 232, think of it as a long-standing but powerful "heirloom knife" of the U.S. president in his trade arsenal. The knife, which originated during the Cold War between the United States and Russia, gave the president a unique power: If an import is deemed a threat to "U.S. national security," the president can bypass the lengthy legislative process in Congress and the World Trade Organization (WTO) framework and unilaterally and quickly impose trade-restrictive measures, such as tariffs or quotas. The knife process is fast and robust, and investigations can be applied for by the industry, requested by government departments, or initiated by the Secretary of Commerce himself. Once initiated, the Department of Commerce must complete the investigation and submit a report to the president within 270 days; The president then has 90 days to decide whether to adopt the recommendations and act on them. This "270+90 days" time limit has brought great uncertainty to the market. The core strength of Section 232 is that the definition of US national security can be expanded indefinitely. Initially, the spirit of its legislation was to ensure the supply of raw materials needed by the U.S. defense industry, such as tanks and aircraft. However, in recent years its definition has been significantly broadened to cover "national economic well-being" and even protect domestic industries from unfair competition from foreign countries. This means that Section 232 is essentially a blank geopolitical check. The United States can rebrand any economic dependence on foreign supply chains as a "national security threat." This has enabled the United States to circumvent the WTO's protracted dispute settlement mechanism and gain absolute dominance in trade negotiations in a lightning-fast manner. Now, the knife is pointed at Taiwan's semiconductor industry. History written in steel In 2018, the Trump administration at the time used Section 232 to impose tariffs of 25% and 10% on imported steel and aluminum, respectively, taking the bill from an obscure legal text to global headlines. This incident offers us two key lessons: First, immunity is a political bargaining chip, not a permanent talisman. Initially, important allies such as Canada, Mexico, and the European Union received tariff exemptions. However, these exemptions were eventually removed or converted to restrictive quotas. This proves diplomatic relations and allies, and does not guarantee permanent immunity under Section 232. For Taiwan, this is a stark warning: even if TSMC makes a huge investment in the United States, any exemption will be the result of negotiations and may be temporary. Second, the scope of tariffs will expand. Steel and aluminum tariffs initially targeted only raw materials, but were later expanded to include "derivative products" that use these materials, such as steel nails and aluminum wire. This precedent is crucial because it sets the groundwork for the potential scope of current semiconductor investigations. The economic consequences of steel and aluminum tariffs are a double-edged one. While it protects U.S. steel mills, it severely hurts downstream industries that use steel and aluminum, such as automobiles, construction, and even beverage can manufacturers. Why are semiconductors the new battlefield? On April 1, 2025, the U.S. Department of Commerce officially launched a Section 232 investigation into semiconductors and related products. The scope of the survey was unprecedented. It covers not only all types of chips from mature to advanced processes, but also semiconductor manufacturing equipment (SME) and, most importantly, "derivative products" containing semiconductors. The Commerce Department's public consultation document shows Washington's biggest concern: Excessive supply chain concentration: The report clearly points out that "U.S. semiconductor imports are concentrated in a few manufacturing facilities", which is undoubtedly directed at Taiwan's TSMC. Foreign government subsidies: "The impact of foreign government subsidies and predatory trade practices", which mainly targets China's industrial policy. Supply chain weaponization: "the potential for foreign countries to weaponize their control over semiconductor supply chains". Among them, the "derivative product" clause is a hidden mine planted for Taiwan's entire technology ecosystem. According to the analysis of the National Development Council, this may affect Taiwan's export bulk such as servers, graphics cards, and network switches. This means that the impact of the 232 investigation will go far beyond wafer foundries such as TSMC and UMC, but may threaten the entire electronic foundry and brand industry chain such as Quanta, Wistron and Hon Hai. This clause was originally aimed at chips, but it can become a giant cannon that bombards nearly seventy percent of Taiwan's products exported to the United States. Speculation: Three scenarios for Taiwan's tariffs Faced with the results of the upcoming Section 223 investigation, Taiwan's tech industry may face three very different scenarios. Table 1: Product Structure of Taiwan's Export Exposure to the U.S. Under Section 232 Investigation Worst-case scenario, high tariffs imposed across the board (25% to 50%) In this scenario, the United States imposes indiscriminately high tariffs on semiconductors and related products from all sources. This will be a devastating blow to Taiwan, which will directly erode corporate profits, force manufacturers to make painful choices between "absorbing costs on their own" and "passing on to American customers such as Apple and Huida", and ultimately weaken the global competitiveness of Taiwanese products. Locking in mature processes This is a more sophisticated strategy. The United States may impose high tariffs on mature process chips of 28nm and above, while granting exemptions or lower tax rates for advanced processes below 7nm. Behind this playbook, it reflects the dual goal of the United States: to counter China and manage dependence on Taiwan. The United States knows that in the field of advanced processes, Taiwan (especially TSMC) has an irreplaceable position and is the heart of the AI and high-computing power industries in the United States. At the same time, the United States is also concerned about China's rapid expansion and state subsidies in mature processes, because such chips are widely used in the automotive, industrial and defense sectors. Thus, by precisely targeting mature processes, the United States can contain what it sees as its biggest strategic competitor, China, while ensuring that its most critical advanced technology supply chain remains undisrupted. In this script, TSMC's advanced process business may be spared, but Taiwanese manufacturers such as UMC and PSMC that focus on mature processes will face great pressure. In this most likely scenario, the threat of Section 232 becomes America's most powerful bargaining lever, and the end result is not a mere tariff, but a complex deal. Taiwan's chips are clear: Irreplaceability of technology: TSMC has an overwhelming market share in the global foundry market, especially in the field of advanced processes. Sincerity in investing in the United States: TSMC's massive investment in Arizona is a concrete response to U.S. industrial policy. It is also possible that the details of investment in the United States have been signed within the undisclosed Taiwan-US trade negotiations. The Value of Strategic Partnerships: Taiwan is Partnering with the U.S...