Smart chip giant TSMC will prosper in any Trump scenario, says Abrdn’s Oh

Abrdn Asian Income Fund (AAIF) manager Yoojeong Oh assesses the strong position of chip giant Taiwan Semiconductor Manufacturing Company, in which 13% of the trust is invested, ahead of a second Trump administration that may bring in higher tariffs and insist on more US-based manufacture.

This is the second excerpt from our virtual event with Abrdn Asian Income. You can watch the previous excerpt on Asia’s strong dividend credentials or catch up on the whol programme with our ‘Big Broadcast’.

Can’t watch now? Read the transcript

Gavin Lumsden:

How significant is this $11bn support the Biden administration has agreed to support the company’s manufacturing in the US? Will Trump stick to that agreement?

Yoojeong Oh:

The subsidies are really there to help US consumers who are, ultimately, US voters. If you think about it, TSMC has built a really strong ecosystem in Taiwan. In the form of supply chains, production efficiencies, intellectual property as well. In making them build a factory in the US, the subsidies are there to help offset the cost of relocating talent and really, rebuilding a US-centric supply chain from scratch. Why would a rational US company—assume, Apple, Nvidia, Amazon,  AWS, etcetera, are rational.

Why would they choose to buy the same chip made in the US at a higher price than what is currently available in the market from their existing Taiwan factory?

Will these American companies be happy to absorb the higher cost of the chip or will they pass it on to consumers? I think that’s why the subsidies have come in, to really try and help offset that increased cost inflation at the consumer level. Even if Trump decides not to stick with these subsidies and we know that he’s pro-tariff.

Again, with higher tariffs, the end-result is that there’s going to be higher prices for the US consumer or US voter. Assuming again, that there are no subsidies given to the likes of Apple or Google to buy higher prices chips just because they’ve been made in the US.

I think the good thing for TSMC, as we discussed, their market share in that leading edge foundry is so high that they have a lot of bargaining power when they enter pricing discussions with their customers.

Their ability to share the higher cost of production is probably higher than you expect. They’ve also been quite smart in terms of trying to diversify their production facilities through investing in the US, but also, in Japan and these different locations can help them manage their capacity across multiple political scenarios.