Trump's call for Taiwan to fund its own defense, TSMC stock drops

Taiwan should pay the United States for its defence as it does not give the country anything, U.S. Republican presidential candidate Donald Trump said, sending shares of Taiwanese chip manufacturer TSMC down on Wednesday.

"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," Trump said in interview with Bloomberg Businessweek on June 25 but published on Tuesday.

"You know, we're no different than an insurance company. Taiwan doesn't give us anything."

TSMC is the dominant maker of advanced chips used in everything from AI applications to smartphones and fighter jets, and analyst believe any conflict over Taiwan would decimate the world economy.

Taiwan Premier Cho Jung-tai, responding to Trump's comments, said Taiwan and the US have good relations despite the lack of formal ties, and is dedicated to bolstering its defences.

"Taiwan has steadily strengthened its defence budget and demonstrated its responsibility to the international community," he said at a routine news conference in Taipei.

"We are willing to take on more responsibility; we are defending ourselves and ensuring our security."

The US is Taiwan's most important international supporter and arms supplier, but there is no formal defence agreement. The US is however bound by law to provide Taiwan with the means to defend itself.

Taiwan's government has made defence modernisation a priority, including developing its own submarines, and has said many times the island's security rests in its own hands.

Taiwan, which China views as its own territory, has complained of repeated Chinese military activity over the past four years as Beijing seeks to pressure the democratically governed island which rejects China's sovereignty claims.

US President Joe Biden has upset the Chinese government with comments that appeared to suggest the US would defend Taiwan if it were attacked, a deviation from a long-held US  position of "strategic ambiguity".

Washington and Taipei have had no official diplomatic or military relationship since 1979, when the US switched recognition to Beijing and terminated a mutual defence treaty.

There was no immediate reaction from TSMC which is currently in its quiet period ahead of its second quarter earnings report on Thursday.

TSMC shares down

Shares in Taiwan Semiconductor Manufacturing Co Ltd (TSMC) , the world's largest contract chipmaker and a major Appleand Nvidia supplier, fell more than 2% early on Wednesday morning trade. The broader marketwas down around 0.4%.

"Trump's comments were plainly blunt. We see it as political rhetoric," said Allen Huang, a vice president at Mega International Investment Service. "TSMC is an excellent company, and it has won out in the market over many rival companies in the United States."

TSMC is spending billions building new factories overseas, including $65 billion on three plants in the US state of Arizona, though it says most manufacturing will remain in Taiwan.

Taiwan also has a backlog worth some $19 billion of arms deliveries from the United States, which US  officials and politicians have repeatedly pledged to speed up.

Since 2022, Taiwan has complained of delays in deliveries of US  weapons such as Stinger anti-aircraft missiles, as manufacturers focused on supplying Ukraine to help it battle invading Russian forces.

In April, the US Congress had passed a sweeping foreign aid package which includes arms support for the island, after House Republican leaders abruptly switched course and allowed a vote on the $95 billion in mostly military aid for Ukraine, Israel and Taiwan and US partners in the Indo-Pacific.

China held two days of war games around the island shortly after President Lai Ching-te took office in May, saying it was "punishment" for his inauguration speech, which Beijing denounced as being full of separatist content.

But China has also been using grey zone warfare against Taiwan, wielding irregular tactics to exhaust a foe by keeping them continually on alert without resorting to open combat. This includes sending balloons over the island and almost daily air force missions into the skies near Taiwan.

China has never renounced the use of force to bring Taiwan under its control. Lai, who says only the Taiwanese people can decide their future, has repeatedly offered talks but been rebuffed.