The Uncertain Road Ahead for Chip Makers

Summary

WSJ What’s News: The Uncertain Road Ahead for Chip Makers Release Date: April 17, 2025

In this episode of WSJ What’s News, hosted by Luke Vargas from The Wall Street Journal, the discussion centers on the semiconductor industry's current challenges and prospects, particularly focusing on Taiwan Semiconductor Manufacturing Co. (TSMC), US trade policies, and the broader economic implications of a weakening US dollar. Additionally, the episode delves into international trade negotiations, highlighting Italian Prime Minister Giorgia Meloni's upcoming visit to the White House.

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1. TSMC's Stellar Earnings Amid Trade Turbulence

The episode opens with a significant highlight: TSMC, the world's largest contract chipmaker, has reported impressive earnings, surpassing analyst expectations with a 60% jump in profits. This performance stands out in a sector grappling with increasing export restrictions and the threat of looming US tariffs aimed at industry leaders like Nvidia and AMD.

Randy Abrams, Head of Taiwan Research at UBS, provides in-depth analysis:

“TSMC's main message is hey, our orders have not really changed. We still see good strength... We need to come back to us in three months as we get closer to the second half to see... do we have any sign of some moderation?” ([02:11])

2. Navigating US Tariffs and Export Restrictions

The semiconductor sector is under pressure due to US government actions targeting key players. Randy Abrams explains the broader implications:

“Trade negotiations between the two countries are underway in Washington... We’re going to put a tech tariff where US says hey, you have to reshore... which would have a bigger impact on the supply chain.” ([05:39])

Abrams highlights TSMC's strategic moves to mitigate potential tariff impacts, including increased investments in the US, particularly in Arizona, and collaborations with major packaging firms like ASE and Foxconn. These efforts aim to enhance the American supply chain and possibly negotiate tariff relief.

3. The Weakening US Dollar and Global Economic Strain

The episode shifts focus to the US dollar's recent depreciation against major currencies such as the euro, Japanese yen, and Swiss franc. Chelsea Delaney outlines the adverse effects on foreign exporters already burdened by US tariffs:

“A weaker US Dollar means that other currencies are getting stronger... This is essentially a double whammy... their goods have gotten even more expensive when selling into the US.” ([08:13])

Furthermore, Delaney discusses investor sentiment:

“Investors are questioning the attractiveness of US Assets... Foreign investors are pulling money out of the country...” ([08:52])

This erosion of confidence is compelling central banks worldwide to consider more aggressive interest rate cuts to stabilize their currencies.

4. Italian Prime Minister Giorgia Meloni's White House Visit

A significant geopolitical development covered in the episode is Italian Prime Minister Giorgia Meloni's scheduled visit to the White House. This marks the first meeting between a European leader and President Trump since the recent tariff imposition.

Margarita Stancati, the Rome-based correspondent, provides context:

“Meloni is likely going to make the case for the European Union's so-called 0 for 0 tariff deal... But Trump has made it very clear that that will not be enough for him.” ([11:15])

Meloni aims to strengthen her country's defense commitments, pledging to increase Italy's defense spending to 2% of its GDP—a key demand from Trump. However, the critical issue remains whether this gesture will translate into meaningful negotiations to alleviate tariffs and improve US-EU trade relations.

5. Additional Business and Political Updates

The episode briefly touches upon other noteworthy developments:

• Harvard's Tax-Exempt Status Under Threat: The Trump administration is moving to revoke Harvard University's tax-exempt status following the institution's refusal to comply with demands for admissions data and cessation of DEI (Diversity, Equity, and Inclusion) programs.

• US Efforts to End the War in Ukraine: Secretary of State Marco Rubio and White House envoy Steve Witkoff are in Paris engaging with European officials to discuss strategies for ending the conflict in Ukraine, amidst growing concerns over Russia's territorial ambitions.

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Conclusion

WSJ What’s News provides a comprehensive overview of the semiconductor industry's current landscape, emphasizing TSMC's robust performance amidst potential US tariffs and global economic challenges exacerbated by a weakening dollar. The episode also underscores the delicate interplay between international trade policies and geopolitical maneuvers, particularly with Italy's proactive engagement with the Trump administration. As the situation unfolds, the semiconductor sector's trajectory remains uncertain, contingent on evolving trade dynamics and global economic stability.

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Produced by Daniel Bach and Kate Bullivant. Supervising Producer: Sandra Kilhoff. Presented by The Wall Street Journal.

Transcript

[Ann]

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[Luke Vargas]

Chip giant TSMC beats earnings. We'll dive into its results as the sector contends with export restrictions and looming tariffs. Plus, Japan and Italy try to find common ground with the White House on trade and why the dollar's recent slide is becoming the rest of the world's problem.

[Chelsea Delaney]

It's going to be harder to sell to America. So that's a big problem for foreign economies when they're already facing Trump's tariffs. And the weakness of the dollar is really the lac last thing they need right now.

[Luke Vargas]

It's Thursday, April 17th. I'm Luke Vargas for the Wall Street Journal and here is the AM Edition of what's news, the top headlines and business stories moving YOUR world Today. Global markets are finding their footing a day after a tech stock fueled rout on the Nasdaq that was triggered by deepening trade restrictions targeting chip industry leaders Nvidia and amd. Should the Chinese market remain off limits, it could spell chall times ahead for.

[Margarita Stancati]

The biggest names in semiconductors.

[Luke Vargas]

Though for one of the hottest sectors in recent years, there continues to be ample news to get excited about, including from Taiwan Semiconductor Manufacturing Co. The world's largest contract chip maker whose clients include Apple and Nvidia reported earnings this morning, beating analyst estimates on a 60% jump in profits. Randy Abrams is head of Taiwan Research at UBS and he joins us this morning from Taipei.

[Margarita Stancati]

Randy, what jumped out to you from TSMC's latest update? We've just gotten off the earnings call on a week of rather rocky updates from leading names in the chips industry.

[Randy Abrams]

They are the largest outsourced semiconductor manufacturer, really for a lot of the major chip companies, Nvidia, Qualcomm, Broadcom, Apple, and for that they set the stage for how the outlook is. We've seen in recent weeks Trump has postponed some of the reciprocal tariffs and he's also on some of these tech products in the last week also put them on hold. Now he's indicated that could come back, that the reciprocal tariffs in 90 days may come back and also some of these tech, semiconductor and hardware tariffs could come back on. So the message for the supply chain is to continue to order components, to continue to build products and essentially make their deliveries. With that uncertainty, whether the tariff they're going to be paying in the future in a couple months may be higher. So to that extent, I think TSMC's main message is hey, our orders have not really changed. We still see good strength. They guided a strong second quarter. They did put an important caveat that they need to come back to us in three months as we get closer to second half to see one is just what tariffs come back on. And by that point, do we have any sign of some moderation?

[Margarita Stancati]

What is the sense about the options that might exist for de risking? TSMC has been out there talking about its investments in the US do they feel confident what they've done so far is enough to, I don't know, score them an exemption maybe from US tariff action or might they need to do.

[Luke Vargas]

More and maybe should they for other reasons in the future?

[Randy Abrams]

TSMC really was on the front foot or the gas on to engage Trump to say look, how can we do more part of it? Because I think their customers are feeling a bit more of the pressure to have more of a U S based supply chain. So that is encouraging TSMC to go a bit faster into Arizona. So they're doing what they can now I'll say their hope I think for doing that is can this help mitigate some of the tariffs. Now that comes back to the government side. The government with key players in Taiwan where TSMC is included are trying to go to us with negotiation leverage and it's what can we bring to us? In the Nvidia press release it really telegraphed that spill, which is now tied to ase, the biggest packager in Taiwan is part of that US investment. That was kind of a new announcement, new investment that we hadn't heard about before. And then on the hardware and assembly you're starting to see in the releases more of the comments about Hon Hai like Foxconn, Hon Hai, which seven, eight years ago talked about Wisconsin and doing production well now those facilities start to come back in to do server assembly. Others like Quanta and Wistron also talk about server assembly in the US So that's where what I'd kind of say what Taiwan will try to do more of to mitigate their level of reciprocal tariff or semiconductor tariff is offer what type of business arrangements we can do to help the US reshore some of the supply chain.

[Margarita Stancati]

Randy, the Big story thus far this week has been these export restrictions affecting Nvidia and amd. Though President Trump has signaled more US Tariffs specifically on semiconductors could be coming.

[Luke Vargas]

Potentially as soon as this week.

[Margarita Stancati]

That then is the next storyline we should be watching for. What are you expecting? What potential impact should investors be bracing for here?

[Randy Abrams]

If it's semiconductors alone, that's actually somewhat manageable. And reason for that? Taiwan last year exported about 37 billion which, which sounds like a big number, 37 billion of chips. But if you were to actually take into account all the production coming out of TSMC From Micron, from UMC, it's about $250 billion worth of chips. So it's only about 15% of chips ship as a raw semiconductor. The bigger risk would be all of these tech products, whether it's a chip or it's the hardware, whether it's a notebook or a server or a smartphone. As a bundle, we're going to put a tech terrafine. So do we get a, like the reciprocal tariff, a tech tariff where US says hey, you have to reshore, I don't care if it's a chip or the hardware, I'm going to put a say, call it 25% tariff on no matter where it ships from on a tech product. That would be the type of scenario that ends up a bigger outcome for the supply chain. So I'd say chips alone somewhat manageable. If it's chips plus hardware, I think then you're going to see the supply chain try to negotiate areas of relief to at least mitigate how much impact it could have on demand.

[Margarita Stancati]

Yet more importance hanging on every word coming out of Washington. Randy Abrams is the head of Taiwan Research at UBS and was joining us this morning from Taipei. Randy, thanks so much for being with us on what's news.

[Randy Abrams]

Okay, thank you, Luke.

[Luke Vargas]

Coming up, we'll look at the effect a weak dollar is having on the global economy and preview today's White House visit by Europe's Trump whisperer, Italian Prime Minister Giorgia Meloni. Plus the rest of the day's news after the break.

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[Luke Vargas]

The U.S. dollar has paused its steep slide this week after hitting new lows against the euro, Japanese yen and Swiss franc yesterday. While weaker currencies tend to make goods cheaper for American consumers, the Journal's Chelsea Delaney says the dollar's unexpected weakening is adding to the pain for foreign sellers who've already been hit by tariffs.

[Chelsea Delaney]

So a weaker US Dollar means that other currencies are getting stronger. So we've seen this big rise in currencies like the euro or the Japanese yen or the British PO companies overseas. This is essentially a double whammy. They are already facing, you know, a 10% tariff or more on their goods that they're selling to the US if you add on top of that the currency, that means that their goods have gotten even more expensive when selling into.

[Luke Vargas]

The US While President Trump has said he wants a weaker dollar to make American exports more attractive, Chelsea says his back and forth trade policies have resulted in investors dumping US Assets.

[Chelsea Delaney]

What we're seeing is really investors questioning the attractiveness of US Assets at all. There's a lot of discussion and concern that investors are no longer seeing the dollar or US Treasuries as a safe haven. Foreign investors are pulling money out of the country and that can really overshadow any positive impact you might get from competitiveness if foreign investors are questioning the long term growth prospects of the U.S. economy.

[Luke Vargas]

For central banks around the world, the rapid strengthening of their own currencies is heaping pressure on them to cut interest rates more aggressively. The European Central bank is expected to deliver a quarter point reduction today, while the bank of Korea decided to keep its rate unchanged. Meanwhile, one of the bank of Japan's board members says US Trade policy is one of the biggest risks to Japan's economic outlook, warning that higher tariffs will negatively affect exports, production, sales, capital expenditure and profits at Japanese corporations. Corporations. Trade negotiations between the two countries are underway in Washington this week with Japan's economy minister saying he's ready to listen to any requests urging a win win solution. In a truth social post, Trump said big progress was made in the talks. Well, speaking of talks in Washington, Italian Prime Minister Giorgio Meloni is set to become the first European leader to meet with President Trump in D.C. since his tariff announcement earlier this month. Trump has repeated taken aim at the EU, accusing it of screwing the US on trade and hitting it with a 20% reciprocal tariff. Our Rome based correspondent Margarita Stancati said the Italian leader's visit today will test whether Meloni's ideological affinity with Trump will be enough to convince the president to go easy on Italy and the EU as a whole.

[Margarita Stancati]

She gets along with Trump because they share the same kind of conservative, anti woke worldview and they've met each other and Trump likes her. So that already in itself sets her apart from some of her other European colleagues. Trump went as far as describing her a fantastic woman. She's also friends with Elon Musk, who has helped broker this relationship.

[Luke Vargas]

As for what Meloni can offer in talks, Margarita said she's expected to lead with a pledge that answers Trump's call for Europe to do more to take care of its own security.

[Margarita Stancati]

Among the things that Meloni is expected to offer when she does meet Trump is a promise that Italy is going to increase its defense spending to 2% of its budget. That's something that Trump has repeatedly asked for and that she is going to deliver. The question is whether she will be able to translate this good relationship into a breakthrough on tariffs and more broadly on the relationship between the US And Europe, which has been very rocky in recent months. Meloni is likely going to make the case for the European Union's so called 0 for 0 tariff deal, offering to bring down tariffs on imported American goods to zero in exchange for the same for European goods in America. But Trump has made it very clear that that will not be enough for him.

[Luke Vargas]

The Trump administration has asked the IRS to start the process of revoking Harvard's tax exempt status, which lets donors get tax deductions and keeps the university from paying taxes on any net earnings. The effort comes after Harvard rejected a list of demands from the administration, including a request for the school to share all admissions data with the federal government. Trump and Republicans in Congress have been battling with Harvard, accusing it of not doing enough to comp combat antisemitism while also pressuring it to end DEI programs. And Secretary of State Marco Rubio and White House envoy Steve Witkoff are in Paris today meeting with European officials to discuss ending the war in Ukraine. Earlier this week we reported that Rubio was among several senior aides now urging Trump to be more skeptical of Moscow's desire for peace and to take a harder line against Vladimir Putin's demands for territorial concessions from Kyiv. And that's it for what's news for this Thursday morning. Today's show was produced by Daniel Bach and Kate Bullivant.

[Margarita Stancati]

Our supervising producer is Sandra Kilhoff and.

[Luke Vargas]

I'm Luke Vargas for the Wall Street Journal.

[Margarita Stancati]

We will be back tonight with a new show.

[Luke Vargas]

Until then, thanks for listening.