The Impact of the U.S. and China Trade War on Taiwan’s IC Industry

The U.S. and China trade war has captured worldwide attentions from investors from 2017 to 2020. From prior studies, it directly or indirectly proved that the trade war has negative impacts on economies in different regions in the world. As for Taiwan, the integrated circuits (IC) industry plays a vital role in the international supply chain, and the two largest trade partners of Taiwan’s IC industry are the U.S. and China. Therefore, this study explores how the U.S. and China trade war impacted Taiwan’s IC industry. The event study method and the regression analysis are used in this study to compare the impact on Taiwan’s IC industry as a whole, and its sub-industries from different positions of the industry chain. The empirical results present that there was a negative impact on Taiwan’s IC industry as a whole after the news of Huawei being restricted was released. When it was reported that the U.S. planned to add Huawei’s subsidiaries into the entity list, there was a positive impact on Taiwan’s IC industry as a whole, and the impact is more pronounced on IC design firms. When the news of Semiconductor Manufacturing International Corporation (SMIC) also being banned was known by the public, Taiwan’s wafer foundries were greatly benefited, but non-wafer foundries were slightly harmed. The above results indirectly proved that Taiwan’s IC industry was benefited from the order-transfer effect during the U.S. and China trade war. And this study finds that the order-transfer effect occurs when the restricted company is in the same position of the industry chain with the benefited industry because of their competitive relationships, and the customers of benefited industry in midstream or downstream are also benefited indirectly.