Taiwan has issued a categorical refusal regarding the United States' request to shift a substantial portion—specifically 40%—of its cutting-edge semiconductor manufacturing capabilities to American soil. This stance comes even as key players like Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) are investing heavily in overseas facilities, driven by a combination of strategic growth imperatives and practical considerations.
Taiwan's Firm Stance on Semiconductor Relocation
Taiwan's chief tariff negotiator recently communicated a clear rejection to Washington's proposal, stating that the island nation is unable to transfer 40% of its semiconductor capacity to the U.S. This declaration was made despite TSMC's ongoing investment of $165 billion into the construction of fabrication plants in Arizona.
During a broadcast interview on CTS, Vice Premier Cheng Li-chiun explained that Taiwan's semiconductor infrastructure, meticulously developed over several decades, cannot simply be uprooted and transplanted. She emphasized that while Taiwanese chip companies would continue to expand their international footprint, the overall domestic manufacturing capacity would undoubtedly increase.
Her comments were in direct response to remarks from U.S. Commerce Secretary Howard Lutnick, who advocated for the repatriation of semiconductor manufacturing to the U.S., citing concerns over the concentration of production near China.
Tariff Agreements, Arizona Investments, and Taiwan's Unwavering Position
Last month, Taiwan and the U.S. reached an agreement to reduce tariffs on Taiwanese exports from 20% to 15%. However, Cheng clarified that Taiwan has no intention of relocating its established science parks. Instead, it is prepared to share its expertise in cultivating a robust semiconductor industry to assist the U.S. in developing its own. She further noted that Taiwan's comprehensive chip capacity, encompassing both existing and planned advanced manufacturing and packaging projects, would far exceed its investments in the U.S. or elsewhere.
Expert Perspectives on Limited Advanced Chip Migration
Economist Lien Hsien-ming echoed similar sentiments, suggesting that TSMC would likely transfer only a minimal fraction of its most advanced chipmaking operations to the U.S. This is primarily due to the protracted construction timelines in Arizona, which would prevent any significant shift before the conclusion of President Donald Trump's potential second term. Lien estimated that less than 15% of TSMC's cutting-edge processes would move stateside, thereby challenging Secretary Lutnick's 2029 target of a 40% relocation of Taiwan's supply chain to America.
Lien highlighted the slow progress of TSMC's Arizona expansion, where the company is investing $65 billion across three fabs. The second facility is not projected to commence mass production until 2027, and the third remains under construction. He concluded that even with plans for a potential fourth fab, large-scale advanced output is improbable before Trump's departure from office.
Chang Chien-yi, President of the Taiwan Institute of Economic Research, indicated that TSMC's global diversification is primarily driven by Taiwan's inherent land constraints, which limit extensive industrial expansion, rather than tariff incentives. He added that overseas ventures are largely influenced by customer demand, not solely government pressures, despite increased scrutiny surrounding the location of TSMC's most advanced chip production following a new U.S.-Taiwan trade agreement. Economists generally anticipate that the majority of advanced chip production will remain in Taiwan, with only a limited portion transferring to the U.S. in the near future, given the considerable time required for Arizona's facilities to achieve full operational capacity.
Reflections on the Global Semiconductor Landscape
This situation underscores the intricate dynamics of the global semiconductor industry, where national interests, economic realities, and geopolitical considerations intersect. Taiwan's unwavering commitment to maintaining its core chip manufacturing capabilities at home, even while expanding internationally, highlights the strategic importance of its domestic ecosystem. The U.S. ambition to bolster its own semiconductor production faces significant hurdles, including the time-intensive process of building complex infrastructure and cultivating a skilled workforce. This ongoing tension between localization desires and established global supply chains will undoubtedly continue to shape the future of technology and international relations. The case of TSMC serves as a potent reminder that industrial ecosystems are not easily replicated and that national security concerns must be balanced with the practicalities of a deeply interconnected global economy.