Taipei has delivered a firm rejection to Washington’s ambitious proposal to relocate a significant portion—40%—of Taiwan’s semiconductor supply chain to the United States. In a recent interview, Taiwan’s top trade negotiator, Vice Premier Cheng Li-chiun, unequivocally stated that such a move was “impossible,” pushing back against aggressive onshoring targets set by U.S. Commerce Secretary Howard Lutnick.
The Unmovable Ecosystem: Decades in the Making
Vice Premier Cheng Li-chiun emphasized that Taiwan’s semiconductor industry is the culmination of decades of strategic development, forming a deeply integrated and complex ecosystem that cannot simply be uprooted and transplanted. She clarified that while Taiwan supports international expansion, including investments in the U.S., these ventures are predicated on the industry’s continued robust growth and foundational roots within Taiwan itself.
These remarks directly counter Secretary Lutnick’s vision, articulated in a January interview, where he expressed a desire for 40% of Taiwan’s entire chip supply chain to shift stateside within the current U.S. presidential term. This aspiration followed a recent U.S.-Taiwan trade agreement, under which Taiwan pledged $250 billion in direct investments from its tech companies, complemented by an additional $250 billion in credit for U.S. production expansion. In return, Washington reduced levies on most Taiwanese goods, waived tariffs on specific items like generic drugs and aircraft components, and promised increased quotas for tariff-free chip exports.
TSMC’s Strategic Alignment and Washington’s Broader Ambitions
Taiwan Semiconductor Manufacturing Co. (TSMC), the global leader in contract chip manufacturing and producer of the most advanced semiconductors, has already demonstrated significant commitment to aligning with U.S. policy interests. The company has invested over $65 billion in U.S. manufacturing in recent years, with plans to escalate this to $165 billion, primarily to serve American giants like Apple and Nvidia. These investments have been bolstered by grants from the U.S. CHIPS and Science Act.
However, Lutnick’s vision extends beyond TSMC, aiming to attract hundreds of smaller companies within the intricate chip supply chain to the U.S. “We’re going to build giant semiconductor industrial parks in America… This is a $500 billion down payment on let’s bring those semiconductors home,” Lutnick declared in January. He even hinted at potential 100% tariffs for Taiwan-based chip companies that resist building facilities in the U.S., echoing threats made by former President Donald Trump.
Feasibility Doubts and the ‘Silicon Shield’
Despite Washington’s ambitious rhetoric, semiconductor analysts largely concur with Vice Premier Cheng’s assessment regarding the unfeasibility of such extensive onshoring. They cite formidable obstacles, including Taiwan’s uniquely integrated semiconductor ecosystem, persistent U.S. labor shortages, and significantly elevated operational costs.
The Geopolitical Dimension: Taiwan’s ‘Silicon Shield’
Geopolitical experts frequently invoke the “Silicon Shield” theory, which posits that Taiwan’s indispensable role in the global chip supply chain serves as a strategic imperative for the U.S. to safeguard the island’s autonomy, thereby deterring potential aggression from Beijing, which claims sovereignty over democratic Taiwan. This strategic importance could further disincentivize Taiwan from relocating its critical supply chains abroad.
Adding another layer of complexity, Taiwanese authorities have implemented the “N-2 rule,” a policy requiring TSMC’s overseas facilities to utilize technologies at least two generations behind the cutting-edge processes deployed domestically. This policy underscores Taiwan’s commitment to maintaining its technological lead and strategic importance on the island.
The U.S. Commerce Department has yet to issue a formal response to Vice Premier Cheng’s recent statements. Meanwhile, TSMC shares saw a 2.75% increase in Taiwan on Tuesday, reflecting ongoing market confidence in the company’s position.
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