Taiwan pushes back against Washington’s 40% chip supply relocation goal

Taiwan has conveyed to U.S. Officials that a proposal to relocate 40% of the island’s semiconductor supply chain to the United States is not feasible, according to Taipei’s top trade negotiator. The response underscores the complexities of reshaping a decades-old, deeply entrenched global industry.

A Complex Ecosystem

Vice Premier Cheng Li-chiun stated that Taiwan’s semiconductor industry expansion, including investments within the U.S., is contingent on maintaining a strong foundation within Taiwan and continued domestic investment. This suggests that Taiwan views expansion as complementary to, not a replacement for, its existing capabilities.

Did You Know? Taiwan has pledged $250 billion in direct investments by its tech companies, with an additional $250 billion in credit, to expand production capacity in the U.S. As part of a recent trade agreement.

U.S. Onshoring Goals

The Taiwanese response directly addresses targets set by U.S. Commerce Secretary Howard Lutnick, who, following a recent U.S.-Taiwan trade agreement, indicated a desire to see 40% of Taiwan’s chip supply chain shifted to the U.S. Within President Trump’s current term. Lutnick has also suggested potential tariffs – up to 100% – for Taiwan-based companies that do not establish operations in the U.S.

Taiwan Semiconductor Manufacturing Co (TSMC), the world’s leading contract chipmaker, has already committed over $65 billion to U.S. Manufacturing, with plans to increase that to $165 billion. These investments support production for major American clients like Apple and Nvidia and leverage funding from the U.S. CHIPS and Science Act.

Obstacles to Relocation

Despite TSMC’s investments, analysts generally agree with Cheng’s assessment that a full-scale relocation is impractical. Key obstacles include Taiwan’s highly integrated semiconductor ecosystem, labour shortages in the U.S., and higher operational costs.

Expert Insight: The difficulties highlighted by Taiwan and industry analysts suggest that the U.S. Strategy may need to focus on attracting specific segments of the supply chain, rather than attempting a complete transfer of the entire ecosystem.

the “Silicon Shield” theory suggests that Taiwan’s critical role in global chip supply provides a strategic deterrent against potential Chinese aggression, as Beijing claims sovereignty over the island. This dynamic could further discourage Taiwan from dispersing its supply chains.

Taiwan has also implemented a policy, known as the N-2 rule, requiring its overseas plants to utilize technologies at least two generations behind those deployed in Taiwan. This policy limits the capabilities of foreign-based TSMC facilities.

Frequently Asked Questions

What was the U.S. Commerce Secretary’s goal regarding Taiwan’s semiconductor supply chain?

U.S. Commerce Secretary Howard Lutnick stated he wanted 40% of Taiwan’s entire chip supply chain to shift to the U.S. Within President Trump’s ongoing term.

What has TSMC already committed to in terms of U.S. Manufacturing?

TSMC has committed more than $65 billion to U.S. Manufacturing, with plans to expand that to $165 billion, producing chips for clients like Apple and Nvidia.

What is the “N-2 rule” and how does it affect overseas TSMC plants?

The “N-2 rule” requires TSMC’s overseas plants to operate using technologies at least two generations behind the cutting-edge ones being deployed in Taiwan.

As the situation unfolds, the U.S. May adjust its approach to onshoring, potentially focusing on incentivizing specific segments of the supply chain or accepting a more gradual transition. Taiwan is likely to continue prioritizing its domestic industry while selectively expanding its international presence. The future balance between these competing priorities remains to be seen.