^{Photo: The Economic Times}

Taiwan Pushes Back on US Semiconductor Ambitions

Taiwan has firmly rejected Washington’s call to relocate 40% of its semiconductor supply chain to the United States, with senior officials describing the target as unrealistic and unworkable. The pushback underscores rising tensions over how far global chip production can be reshaped to meet US economic and national security goals.

In a televised interview over the weekend, Taiwan’s Vice Premier and chief trade negotiator Cheng Li-chiun said she had made it clear to US counterparts that Taiwan’s semiconductor industry cannot simply be transplanted abroad. Built over more than four decades, the island’s chipmaking ecosystem is deeply interconnected, highly specialized, and geographically concentrated.

According to Cheng, Taiwan’s strategy of expanding overseas manufacturing, including in the US, is based on one key principle: the industry must remain fundamentally rooted in Taiwan while continuing to grow domestically.

US Calls for Aggressive Onshoring

Cheng’s comments directly challenge statements made earlier this year by US Commerce Secretary Howard Lutnick, who outlined an aggressive vision for reshoring semiconductor manufacturing. Speaking in January following the latest US–Taiwan trade agreement, Lutnick said the US wanted 40% of Taiwan’s entire chip supply chain relocated to American soil during President Donald Trump’s current term.

Lutnick framed the effort as part of a broader industrial revival, describing plans to build massive semiconductor manufacturing hubs across the US. He also warned that Taiwanese chip companies that fail to expand in the US could face tariffs as high as 100%, signaling that trade pressure may be used to accelerate onshoring.

What the US–Taiwan Deal Includes

Under the recent trade framework, Taiwan committed to substantial financial backing for US expansion. The Taiwanese government pledged $250 billion in direct investments by domestic technology firms, along with an additional $250 billion in credit facilities to support capacity expansion in the US.

In return, Washington agreed to reduce tariffs on most Taiwanese goods to 15% from 20%. The US also waived duties on select categories including generic pharmaceuticals, drug ingredients, aircraft components, and natural resources not available domestically. Importantly for the tech sector, the agreement included higher tariff-free export quotas for Taiwanese semiconductors entering the US market.

TSMC’s Expanding Footprint in the US

Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker and the backbone of global advanced chip production, has already aligned itself closely with US policy priorities.

TSMC has committed more than $65 billion to US manufacturing projects, primarily in Arizona, and has announced plans that could lift total US investment to as much as $165 billion. These facilities are expected to produce chips for major American clients including Apple, Nvidia, and AMD, while also benefiting from subsidies under the US CHIPS and Science Act.

Despite these commitments, US officials have indicated that TSMC alone is not enough. Washington is pushing for hundreds of smaller suppliers across the semiconductor value chain, from materials to equipment makers, to also relocate operations to the US.

Why Analysts Say the Goal Is Unfeasible

Industry analysts largely agree with Taiwan’s assessment that relocating 40% of its semiconductor supply chain is not practical in the near or medium term.

Taiwan’s chip industry is built around dense clusters of suppliers, research institutions, specialized talent, and logistics infrastructure that operate with extreme efficiency. Recreating this environment elsewhere would require enormous time, capital, and coordination.

In the US, challenges include higher labor costs, shortages of skilled semiconductor engineers, longer construction timelines, and regulatory complexity. Estimates from industry groups suggest that building and operating advanced fabs in the US can cost 30% to 50% more than in Taiwan, even after government subsidies.

The Strategic Role of the “Silicon Shield”

Geopolitical considerations also play a major role in Taiwan’s reluctance to move too much capacity offshore. Analysts frequently cite the “Silicon Shield” theory, which argues that Taiwan’s dominance in global chip manufacturing acts as a strategic deterrent against potential aggression.

Because advanced economies rely heavily on Taiwanese-made chips, particularly for smartphones, data centers, artificial intelligence, and defense systems, safeguarding Taiwan’s stability aligns closely with US and allied strategic interests. Diluting that concentration by moving large portions of production overseas could weaken this implicit protection.

China, which claims sovereignty over the democratically governed island, has repeatedly opposed any actions that strengthen Taiwan’s international standing.

Technology Controls and the N-2 Rule

Taiwanese authorities have already put safeguards in place to prevent excessive offshoring of advanced technology. One key policy is the so-called N-2 rule, which requires overseas fabs operated by Taiwanese companies to use chipmaking technologies that are at least two generations behind the most advanced nodes produced domestically.

This ensures that Taiwan retains its technological edge while still allowing companies like TSMC to meet overseas demand and geopolitical expectations.

Market Reaction and What Comes Next

The US Commerce Department has not publicly responded to Cheng’s remarks. Meanwhile, investors appeared unfazed by the political friction, with TSMC shares rising nearly 3% in Taiwan trading on Tuesday.

While Taiwan remains open to expanding its semiconductor presence abroad, officials have made it clear that the island will not sacrifice the core of its industry. As US pressure to onshore manufacturing continues, the debate is likely to shift from ambitious targets to more incremental, economically viable compromises.