Taiwan Firmly Rejects US Proposal to Relocate Semiconductor Supply Chain
In a significant development, Taiwan has officially informed the United States that its ambitious plan to relocate nearly 40% of Taiwan's semiconductor supply chain to American soil is "impossible". This statement was made by Taipei's top tariff trade negotiator, Vice Premier Cheng Li-chiun, during a local television broadcast on Sunday, as reported by CNBC.
Decades of Ecosystem Development Cannot Be Moved
Cheng Li-chiun emphasized that she has clearly communicated to Washington that Taiwan's semiconductor ecosystem, which has been meticulously built over decades, cannot simply be uprooted and transferred. "Taiwan's international expansion, including investments in the US, is based on the understanding that the semiconductor industry will remain rooted in Taiwan and continue to expand domestically," she asserted.
Her remarks were a direct response to the onshoring objectives outlined by US Commerce Secretary Howard Lutnick. In January, Lutnick told CNBC that he aimed to see 40% of Taiwan's chip supply chain move to the United States during President Donald Trump's current term. These comments came shortly after the two sides signed a new trade agreement.
Details of the US-Taiwan Trade Agreement
Under the recently signed trade pact:
- Washington reduced tariffs on most Taiwanese goods to 15% from a previously announced 20%.
- Tariffs were waived for generic drugs, ingredients, aircraft components, and natural resources not available domestically in the US.
- Higher quotas were promised for tariff-free exports of Taiwanese chips to the US.
- In return, Taiwan committed to direct investments worth $250 billion by its technology companies, along with an additional $250 billion in credit support to help expand their manufacturing capacity within the United States.
TSMC's Strategic Moves and US Investment Pledges
Following the agreement, Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract chipmaker, began taking steps to align more closely with US policies. In recent years, TSMC has:
- Pledged over $65 billion towards manufacturing in the US.
- Announced plans to significantly increase that amount to $165 billion.
- Committed to supplying chips to major American firms like Apple and Nvidia.
These substantial investments have also garnered support through grants under the US CHIPS and Science Act. However, Commerce Secretary Lutnick indicated that Washington is seeking commitments not only from industry giants like TSMC but also from hundreds of smaller firms across the semiconductor supply chain.
"We're going to build massive semiconductor industrial parks in America. This is a $500 billion down payment on bringing those semiconductors back home," Lutnick declared in January. He further warned that Taiwan-based chipmakers failing to establish operations in the US could face a 100% tariff, as threatened by President Trump.
Potential Tariff Exemptions for Big Tech
According to a Financial Times report, the Trump administration is considering exempting major technology companies such as Amazon, Google, and Microsoft from new taxes on imported computer chips. This consideration comes as these companies race to build data centers to power the ongoing artificial intelligence (AI) boom. Washington is linking this potential tariff relief to the investment pledges made by TSMC.
Analysts Support Taiwan's Stance, Citing 'Silicon Shield'
Semiconductor analysts have largely agreed with Vice Premier Cheng's assessment, labeling Washington's onshoring plans as "unfeasible." They cite significant obstacles, including:
- Difficulties in relocating such an advanced and integrated supply chain.
- Persistent labor shortages in the United States.
- Elevated operational and manufacturing costs compared to Taiwan.
Analysts also reference the so-called "Silicon Shield" theory. This concept argues that Taiwan's central, indispensable role in the global semiconductor supply chain makes protecting its autonomy a strategic priority for the United States. This, in turn, is believed to discourage potential aggression from China, which claims sovereignty over the self-governed island. The Silicon Shield theory further discourages Taiwan from relocating its critical supply chains abroad, as it underpins both its economic security and geopolitical significance.
