Taiwan has informed Washington that its plan to shift 40% of the island’s semiconductor supply chain to the U.S. is “unfeasible,” according to Taipei’s chief tariff trade negotiator during an interview.
In a local TV broadcast on Sunday, Vice Premier Cheng Li-chiun expressed that she had made it clear to Washington that the semiconductor ecosystem developed over decades could not merely be moved.
Cheng stated, translated by CNBC, that Taiwan’s international growth, including investments in the U.S., is based on the principle that the industry remains ‘rooted in Taiwan’ and continues to grow domestic investments.
These assertions counter the onshoring goals set forth by U.S. Commerce Secretary Howard Lutnick in a CNBC interview back in January, subsequent to the most recent U.S.-Taiwan trade agreement. Lutnick had indicated that he desired 40% of Taiwan’s complete chip supply chain to transfer to the U.S. during President Donald Trump’s ongoing term.
As part of the agreement, the Taiwanese government promised $250 billion in direct investments by its technology companies, complemented by an additional $250 billion in credit allocated to enhance their production capacities in the U.S.
Washington, in turn, decreased tariffs on most Taiwanese goods from 20% to 15%, eliminated tariffs on generic medications, aircraft components, and unavailable domestic natural resources, while guaranteeing increased quotas for tariff-free exports of Taiwanese chips to the U.S.
Taiwan Semiconductor Manufacturing Co, recognized as the leading contract chipmaker globally and manufacturer of cutting-edge semiconductors, has already been aligning itself more closely with U.S. policy interests.
The firm has invested over $65 billion in U.S. manufacturing in recent years, with intentions to boost that figure to $165 billion, as it manufactures chips for American customers like Apple and Nvidia. These investments have also benefited from grants under the U.S. CHIPS and Science Act.
According to Lutnick, Washington seeks to attract hundreds of smaller companies within the chip supply chain to establish operations in the U.S.
“We will create large semiconductor industrial parks in America … This is a $500 billion initial investment aimed at bringing those semiconductors home,” he mentioned in January, noting that Taiwan-based chip firms that do not establish operations in the U.S. may confront a 100% tariff that Trump has threatened against the industry.
Nonetheless, semiconductor analysts generally concur with Cheng’s viewpoint that Washington’s most ambitious onshoring initiatives are impractical, highlighting the challenges of relocating such a sophisticated supply chain.
Industry officials and analysts reference Taiwan’s deeply interconnected semiconductor ecosystem, labor shortages in the U.S., and high costs as significant hurdles.
Geopolitical analysts have also referred to the “Silicon Shield” theory, asserting that the island’s critical position in global chip supply makes preserving its autonomy a strategic priority for the U.S., thus deterring any potential aggression from China. Beijing asserts its claim over the democratically governed island.
This Silicon Shield could further dissuade Taiwan from relocating its supply chains overseas.
Taiwanese officials have already instituted a regulation mandating TSMC’s overseas facilities to operate with technologies at least two generations behind those being implemented in Taiwan, commonly called the N-2 rule.
The U.S. Commerce Department did not respond immediately to a request for comment regarding Cheng’s remarks.
TSMC shares experienced a 2.75% increase in Taiwan on Tuesday.
— CNBC’s Matthew Chin contributed to this report.
