U.S. Commerce Chief: Taiwan Should Produce Only Half of America’s Chips

The U.S. administration is reportedly engaging in discussions with Taipei, advocating for a significant shift in semiconductor investment and production. The aim is to establish a scenario where approximately half of the American demand for semiconductors is met through domestic manufacturing, a move that could reshape Taiwan’s strategic importance. This initiative emerges amidst growing concerns about supply chain resilience and national security, as geopolitical tensions continue to rise.

The discussions revolve around a “50-50” split in semiconductor production, a strategy intended to substantially lessen U.S. reliance on Taiwan, U.S. Secretary of Commerce Howard Lutnick revealed in a recent interview. This proposal underscores Washington’s intensified focus on bolstering its domestic chip-making capabilities.

Currently, Taiwan dominates the global advanced semiconductor market, reportedly accounting for over 90% of production. This concentration raises concerns in Washington, particularly given Taiwan’s geographic proximity to China and the potential vulnerabilities this creates in the global supply chain. Secretary Lutnick emphasized the administration’s commitment to “significantly onshoring” chip manufacturing, asserting the necessity of producing chips domestically to ensure U.S. economic and national security.

“My objective, and this administration’s objective, is to get chip manufacturing significantly onshored — we need to make our own chips,” Lutnick said. “The idea that I pitched [Taiwan] was, let’s get to 50-50. We’re producing half, and you’re producing half.”

Lutnick aims to achieve around 40% domestic semiconductor production. This ambitious target would necessitate substantial investments exceeding $500 billion within the U.S., reflecting the scale of the challenge and the administration’s commitment.

Taiwan’s dominance in chip production is largely attributed to Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s leading contract chipmaker. TSMC’s technological prowess and manufacturing capacity make it a critical player in the global tech ecosystem, serving major U.S. companies like Nvidia and Apple. The company’s advanced manufacturing processes are essential for producing the sophisticated chips that power everything from smartphones to supercomputers.

Taiwan’s pivotal role in global chip production has long been considered a deterrent against potential military action from China, a concept known as the “Silicon Shield.” This theory posits that Taiwan’s economic significance to the world makes it less likely that China would risk disrupting the island’s vital industry.

However, Lutnick has downplayed the “Silicon Shield” theory, suggesting that a more balanced distribution of chip production between the U.S. and Taiwan would enhance Taiwan’s security. His argument centers on the idea that over-reliance on a single location for such a critical resource creates vulnerabilities that could be exploited.

“My argument to them was, well, if you have 95% [chip production], how am I going to get it to protect you? You’re going to put it on a plane? You’re going to put it on a boat?” Lutnick said.

Under the proposed 50-50 plan, the U.S. would maintain a “fundamentally reliant” relationship with Taiwan, but would also possess the capacity to “do what we need to do, if we need to do it.” This reflects a strategy of diversification and risk mitigation, balancing the benefits of international cooperation with the need for domestic resilience.

Beijing regards Taiwan as a breakaway province and has repeatedly stated its intention to reunify the island with the mainland, by force if necessary. The current ruling party in Taipei rejects these claims and asserts Taiwan’s right to self-determination. The ongoing tensions across the Taiwan Strait underscore the geopolitical complexities surrounding the semiconductor industry and the strategic importance of Taiwan.

China’s military has conducted numerous large-scale exercises near Taiwan this year, signaling its capabilities and resolve. These exercises have prompted responses from Washington, reaffirming its commitment to supporting Taiwan’s defense. The military posturing adds another layer of complexity to the semiconductor debate, highlighting the potential security implications of chip production locations.

Lutnick’s statements align with previous remarks suggesting that the U.S. should receive greater compensation for its defense of Taiwan against potential Chinese aggression. These sentiments reflect a broader debate about the economic and strategic benefits the U.S. derives from its relationship with Taiwan.

The U.S. was once a dominant player in the global semiconductor market, but its market share has declined due to factors such as industry shifts and the rise of Asian competitors like TSMC and Samsung. This decline prompted Washington to take action to revitalize the domestic semiconductor industry.

However, Washington has been working to reverse that trend across multiple administrations.

TSMC has been actively investing in manufacturing facilities in the U.S. since 2020, steadily increasing its commitment. The company announced plans to invest an additional $100 billion, bringing its total planned investment to $165 billion. These investments are seen as a crucial step in bolstering U.S. chip-making capabilities and reducing reliance on overseas production.

The U.S. administration recently proposed tariffs on semiconductors, with exemptions for companies investing in domestic production. The U.S. and Taiwan also remain involved in trade negotiations that could influence tariff rates for Taiwanese businesses. These discussions underscore the complex interplay of economic and political factors shaping the semiconductor industry landscape.