Taiwan Rejects US Chip Production Proposal

Taiwan Semiconductor Manufacturing Company, Limited at Hsinchu Science Park.

Annabelle Chih | Getty Images News | Getty Images

Taiwan has rejected a proposal from Washington to dramatically shift semiconductor production, with Taiwanese officials stating they will not accept a “50-50” split in chip manufacturing between the island and the United States. The rejection comes amidst ongoing efforts to address trade imbalances and bolster U.S. domestic chip production.

Cheng Li-chiun, Taiwan’s top trade negotiator and vice premier, informed reporters that the suggested semiconductor production split wasn’t even a topic of detailed discussion during recent trade talks in the U.S., according to Taiwan’s Central News Agency. Instead, the focus centered on lowering tariff rates, securing exemptions from tariff stacking (additional duties), and reducing levies on Taiwanese exports. Taiwan currently contends with a tariff rate of 20%.

The proposal for a more balanced semiconductor production landscape was initially floated by U.S. Commerce Secretary Howard Lutnick, who argued that the U.S. relies heavily on Taiwan for its chip supply. Lutnick stated in a recent interview that approximately 95% of U.S. chip demand is currently met by chips manufactured in Taiwan, creating a strategic vulnerability.

“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.”

Previous administrations have also expressed concerns over Taiwan’s dominance in chip manufacturing. The U.S. Trade Representative and Taiwan’s Ministry of Economic Affairs have not yet provided further comments on the matter.

The U.S. push reflects growing anxieties surrounding supply chain vulnerabilities and the geostrategic implications of relying on a single nation, particularly one facing geopolitical tensions, for a critical component like semiconductors. The CHIPS and Science Act, enacted in the US, aims to incentivize domestic semiconductor manufacturing through substantial government subsidies and tax credits. However, building advanced fabrication facilities (fabs) is a complex and costly endeavor, requiring not only significant capital investment but also specialized expertise and a highly skilled workforce.

The Taiwanese perspective on the “50-50” split is rooted in preserving its technological leadership and economic interests. Taiwan’s dominance in advanced chip manufacturing, particularly through companies like Taiwan Semiconductor Manufacturing Company (TSMC), is a cornerstone of its economy and a significant source of geopolitical leverage, often referred to as the “Silicon Shield.” This theory postulates that Taiwan’s critical role in the global semiconductor supply chain deters military aggression from China.

Eric Chu, chairman of Taiwan’s Kuomintang opposition party, criticized Lutnick’s proposal as “an act of exploitation and plunder.” He emphasized the importance of protecting Taiwan’s technology sector and TSMC’s position as the world’s leading chip manufacturer.

While Lutnick downplayed the “Silicon Shield” argument, suggesting that a more balanced chip production between the U.S. and Taiwan would increase Taiwan’s security, many in Taiwan view the proposal as an attempt to undermine their technological advantage.

This disagreement highlights the complex interplay of economic, technological, and geopolitical considerations that are shaping the future of the global semiconductor industry. While the U.S. seeks to reduce its reliance on Taiwan, Taiwan remains committed to maintaining its dominance in advanced chip manufacturing.