Taiwan Semiconductor Manufacturing Company’s logo is seen in the background beside a printed circuit board.
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Taiwan has informed Washington that its ambitious proposal to relocate 40% of the island’s semiconductor supply chain to the United States is “impossible,” according to the country’s top trade negotiator. In a local television interview on Sunday, Vice Premier Cheng Li-chiun conveyed to U.S. officials that Taiwan’s intricate semiconductor ecosystem, cultivated over decades, cannot be simply uprooted and transplanted.
These remarks serve as a notable pushback against the onshoring targets articulated by U.S. Commerce Secretary Howard Lutnick in a January interview. Following the recent U.S.-Taiwan trade agreement, Lutnick had expressed a desire to see 40% of Taiwan’s entire chip supply chain shift to the U.S. within the current presidential term.
The agreement stipulated that Taiwanese tech companies would commit to $250 billion in direct investments within the U.S., with an additional $250 billion in credit available for expanding their production capacity stateside. In return, Taiwanese firms were to be granted higher quotas for tariff-free exports of their chips to the United States.
Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s preeminent contract chipmaker and a leading producer of advanced semiconductors, has already been aligning its operations with U.S. policy objectives. The company has pledged over $65 billion for U.S. manufacturing in recent years, with plans to increase this figure to $165 billion, supporting chip production for major American clients like Apple and Nvidia. These investments have also benefited from grants provided under the U.S. CHIPS and Science Act, aimed at bolstering domestic semiconductor manufacturing.
However, Lutnick indicated that Washington’s ambitions extend beyond TSMC, seeking the relocation of hundreds of smaller companies within the broader chip supply chain. “We’re going to build giant semiconductor industrial parks in America… This is a $500 billion down payment on let’s bring those semiconductors home,” he stated in January, adding that Taiwan-based chip companies opting not to establish a U.S. presence could face a 100% tariff.
Despite these pronouncements, semiconductor analysts largely concur with Cheng’s assessment that Washington’s most aggressive onshoring goals are currently unfeasible. The inherent complexities of relocating such a sophisticated and deeply integrated supply chain present significant hurdles. Analysts and industry insiders frequently cite Taiwan’s robust semiconductor ecosystem, coupled with U.S. labor shortages and elevated operational costs, as primary obstacles to such a large-scale migration.
Furthermore, geopolitical analysts highlight the “Silicon Shield” theory. This posits that Taiwan’s indispensable role in the global chip supply chain makes its autonomy a critical strategic imperative for the United States, thereby acting as a deterrent against potential Chinese aggression. Beijing asserts sovereignty over the democratically governed island. This strategic positioning could further disincentivize Taiwan from relocating its core supply chain capabilities offshore.
Adding another layer to this dynamic, Taiwanese authorities have implemented a policy requiring TSMC’s overseas plants to utilize technologies at least two generations behind the cutting-edge ones deployed in Taiwan, often referred to as the “N-2 rule.” This measure is understood to be a strategic effort to maintain a technological advantage on the island.
The U.S. Commerce Department has not yet responded to a request for comment regarding Cheng’s statement.
Under the terms of the latest trade agreements, Washington committed to reducing tariffs on most goods from Taiwan to 15% from 20%, and to waive tariffs on generic drugs and ingredients, aircraft components, and natural resources not domestically available.
TSMC shares saw a 2.75% increase in trading on the Taiwan Stock Exchange on Tuesday.
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