Taiwanese companies will have to increase their foreign direct investments given the limited availability of land in Taiwan and growing external demand, Taiwan Institute of Economic Research (TIER) president Chang Chien-yi (張建一) said yesterday.
Chang’s remarks came as Taiwan and the US reached a tentative trade agreement earlier this month, which sees Taiwan’s semiconductor and technology companies led by Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) will invest at least US$250 billion in the US in exchange for a 15 percent levy imposed on Taiwanese goods — the same rate that applies to Taiwan’s main competitors South Korea and Japan, as well as to the European Union.
"Regardless of tariffs, these companies would not necessarily invest in Taiwan, as limited land availability remains a constraint on domestic investment," Chang said at a news conference in Taipei. "After all, we are not going to have a TSMC facility in Taipei’s Xinyi District (信義)."
Photo courtesy of the Taiwan Institute of Economic Research
He denied reports that Taiwan’s government asked domestic companies such as TSMC, the world-leading advanced chipmaker, to invest in the US, and that such a move would hollow out Taiwan’s economy.
Despite US Secretary of Commerce Howard Lutnick’s remark that Washington seeks to bring 40 percent of Taiwan’s semiconductor supply chain to the US by the end of Donald Trump’s second presidential term, Chang said it is estimated that at least 75-80 percent would remain in Taiwan in 2030.
Citing TSMC chairman C.C. Wei (魏哲家), Chang said TSMC’s investments in the US are driven primarily by customer demand.
According to the Ministry of Finance, 30.9 percent of Taiwan’s exports went to the US last year, accounting for the largest percentage of any single country. This is the first time the US has surpassed China (including Hong Kong) to become Taiwan’s largest market abroad.
The tentative US tariff arrangement was a "good" development, Chang said, adding that one particularly positive aspect was the most favorable treatment granted for semiconductors and related products, under Section 232 of the US Trade Expansion Act of 1962.
However, the formal US-Taiwan trade pact expected to be signed in the coming weeks will most likely be more controversial, as it aims to open Taiwan’s market to American goods, including vehicles and agricultural products.
Such a move would benefit Taiwanese consumers but pose challenges to some local companies, Chang said.
Political uncertainty remains the biggest variable, he said, as the Chinese Nationalist Party (KMT) and the Taiwan People’s Party — the two main opposition parties that together hold a majority of seats in the Legislature — have expressed skepticism about the agreement and the pending trade pact.
If the trade agreement fails to pass the Legislature, there is no telling whether the US would raise its tariffs on Taiwan again, Chang said, urging the Legislature to work toward a consensus with domestic industries.
"That is the only way for us to navigate the challenges ahead amid an ever-changing geopolitical landscape," he said.
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