The administration of US President Donald Trump dropped a bombshell in its recent proposal to take equity stakes in companies getting funds from the 2022 CHIPS and Science Act, as it has triggered a perfect storm surrounding Taiwan Semiconductor Manufacturing Co’s (TSMC) management autonomy and core technology security.
The move indicates that the US could be attempting to penetrate the shareholding structure of the world’s leading semiconductor company under the guises of national security and reshoring manufacturing. This fundamentally conflicts with the two major cornerstones underpinning TSMC’s decades-long success — customer neutrality and technological independence.
First, an investment in TSMC by the US government would be a double-edged sword. On the surface, the move would appear to strengthen US-Taiwan ties, but hidden beneath lies two major threats to TSMC’s core competitiveness — a loss of management autonomy and the risk of leaking trade secrets. This not only poses a challenge for corporate governance, but could potentially reshape the competitive landscape of the global semiconductor industry.
With regard to the first threat — the erosion of management autonomy — an equity stake could introduce new potential risks to the heart of TSMC.
If we consider management autonomy to be the soul of TSMC, then its world-leading process technology is its heart — a heart that could be threatened by the US government’s investment. The recent espionage case in which three former TSMC employees were detained on suspicion of compromising classified technology used in making 2-nanometer chips highlighted how TSMC’s trade secrets are coveted by other countries as strategic assets. Thus, protecting these secrets has already become a matter of offense and defense on the level of national security.
However, if a foreign government were to become a shareholder, it could leverage its shareholder status to require greater disclosure of certain information or exert pressure through cooperative projects, thereby increasing the risk of TSMC’s most advanced technologies — such as its 2-nanometer and A16 processes — being leaked. Using national security as justification, the US government might demand deeper technological cooperation or even the transfer of technology to US firms, especially to help competitors like Intel catch up. The weakening of technological barriers would serve as a direct challenge to TSMC’s leading position.
Second, in the face of these challenges, TSMC is not a passive player and it is far from powerless. With support from its formidable technological capabilities, financial situation and key position in the global supply chain, TSMC possesses a wide range of strategic options. This could allow it to mount a sophisticated defense, or even a counteroffensive, if necessary.
The first and most direct strategy would be to fundamentally challenge the legitimacy of the US government’s model of trading subsidies for equity. TSMC chairman C.C. Wei (魏哲家) previously stated that the company values fair competition over subsidies, clearly setting the tone for its negotiating stance. Given TSMC’s robust financial position, it need not rely on subsidies to complete the construction of its plants in the US.
The numbers themselves are TSMC’s strongest bargaining chip. According to media estimates, based on TSMC’s market capitalization of about US$1.2 trillion, the US government’s subsidies of US$6.6 billion for TSMC would only amount to about 0.55 percent equity — much less than the rumored 10 percent stake in Intel Corp. This asymmetry exposes the harshness of the US’ proposal, providing TSMC with a solid foundation to reject the terms or put forward alternative arrangements.
Outright refusal to cooperate is not TSMC’s best option — rather, constructing an effective “firewall” to contain risks within a manageable scope is the most practical solution. Many experts have proposed the most likely model — strictly limiting any equity stakes to TSMC’s subsidiary in Arizona rather than influencing the Taiwan-based parent company responsible for global operations.
TSMC could establish a special purpose vehicle to operate its US plants or issue special non-voting preferred shares to the US government. This approach would satisfy the US demand to share growth dividends while ensuring that its investment remains strictly financial — not allowing for interference in corporate governance, the control of board seats or impacting the global strategy of the Taiwanese parent company. This would effectively minimize the impact of the “US TSMC,” protecting the company’s core research and development capabilities, and global customers from any disruptions.
Lin Wen-pao is a professor in the Department of Business Management at National Kaohsiung Normal University.
Translated by Kyra Gustavsen
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