The competitiveness of Taiwan’s semiconductor industry is unlikely to be substantially dented by the newly announced trade pact with the US, despite Washington’s claim that 40 percent of Taiwan’s semiconductor capacity would be relocated to the US in exchange for lower tariffs on Taiwanese goods.
Based on the agreement, the US is to slash tariffs on Taiwanese imports to 15 percent from a temporary 20 percent announced in August last year, with no additional stacking tariffs. In return, Taiwanese chipmakers and related companies would invest US$250 billion directly in the US, with an equal amount in credit guarantees from the government, to assist smaller and medium-sized companies investing in the US.
The goal of US President Donald Trump’s administration is to move 40 percent of Taiwan’s semiconductor supply chain to the US during his second term, which ends in January 2029, to attain chip self-sufficiency, US Secretary of Commerce Howard Lutnick told CNBC last week.
Lutnick’s remarks fanned fears that the trade pact would hollow out Taiwan’s semiconductor industry, a vital pillar of the nation’s economy. Moving a significant portion of Taiwan’s chip capacity to the US in just three years is impractical, given that Taiwan spent three decades building the ecosystem. It is an even more formidable task today, as chip manufacturing has become increasingly complex, involving large numbers of components and other suppliers.
Taiwan Semiconductor Manufacturing Co (TSMC) is expected to carry the weight of the new investments in the US. It has already promised to invest US$100 billion in Arizona on top of a previous pledge of US$65 billion. The US investment will give TSMC six advanced chip fabs, two advanced chip packaging plants and one research-and-development center in Arizona. In addition, the chipmaker acquired a second plot adjacent to its Arizona fabs, possibly for two more new manufacturing facilities.
As it takes at least two years to build a chip fab, TSMC is expected to have all six facilities in volume production after 2030. The chipmaker’s first factory in Arizona entered volume production in the fourth quarter of 2024 and its second fab is to start mass production in the second half of next year. It just started building the third this year, and is seeking construction permits for the fourth and for its first US chip packaging plant.
If everything goes smoothly, about 30 percent of the chipmaker’s 2-nanometer and more advanced process technology would be deployed in the US, company estimates showed. TSMC’s 2-nanometer chip is the most advanced available from the company at the moment. Its next-generation chips, or A16, are to enter volume production in the second half of this year, marking the first angstrom-scale chip produced by TSMC.
In Taiwan, the company is mulling at least 10 new advanced chip plants to produce 2-nanometer and new-generation chips in Hsinchu, Kaohsiung, Taichung and Tainan, sources said, outpacing its expansions in the US. The technology gap between Taiwan and the US might be shrinking, but TSMC’s most cutting-edge chip manufacturing technology would remain rooted in Taiwan.
By 2036, about 80 percent of 5-nanometer and more advanced chips would be produced in Taiwan, and 20 percent in the US, Minister of Economic Affairs Kung Ming-hsin (龔明鑫) said last week.
The trade deal also made Taiwan the first country to secure “most favored nation” status for semiconductor and related suppliers under Section 232 of the US Trade Expansion Act, meaning that local chipmakers enjoy tariff exemptions if they build chip manufacturing sites in the US. That would enhance the competitive edge of Taiwanese suppliers of advanced chips, including artificial intelligence chips and key components, in the US.
The Taiwan-US trade agreement injects much-needed certainty into corporate planning even as challenges persist with costly chip manufacturing investments in the US and talent acquisition issues. Still, with their technological advantages and advanced chip capacity, Taiwanese semiconductor companies have secured a better position to safeguard their competitive edge.
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