Taiwan Rejects US Push to Relocate 40% of Chip Production

Taiwan's vice-premier has delivered a firm rejection to US pressure to relocate 40 percent of the country's semiconductor production to American soil, calling the Trump administration's goal "impossible" in a recent interview with CTS channel.

Cheng Li-chiun, Taiwan's vice-premier, made the statement following her January trade delegation to Washington, where Taiwan secured reduced US tariffs on Taiwanese goods - from 20 percent to 15 percent - in exchange for increased investment in America's tech sector.

The US Push for Chip Independence

The Trump administration has been aggressively pursuing semiconductor independence from Taiwan, viewing the island nation's dominance in chip manufacturing as both an opportunity and a vulnerability. Commerce Secretary Howard Lutnick told CNBC that the trade deal aimed to relocate 40 percent of Taiwan's entire chip manufacturing and production capacity to America.

The Department of Commerce characterized the agreement as a "massive reshoring of America's semiconductor sector," reflecting the administration's broader strategy to reduce dependence on foreign chip suppliers.

Taiwan's Strategic Position

Taiwan currently produces more than 60 percent of global semiconductors and roughly 90 percent of the world's most advanced chips. This dominance didn't happen by accident - it resulted from decades of strategic investment when other countries were hesitant to commit resources to the industry.

Former Intel chief Pat Gelsinger has publicly supported this view, noting that countries like Korea, Taiwan, and China implemented long-term industrial policies and substantial investments in chipmaking, while the US and European nations failed to maintain similar commitments.

The "Silicon Shield" Defense

Taiwan views its semiconductor dominance as a critical component of its national defense strategy against Chinese aggression. Beijing claims Taiwan as its territory and has repeatedly threatened reunification by force if necessary.

This dynamic creates what experts call the "silicon shield" - the idea that China would be deterred from invading Taiwan because such an action would devastate the global tech sector and harm China's own economic interests.

Even Lutnick acknowledged this strategic reality last year, noting China's ambitions: "We need their silicon, the chips so badly that we'll shield them, we'll protect them."

The Ecosystem Challenge

Cheng emphasized that Taiwan's semiconductor ecosystem cannot be relocated, and its most advanced technologies will remain domestic. She explained that "an industrial ecosystem built up over decades cannot be relocated."

This ecosystem includes not just the fabrication plants but also the entire supply chain, skilled workforce, research institutions, and supporting industries that have developed in Taiwan over many years. Moving such a complex system would be extraordinarily difficult, if not impossible.

Global Tech Vulnerability

The strategic importance of Taiwan's chip industry becomes clear when examining the global tech supply chain. Most of Nvidia's GPUs are manufactured in Taiwan, as are AMD's processors and Qualcomm's smartphone chips.

Any disruption to Taiwan's chip production would have catastrophic effects on the global tech sector. An invasion by China would cut off these supplies, and there is no other source these companies can easily turn to in the short term.

TSMC's Position

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chip manufacturer, considered relocating its chip fabs in 2024 due to China threats but ultimately decided against the idea given the difficulties involved.

The company's decision underscores the practical challenges of moving semiconductor production, even for a company with substantial resources and global reach.

The Reality of Semiconductor Manufacturing

The semiconductor industry requires massive capital investment, highly specialized equipment, and a skilled workforce that takes years to develop. Building new fabrication facilities in the US would require billions of dollars in investment and years of construction and workforce training.

Even with substantial government incentives, the timeline for establishing a comparable ecosystem in the US would be measured in decades, not years.

Looking Forward

While Taiwan has agreed to increase investment in America's tech sector, the vice-premier's statement makes clear that the country's most advanced semiconductor production will remain in Taiwan. This positions Taiwan as a critical player in global technology for the foreseeable future, while also highlighting the strategic vulnerabilities that come with such concentration.

The US will likely need to pursue a more nuanced approach to semiconductor independence, focusing on building complementary capabilities rather than attempting to replicate Taiwan's entire ecosystem. This could include investing in research and development, supporting domestic chip design companies, and developing specialized manufacturing capabilities for certain types of chips.

For now, Taiwan's position remains firm: its semiconductor ecosystem, built over decades of investment and development, will stay where it is, serving as both an economic engine and a strategic shield against potential aggression.