Former US president Donald Trump declared in a recent interview that Taiwan “took 100% of America’s chip business” and that Taiwan “should pay the US for defense.” As Trump’s victory in November seems ever more likely, the geopolitical significance of his statements dealt a blow to TSMC’s stock price and the Taiex Index.
In the next quite possibly tumultuous four years, how should Taiwan and Taiwan’s semiconductor industry respond strategically? Here are three suggestions:
1. The Taiwanese government must immediately respond with data to show Taiwan is not getting anything for free, rather it is accelerating its investment into the US
Even disregarding what the Taiwanese government’s defense budget buying from the US, in recent years Taiwan’s private sector has invested more in the US than ever before. In 2023, Taiwan’s foreign direct investment in the US grew ninefoldbetween January and November, making the US Taiwan’s top investment destination. Taiwan’s “paying” the US is not just an empty slogan, but it is proven with concrete action and real money invested.
Taiwan is glad to build even deeper trade and technology industry connections with the US going forward. This should be reflected in the acceleration of the U.S.-Taiwan Initiative on 21st Century Trade talks, and the US should pushback on Chinese pressure and admit Taiwan into multilateral trade talks like the IPEF.
2. Don’t argue that the US is not suited for manufacturing chips, but instead buy time to keep manufacturing in Taiwan
From TSMC founder Morris Chang and their PR teams, to Taiwanese officials and scholars in various communication channels, we have pressed the point that the United States is not suited for semiconductor manufacturing. Other than the customers of TSMC who care about the price of semiconductor, no one in the US is buying this argument.
American business, tech and policy leaders all seem to think this is just Taiwan’s bias. The more Taiwan argues that the US is not well suited for chip manufacturing, the more we reach an impasse. Even think tanks that should understand the realities of the industry believe that the US can indeed make their own chips, much less Trump, who is trying to win the votes of Americans who fell into poverty from the loss of manufacturing in America.
If Trump is elected, Taiwan has only one strategy to protect its supply chain advantage, and that is to buy time, especially in the next four crucial years. The truth is that the US, Europe and Japan have grossly overspent their national budgets on trying to obtain chip manufacturing capabilities. The CHIPS and Science Act promised subsidies up to 0.21% of the US’s annual GDP, and Japan offered 0.71%, close to its defense budget of 1.1%. However, there are no signs that chip “reshoring” will ever break even without never-ending subsidies. How much will Nvidia, Apple, Qualcomm and AMD, as well as end consumers, pay for TSMC’s added cost for US made chips? How long will the federal government keep throwing money into subsidizing chip manufacturing ?
This problem will be much clearer once TSMC Arizona starts production, so there is no need to hammer this point right now. If similar to TSCM Portland, TSMC Arizona’s yield is too low and costs are too high, the controversy over chip subsidies will surface.
That’s when Taiwan can talk to the US and allies. Do they want to keep cutting the profits of the only company within democracies that has the ability to produce chips with cutting-edge processes and compete with China? Or do they want to go back to market basics and strengthen the win-win division of labor in our supply chain?
3. Explain clearly how Taiwan became indispensable in the supply chain
In the past, the Taiwanese government has been very low-key in responding to the US and partners’ “reshoring” subsidies. But in the future, Taiwan should very clearly and adeptly explain our own story of why Taiwan is indispensable, using a way that the US, Europe and Japan can understand. How is Taiwan’s chip manufacturing ecosystem able to continually innovate? What is special about Taiwan’s position and strengths?
As the US and allies convince themselves that “Taiwan’s risk could cause a catastrophe in our semiconductor supply chain” to pour money into subsidies, how do they fail to see the fact that Taiwan is the most economically sensible, most reliable, and most sustainable place in the world for chip manufacturing? If advanced chips can only be made in Taiwan without more than at least five years’ worth of subsidies, what should everyone do? These questions have never been explained well enough to the US and our partners.
If, in the next four years, the following are true: There are no catastrophic natural disasters or manmade crises that disrupt chipmaking, the US and allies cannot build a sustainable chip manufacturing industry without massive subsidies, there is no Taiwan Strait conflict—then it would be possible for the US and allies to revisit why having Taiwan make our semiconductors is still the best solution. Until then, the government as well as the private sector must engage in the difficult conversations to keep this unique semiconductor manufacturing and innovation ecosystem in Taiwan.
Ultimately, semiconductors is not the only solution for American manufacturing. Semiconductors are certainly the hottest geopolitical topic today, but there is an expiration date. It’s possible that industrial policy will shift to something else in the next few years, but whatever it is, the US should look deeper into the systemic origins of its manufacturing malaise.
Changes in Taiwan’s Foreign Investment Structure – In 2023, Taiwan’s investment in the United States accounted for over one-third of its total foreign investment, a dramatic increase from less than 1% in 2012. This represents more than a thirty-fold growth in just ten years, making the U.S. Taiwan’s largest investment destination. (Source: Northern Trust, based on data from Taiwan’s Ministry of Economic Affairs)
The town of Endicott in upstate New York today. Once the birthplace of IBM and the world center of the semiconductor industry in the early 20th century, Endicott was the cradle of the chip industry. Nowadays, IBM has long since transitioned from manufacturing to systems consulting, abandoning its founding site without even budgeting for dismantling buildings or returning land. This has left numerous abandoned chip factory ruins. (Source: Writer’s Facebook page)
(Featured photo from Trump White House Archives)
