On March 3, the Taiwan Semiconductor Manufacturing Firm (TSMC) announced, along with U.S. President Donald Trump, its determination to take a position massively in the USA. Per TSMC CEO C.C. Wei, this funding will direct $100 billion to the development of three new fabrication services that includes the corporate’s most superior course of nodes, two superior packaging crops, and a analysis and growth heart in Arizona. The development course of will happen over the approaching years, reportedly to counter potential tariffs, starting from 25 to 100 percent, that the Trump administration would possibly impose on Taiwan. The funding plan will carry TSMC’s important semiconductor manufacturing nearer to the corporate’s U.S. shoppers.
Commenting on the settlement, Trump declared, “We should be capable to construct the chips and semiconductors that we want proper right here. It’s a matter of nationwide safety for us.”
This Taiwan-U.S. funding plan aligns with the broader U.S. industrial coverage aims of reshoring very important provide chains and lowering dependency on semiconductor chokepoint economies in Asia. These aims are particularly related to Taiwan, given its dominant place within the semiconductor discipline and escalating tensions between the 2 sides of the Taiwan Strait.
In a single sense, the funding determination displays the TSMC’s adaptability, and different Asian corporations similar to South Korea’s Samsung and LG are additionally reportedly contemplating transferring crops to the USA. Nevertheless, such strikes transcend their face worth, as they elevate elementary challenges to native regulatory frameworks regarding international funding evaluations, core key expertise safety, and, notably within the case of Taiwan, nationwide safety legislation. Certainly, some have characterised TSMC and its surrounding ecosystem as the muse of Taiwan’s “Silicon Protect.” Though many assess this narrative in another way, TSMC’s large growth in the USA has raised considerations about Taiwan’s potential to take care of its technological supremacy, strategic centrality, financial prosperity, and nationwide safety amid shifting geopolitical dynamics.
Classes From the Nineteen Eighties Japan-U.S. Semiconductor Saga
The strategic significance of the semiconductor {industry} is plain, and this isn’t the primary time that the U.S. authorities has acted so aggressively to intervene in and reshape this important sector. An analogous second occurred within the Nineteen Eighties, when the Reagan administration, beneath mounting strain from U.S. semiconductor companies, took decisive motion in opposition to Japan in response to its rising affect within the {industry}.
Whereas the USA, on the time, was nonetheless the world’s dominant producer typically, Japanese companies managed to catch as much as and surpass their U.S. counterparts within the particular discipline of memory-chip manufacturing. Between 1978 and 1986, Japanese companies basically dominated the production of dynamic random-access reminiscence (DRAM) chips – then the preferred kind. The U.S. international market share fell from 70 p.c to twenty p.c, whereas Japan’s surged from 30 p.c to 75 p.c (although curiously, Japan’s share of the U.S. market remained insignificant throughout this era).
Washington, then nonetheless dedicated to neoliberalism, initially hesitated to behave in opposition to Japan. Nevertheless, the decline of U.S. DRAM chip producers raised nationwide safety considerations in each financial and navy phrases, which have been amplified by {industry} lobbying. Underneath strain, the Reagan administration deserted laissez-faire insurance policies for protectionism, culminating within the 1986 Japan-U.S. Semiconductor Agreement. This deal was hardly reciprocal: it imposed market entry necessities, managed manufacturing, and value controls, partly backed by threats of antidumping and Part 301 investigations. Regardless of its asymmetry, it marked an instance of East Asia-U.S. intergovernmental negotiation to strike coverage preparations within the semiconductor {industry} by dialogue and coordination.
Issues With Casual, Advert Hoc, Firm-Particular “Silicon Statecraft”
Trump’s interventionist strategy to the worldwide semiconductor {industry}, framed beneath nationwide safety and “America First,” to a sure extent echoes Reagan’s “Managed Trade” playbook from many years previous. Like Reagan, Trump responded to international dominance in important expertise by adopting an aggressive governmental intervention involving unilateral tariffs. Each administrations considered technological management as important to United States financial resilience and navy supremacy.
Nevertheless, a key distinction between the 2 lies in how every administration tried (or is trying) to reconfigure a key tech {industry}. Underneath Reagan, the reconfiguration proceeded mainly by government-to-government negotiations and formal agreements, backed by instruments like antidumping measures and tariffs. The framework expanded U.S. market entry whereas curbing Japanese companies’ dominance domestically and overseas, benefiting U.S. chipmakers.
In contrast, the Trump administration has largely labored outdoors of the intergovernmental mannequin. The Trump administration bypassed the Taiwanese authorities, immediately partaking TSMC to reshape the worldwide semiconductor provide chain – a transfer with doubtlessly lasting implications. In contrast to the Japanese authorities within the Nineteen Eighties, right this moment’s Taiwanese authorities has been notably absent from the discussions. Certainly, not till days after the TSMC funding had been agreed upon did Taiwan’s President Lai Ching-te, accompanied by C.C. Wei, maintain a joint press conference offering a belated rationalization primarily to the Taiwanese public relating to the matter.
The delayed response highlighted a scarcity of transparency, because the Taiwan authorities’s function stays unclear. That is particularly regarding provided that the Nationwide Improvement Council, a major TSMC shareholder with board representation, ought to have been conscious of such a major determination. Past the mixed and sometimes conflicting information, TSMC’s determination and the federal government’s alleged prior data don’t align with the outbound funding approval course of overseen by the Ministry of Financial Affairs’ Division of Funding Assessment. One level is nearly sure: TSMC’s funding announcement on the White Home left little, if any, room for correct evaluate by Taiwanese authorities after the actual fact.
This “silicon statecraft” is troubling for a number of causes. For one, the method’ casual, advert hoc, and company-specific nature exploits the ability asymmetry between the U.S. authorities and international firms. The Trump–TSMC dynamic is arguably unprecedented and carries important implications past Taiwan and the semiconductor {industry}. Think about, for instance, the implications for Panama Canal ports or SoftBank. Instantly “negotiating” (for lack of a greater time period) with the U.S. president – who publicly threatens tariffs and different punitive measures – over the reported TSMC-Intel three way partnership places TSMC at a extreme drawback. TSMC lacks the bargaining energy and political leverage a authorities would wield in high-stakes negotiations.
Taiwan’s authorities additionally faces constraints in navigating the complexities of China-U.S. relations under Trump 2.0, particularly given the shortage of formal diplomatic relations, which complicates any government-to-government interplay. Nonetheless, bypassing formal channels strips away even the restricted protections and diplomatic leverage intergovernmental engagement might provide. Conversely, East Asian governments like Japan and South Korea have engaged immediately with the USA on initiatives similar to Alaska’s pure gasoline pipeline, underscoring the state-to-state dialogue absent in Taiwan’s case.
To some extent, the association might make long-term enterprise sense for the TSMC because it considers operations diversification, power and water resilience, workforce shortages, and general manufacturing capability. That stated, concerns about tariffs reportedly drove TSMC to embrace the funding association; nonetheless, there is no guarantee that the Taiwanese chip {industry} will likely be free from future U.S. tariffs or different financial pressures. This absence of a assure leaves the {industry} susceptible to shifting U.S. insurance policies.
Worse nonetheless, the monetary incentives beforehand granted to TSMC beneath the CHIPS and Science Act of the Biden administration might no longer be available, additional limiting TSMC’s potential to offset the appreciable prices of its U.S. growth. There are, theoretically, authorized avenues that the TSMC can pursue to problem the attainable revocation of promised advantages beneath U.S. legislation, however in observe, political strain might make such a transfer unfeasible. These considerations will doubtless be compounded if TSMC finally ends up having hassle recovering from sunk prices and misplaced alternatives, notably if the corporate’s deliberate growth fails to materialize or encounters surprising obstacles similar to a shortage of experienced engineers or cultural clashes between Taiwanese administration and native U.S. employees.
Taking note of all of those potential pitfalls are Japan, South Korea, the Netherlands, and different key gamers within the international semiconductor provide chain. The broader concern is that if Trump’s unilateral, strategic strikes show efficient within the case of Taiwan, they may solely reinforce the assumption that tariffs are an efficient and even professional instrument to strain buying and selling companions typically. Much more troubling is the precedent this casual, advert hoc, and company-specific silicon statecraft units: if Trump can selectively goal particular corporations and strain them immediately relatively than have interaction their residence governments, the worldwide steadiness of financial energy might shift unhealthily towards Washington.
TSMC’s proposed growth in Arizona presents no evident trade-off for Taiwan’s socio-economic and political prices – there aren’t any U.S. concessions, no financial incentives, and positively no safety assurances. As for such ensures, clearly, they need to relaxation on excess of a Taiwanese agency’s dedication to investing within the U.S. Southwest. Certainly, even through the lens of the hard-bargaining transactional worldview of Trump, Taiwan’s dominant function in semiconductor provide chains ought to no less than present it with some leverage to have a dialogue to safe significant reciprocal advantages, notably strong safety assurances. Within the TSMC saga, nonetheless, there seems to be little, if any, reciprocity or strategic profit for Taiwan as an entire, apart from a attainable (however not assured) short-term avoidance of coercive tariffs.
The Deserves of a Taiwan-US Semiconductor Settlement
The pursuits of U.S. companies are deeply intertwined with TSMC and the broader semiconductor ecosystem in Taiwan. Therefore, the success or failure of TSMC’s growth in the USA may have important implications not just for Taiwan but in addition for U.S. corporations. Any disruption to TSMC – whether or not by the sudden imposition of tariffs or different measures – would inevitably misery Nvidia, Apple, Qualcomm, and related U.S. companies carefully partnered with the TSMC, to not point out the protection {industry}. The Trump administration ought to rigorously issue these potential prices into its semiconductor coverage selections.
As for the Taiwanese authorities, its relative absence from the TSMC association, although maybe superficially handy to sure parts of the U.S. authorities and to the TSMC itself, will, in all probability, undermine the rules-based worldwide system typically and, extra particularly, place nice strains on U.S. credibility, U.S. relations, and U.S. pursuits as they pertain to decades-long alliances within the Indo-Pacific. Many on this area might moderately draw parallels between the TSMC saga and the recent upheaval in U.S. policy toward Ukraine. The top consequence will likely be abiding doubts as to the reliability and consistency of strategic partnerships with the USA, a rustic that crafted the post-1945 international order.
The casual, advert hoc, and company-specific silicon statecraft that has characterised the TSMC saga ought to cede place to a extra formal, inter-governmental strategy that features the Taiwanese authorities, the U.S. authorities, Taiwanese companies, and U.S. companies.
In contrast to U.S. and Japanese high-tech companies working within the Nineteen Seventies and ‘80s, U.S.-led international provide chains and Taiwan’s semiconductor {industry} are largely complementary. This reality makes cooperation between the 2 a pure and mutually helpful path ahead. Be it arduous legislation or smooth legislation, a Taiwan-U.S. semiconductor settlement would assist make sure that clear, enforceable guidelines govern mental property safety, regulatory harmonization, provide chain resilience, power resilience, expertise switch protocols, workforce scarcity options, wholesome expertise flows, and dispute decision mechanisms pushed by coordination between policymakers and {industry} leaders on either side. Enhancements in every of those areas would assist the U.S. faucet into and profit from Taiwan’s central function within the international semiconductor provide chain.
Extra crucially, such an settlement might streamline the inbound and outbound funding evaluations and approval processes on either side, making certain higher coverage coherence and predictability. Notably, within the TSMC case the Taiwanese authorities arguably needed to regauge its overseas investment restrictions at the price of technological management.
An settlement would additionally promote the thought of “reciprocity and fairness” that Trump has consistently championed. For instance, from the U.S. perspective, Taiwan’s industry-development fund and regulatory streamlining help for TSMC’s associate corporations will assist in establishing a complete semiconductor ecosystem in the USA. And from the Taiwanese perspective, a well-structured public–non-public, Taiwan-U.S. partnership would assist forestall future incarnations of the present TSMC saga, by which the Taiwanese authorities has discovered itself unpleasantly caught between pressures from domestic stakeholders and external demands from Washington.
A formalized bilateral framework would hopefully allow stronger Taiwan-U.S. coordination on export controls, addressing the enforcement limitations of ECRA/EAR’s extraterritorial attain – as evidenced by ongoing restricted chip trafficking through various channels. Such structured cooperation would enhance enforcement effectiveness, function a mannequin for worldwide coordination, and lengthen mutual advantages past semiconductor manufacturing to handle shared challenges in onshoring prices, infrastructure, power safety, provide chain resilience, and AI governance. Additionally, by the bilateral semiconductor settlement, Taiwan’s authorities might assist scale back compliance burdens on smaller native companies by enabling regulatory help and sources to stage the taking part in discipline, thus extra successfully attaining mutual coverage targets.
Such an settlement could appear idealistic, however it in the end rests on each governments’ political will and knowledge to rethink and prioritize long-term strategic stability over short-term maneuvering. The institutionalization of the Taiwan-U.S. semiconductor partnership, even at a minimal stage, would have far-reaching geopolitical implications. It might ship a transparent sign to U.S. allies – together with South Korea, the Netherlands, and Japan – that they don’t seem to be merely utilitarian suppliers of high-end expertise to the USA however important strategic companions in international semiconductor governance. Consequently, the U.S. would get pleasure from higher provide chain resilience, fewer unilateral vulnerabilities, and a fairly balanced, strategic different to fragmented, deal-by-deal negotiations.
As we try and discern a path ahead in Taiwan-U.S. semiconductor relations, Reagan’s phrases from that 1987 Japan-U.S. semiconductor agreement provide a telling distinction to the current occasions surrounding the TSMC: “We stated from the very starting that once they [the Japanese government] returned to abiding by the settlement that we thought we had, we’d carry the sanctions…. And the quantity of tariff that we’ve got eliminated is simply proportionate to the extent that they’ve to date returned to abiding by the settlement.”
This structured framework – the place policy-driven, proportionately guided government-to-government negotiations have been paramount – differs starkly from the casual, advert hoc, company-specific silicon statecraft embraced by the second Trump presidency. Reagan’s acknowledgment that “there are folks in Japan, like Prime Minister Nakasone, who’ve labored very arduous” underscores the worth of partaking, not bypassing, governmental counterparts.
The intensification of semiconductor geopolitics exhibits no indicators of relenting. However maybe there’s knowledge in revisiting not simply Reagan’s insurance policies however how he and his cupboard handled U.S. allies diplomatically: an strategy that balanced firmness with equity and unilateralism with some stage of reciprocity, all inside an institutional framework that deserves to stand the take a look at of time.
The authors wish to thank Jieh-Min Wu and Hui-Heng Hong for his or her feedback on an earlier draft of this text.
