TSMC Gains Freedom to Make Most Advanced Chips Overseas as Taiwan Foresees Trade Issue
Taiwan’s Ministry of Economic Affairs (MOEA) announced on January 10 that Taiwan Semiconductor Manufacturing Company (TSMC) will no longer be restricted from investing in 2nm chip production in the United States, currently the most advanced node produced by TSMC.
Historically, Taiwan barred tech manufacturers from producing products with the most advanced technology overseas, aiming to preserve its competitive edge. This policy particularly applied to TFT-panels and semiconductor manufacturers, who were only allowed to produce chips at least two generations behind abroad, especially in China.
In a media briefing, Minister of Economic Affairs J.W. Kuo described these rules as outdated. He emphasized that private companies are better positioned to make business decisions based on their technological progress. Kuo explained that TSMC’s decision to build factories in the US aligns with its strategy to serve US customers, given that 60% of the world’s IC design companies are based there.
Policy Shift: Key Drivers
The motivation behind this significant policy change is multifaceted. Months ago, Minister Cheng-wen Wu of the National Science and Technology Council (NSTC) hinted at Taiwan’s willingness to negotiate lifting the restrictions under conditions “mutually beneficial” to both Taiwan and the US.
This shift in strategy appears to align with Taiwan’s broader geopolitical considerations. Taiwan may be preemptively addressing potential US tariffs under President Donald Trump’s influence. On January 9, a day before the MOEA’s announcement, Taiwan’s Ministry of Finance (MOF) released its 2024 trade statistics. Taiwan’s trade surplus with the US reached US$64.882 billion, a tenfold increase from 2018’s US$6.385 billion. This rapid growth could attract scrutiny from Trump, who has historically criticized trade imbalances and could respond with punitive tariffs.
The increase in Taiwan’s trade surplus with the US stems from supply chain relocations driven by tariffs imposed on China during Trump’s first term and the growing demand for AI chips and servers. Currently, 99% of AI servers are manufactured in Taiwan, and TSMC produces NVIDIA’s AI chips. Although Taiwanese ODMs like Quanta, Foxconn, Wistron, and Pegatron are shifting supply chains to Mexico to mitigate geopolitical risks, these facilities are not expected to begin production until later this year.
Strategic Implications
Despite challenges, Taiwan’s dependence on the US, reflected in its trade surplus, is nearing parity with its surplus with China (US$69.996 billion in 2024) and could surpass it in 2025. This economic interdependence underscores the importance of US-Taiwan collaboration in countering China’s trade practices.
Experts suggest that the US should focus on investing in research and development, enhancing competitiveness across industries, and fostering closer cooperation with allied nations to counterbalance China’s influence. Imposing tariffs on allies and cutting industrial innovation spending would undermine these efforts.
Looking Ahead
Will policies like tariffs on allied nations or reduced industrial innovation spending “make America great again”? These decisions require careful reconsideration by both President Trump and the new administration. Taiwan’s strategic adjustments highlight the necessity of collaboration and mutual benefit in addressing global economic challenges.