Images of mobile devices at the Taiwan Semiconductor Manufacturing Co. (TSMC) Museum of Innovation in Hsinchu, on Tuesday, Jan. 11, 2022.
I-Hwa Cheng | Bloomberg | Getty Images
Taiwan has told Washington that its proposal to move 40% of the island’s semiconductor supply chain to the U.S. was “impossible” to execute, the country’s top tariff trade negotiator said in an interview.
Speaking on a local television broadcast Sunday, Vice Premier Cheng Li-chiun said she had made it clear to Washington that the country’s semiconductor ecosystem, built up over decades, could not simply be relocated.
The comments push back against onshoring targets outlined by U.S. Commerce Secretary Howard Lutnick in a CNBC interview in January, shortly after the latest U.S.-Taiwan trade agreement.
Under the deal, the Taiwanese government promised $250 billion in direct investments by its tech companies, with an additional $250 billion in credit provided for them to expand their production capacity in the U.S. In return, Taiwanese companies were promised higher quotas for tariff-free exports of their chips to the U.S.
According to Lutnick, Taiwan-based chip companies that don’t build in the U.S are likely to face a 100% tariff.
Taiwan Semiconductor Manufacturing Co, the world’s leading contract chipmaker and producer of the most advanced semiconductors, has already been working to better align with U.S. policy interests.
The company has committed more than $65 billion to U.S. manufacturing in recent years, with plans to expand that to $165 billion, as it produces chips for American clients Apple and Nvidia. The investments leverage grants under the U.S. CHIPS and Science Act.
Semiconductor analysts broadly agree with Cheng’s assessment that Washington’s most ambitious onshoring plans are unfeasible, citing the difficulties of relocating such an advanced supply chain.
Analysts and industry officials point to Taiwan’s deeply integrated semiconductor ecosystem, U.S. labor shortages and elevated costs as some of the key obstacles.
Geopolitical analysts have also pointed to the so-called “Silicon Shield” theory, which posits that the island’s pivotal role in global chip supply makes safeguarding its autonomy a U.S. strategic imperative, deterring a potential Chinese aggression. Beijing claims sovereignty over the democratically governed island.
This Silicon Shield could further discourage Taiwan from shifting its supply chains abroad.
Taiwanese authorities have already implemented a policy requiring TSMC’s overseas plants to operate using technologies at least two generations behind the cutting-edge ones being deployed in Taiwan, a policy often referred to as the N-2 rule.
The U.S. Commerce Department did not immediately respond to a request for comment on Cheng’s statement.
As part of the latest trade agreements, Washington said it would lower its levies on most goods from Taiwan to 15% from 20%, and waive tariffs on generic drugs and ingredients, aircraft components and natural resources unavailable domestically.
TSMC shares were trading up 2.75% in Taiwan on Tuesday.
— CNBC’s Matthew Chin contributed to this report.
