Chip Manufacturing: US Demands 40 Percent of Taiwan's Production in the US

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Taiwanese chip manufacturers are to invest hundreds of billions of US dollars in the USA. The governments of both countries recently agreed on possible framework conditions. Taiwan is playing along to avert high tariffs and maintain US favor. This also concerns its own security, as China continues to want to annex Taiwan and the USA has so far pledged protection.

It is said to be up to 500 billion US dollars. 250 billion are to flow through direct investments by Taiwanese companies in the USA: According to an overview from the US Department of Commerce, the goal is "to build and expand advanced semiconductor, energy, and artificial intelligence production and innovation capacity in the United States."

The 100 billion US dollars already invested by the world's leading chip contract manufacturer TSMC are already included in the 250 billion. For this sum, TSMC has built its first semiconductor plants in Arizona. Further plants are already planned.

The second half of the 500 billion is to flow through Taiwanese loans to Taiwanese companies, which will then expand in the USA.

US Threats

With the deal, Taiwan is primarily averting a massive increase in tariffs. US Commerce Secretary Howard Lutnick otherwise threatens 100 percent tariffs, which would particularly affect US manufacturers like AMD, Apple, Nvidia, and Qualcomm. They all have their processors, GPUs, and accelerator chips manufactured by TSMC. Lutnick mentioned the figure in an interview with CNBC.

In the best-case scenario, the USA will reduce tariffs for Taiwan. Originally, the Trump administration imposed 32 percent on most products and then reduced them to 20 percent. Now, tariffs are to largely decrease to 15 percent, with 0 percent exceptions on some product categories: "generic pharmaceuticals, their generic ingredients, aircraft components, and unavailable natural resources."

For chips, tariff exemptions are to be based on US capacity: According to the framework conditions, TSMC and other chip contract manufacturers are allowed to import 2.5 times the amount of chips duty-free that they manufacture in the USA itself.

The USA thus aims for a massive increase in US capacity. According to Lutnick, Taiwan is to manufacture 40 percent of all its chips in the USA in the future and also build necessary supply chains there. He speaks of "gigantic semiconductor industry parks in the USA."

Demands Not Agreed Upon

However, the demands are hardly feasible: The semiconductor plants and supply chains are to be completed during Trump's term of office. That would be a little over three years under normal circumstances. This would require the immediate construction of numerous semiconductor plants, which would then also have to ramp up series production quickly.

However, statements from the Taiwanese side also make it clear that these goals are apparently not agreed upon. Minister of Economic Affairs Kung Ming-hsin told Taiwanese media that a US share of 20 percent of exclusively advanced chips would be realistic by 2036. This refers to manufacturing processes from the 5-nanometer generation onwards.

Trade Agreement Not Yet Solid

As early as 2025, the USA proved to be an unreliable partner. Trump repeatedly assured tariff exemptions if companies expanded in the USA. Despite TSMC's 100 billion US dollars, tariffs were still imposed.

In Nvidia's case, Trump confused the value of newly manufactured US products with investments in production capacity. Nvidia announced that it would build AI servers in the USA with partners. Their value was to reach 500 billion US dollars accumulated over four years. Trump celebrated this as the provision of 500 billion US dollars.

In current times, it is therefore advisable to wait and see which sums will actually arrive. All the more so, as the deal has not yet been finalized by the Taiwanese side. According to the Reuters news agency, parliament still has to approve it.

This is not a foregone conclusion, as the ruling Democratic Progressive Party (DPP) does not have a majority in parliament. Parts of the opposition have already complained about the hollowing out of the domestic chip industry under the trade agreement.

(mma)