The United States wants a big slice of Taiwan’s prized semiconductor industry to relocate across the Pacific. Taiwan’s chief trade negotiator has now drawn a clear red line, warning that shifting such a large share of chip production to the US is simply not going to happen.
Taipei rejects US push to relocate chip production
Speaking in a televised interview in Taipei, vice-premier and lead negotiator Cheng Li-chiun said Washington’s expectations for Taiwan’s semiconductor sector are unrealistic.
Cheng said transferring 40% to 50% of Taiwan’s chip manufacturing capacity to the US is “impossible”, stressing she has told American officials this directly.
Her comments respond to recent demands from US officials, who have floated the idea of moving a huge portion of Taiwan’s chip supply chain and fabrication capacity to American plants. The stated goal from Washington is to cut dependence on a single, geopolitically exposed island for crucial components that feed everything from smartphones to fighter jets.
Taiwan, though, sees its semiconductor ecosystem as a core strategic asset that cannot simply be uprooted or duplicated abroad, no matter how generous the subsidies or how tough the tariffs.
Tariffs, pressure and a fragile compromise
The clash comes as both sides negotiate around US tariffs on Taiwanese goods. Last month, Washington agreed to cut some tariffs on imports from the island from 20% to 15%. In exchange, Taiwan pledged to raise investment in semiconductor facilities in the US.
The deal is part carrot, part stick. American officials have indicated that if Taiwan does not move more of its chip production to US soil, tariffs could rise sharply again. The message is that continued access to the US market will be linked to how much of the chip value chain Washington can host at home.
For Taipei, there is a fine line between cooperating with its most important security partner and diluting the very leverage that makes it such a crucial ally.
Washington wants more Taiwanese capital and know‑how in Arizona and other US sites. Taipei is willing to invest, but not to hollow out its domestic industry.
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A chip “iceberg” that took decades to build
Cheng used a striking image to explain why Taiwan cannot comply with American relocation demands. She described the island’s semiconductor sector as an iceberg: what the world sees – gleaming chip factories and famous brands – is only the visible tip.
Beneath the surface lies an enormous, tightly knit ecosystem of suppliers, engineers and specialist firms that has grown over decades. That includes:
- Tool makers supplying ultra-precise equipment
- Chemical and gas providers tailored to each fab’s processes
- Design houses working closely with manufacturers
- Skilled technicians trained in chip production’s minute tolerances
- Logistics networks tuned to just‑in‑time delivery
Cheng argued that this structure cannot simply be exported on command or rebuilt overnight in another country.
“An industrial ecosystem built over several decades cannot be relocated,” she said, warning the hidden infrastructure below the surface is “huge”.
Why the US wants Taiwan’s chips onshore
The US drive is rooted in both economics and security. The Covid‑era chip shortage exposed how vulnerable Western manufacturers had become to bottlenecks at a few sites in East Asia. Automakers halted production. Electronics firms delayed product launches. Military planners fretted about access to high‑end chips for defence systems.
At the same time, rising tensions with China have sharpened fears that a conflict in the Taiwan Strait could disrupt supplies from companies like TSMC, the world’s most advanced chipmaker. Relocating part of Taiwan’s capacity is seen in Washington as an insurance policy against such a shock.
Congress has backed this with money. The US CHIPS and Science Act offers tens of billions of dollars in subsidies for new semiconductor facilities. Companies from Taiwan have signed up for some of those incentives and are building plants in the US, but not on the scale American officials have hinted at.
Can Taiwan balance security and economic leverage?
Taiwan’s government faces competing priorities. On one side, it relies on the US for military support and has an interest in helping allies strengthen their chip industries. On the other, its semiconductor cluster is often described locally as a “silicon shield” – a strategic asset that makes the island indispensable to the global economy.
The more chipmaking moves abroad, the weaker that shield becomes, raising concerns in Taipei about long‑term security and bargaining power.
Policymakers in Taiwan are trying to thread a narrow path. They are supporting overseas investment by local chip firms, including in the US, Japan and Europe. At the same time, they want to keep the most advanced processes and the densest part of the supply chain anchored at home.
What relocation could realistically look like
Industry analysts see several possible scenarios that fall short of a 40% shift:
- Building a limited number of leading‑edge fabs in the US for sensitive military and high‑end computing uses
- Relocating older, mature chip production that is less complex and less profitable
- Creating regional backup capacity that can step in if Taiwan faces temporary disruption
Each scenario involves trade‑offs in cost, time and security. Leading‑edge fabs are expensive and require years of training local staff. Mature‑node production may be easier to move, but does less to reduce dependence on Taiwan’s top‑tier technology.
A look at the semiconductor “ecosystem” idea
Cheng’s iceberg metaphor points to a concept often mentioned in policy debates: the industrial ecosystem. In semiconductors, this means everything that has to be in place before a single wafer is processed.
| Element | Role in chip production |
|---|---|
| Design expertise | Creates the chip architecture and layout before fabrication starts. |
| Foundries (fabs) | Manufacture chips using extreme precision tools and processes. |
| Suppliers | Provide equipment, materials and chemicals tailored to each fab. |
| Talent pool | Engineers and technicians who keep lines running 24/7. |
| Support services | From cleanroom maintenance to logistics and testing. |
Once these elements cluster in one location, they reinforce each other. Fabs attract suppliers, who attract more talent, which draws in new design firms. Dislodging part of that cluster breaks some of those connections and increases costs.
For governments trying to “onshore” chips, this means they are not just paying for buildings and machines. They are trying to replicate decades of trial‑and‑error learning, supplier relationships and informal know‑how. That is one reason timelines for new fabs often slip, and why productivity gaps can linger even after facilities open.
Key terms and practical stakes
For readers less familiar with the jargon, a few terms matter here:
- Foundry: A company that manufactures chips designed by others. Taiwan’s TSMC is the dominant global foundry.
- Node: A rough measure of how small the features on a chip are, expressed in nanometres (nm). Smaller nodes mean more advanced chips.
- Supply chain: The full sequence of production, from raw materials to finished chips shipped to device makers.
A disruption in Taiwan’s chip supply would not only hit tech giants. It could slow car production, delay medical equipment deliveries and raise prices for consumer electronics. Governments are acutely aware of that risk, which explains the political heat around these negotiations.
One practical way this tension might play out is in future crises. If a natural disaster or cyberattack hit Taiwan’s fabs, countries with some relocated capacity might weather the storm better. Yet, if too much of that capacity leaves Taiwan, the island could lose both income and strategic clout, reshaping its long‑term relationship with the US and China.
The current standoff over “impossible” relocation targets highlights just how hard it is to rebalance such a critical industry. Washington can wield tariffs and subsidies, but Taipei still holds the iceberg of capabilities that money alone cannot quickly buy.