TSMC: The Enduring Silicon Shield of Taiwan’s Economy
Written by Min-Hua Chiang.
Image credit: CHIPS-TSMC by 李 季霖/ Flickr, license: CC BY-SA 2.0.
Why did TSMC’s US$100 billion investment pledge in the US not remove Taiwan from President Trump’s plan for higher tariffs on foreign goods? Can Taiwan still use TSMC as leverage in future negotiations with the US for bilateral economic relations?
The immediate answer to the first question is that TSMC’s investment will not reduce the US trade deficit right away. It takes a few years before the chip plants can mass produce. In addition, semiconductors accounted for only 2.5% of America’s total imports in 2024, according to the Bureau of Economic Analysis. Given the chips’ small portion in the US total imports, even though TSMC’s investment might reduce America’s demand for foreign semiconductor chips, it will not shrink the overall US trade deficit noticeably.
As such, Taiwan’s economy will continue to face challenges from the US tariff threat in the near term, despite the investment commitment. Notably, Taiwan’s exports to the US could be severely harmed if the import levies were extended to information and communications technology (ICT) products, such as smartphones, computers, tablets, and so on. In the first quarter of 2025, over one-third of Taiwan’s exports were ICT goods, and around half of them went to the US, according to Taiwan’s Ministry of Finance.
Unlike the tariffs on ICT goods, President Trump’s tariff on semiconductor goods, if imposed, might not have a significant impact on Taiwan, as the US only accounted for 4% of Taiwan’s total exports of electronic components (including semiconductor chips) in the first quarter of 2025.
However, Taiwan’s semiconductor exports could be impacted by the US’s extra import duties on final consumption goods manufactured in East Asia. Data from Taiwan’s Ministry of Finance reckons that in 2024, 52% of Taiwan’s electronic components were exported to China and Hong Kong, followed by 24% to Southeast Asian countries. Taiwan exported over 90% of its electronic components to all Asian countries. Those electronic components are mostly used for manufacturing final consumption goods in the region, which are later exported to the global market, particularly in the US.
Challenges from the new tariff policy are not for Taiwan alone, but for the entire global economy. Decades of investments from manufacturers around the world have built up the full global division of labour that provides the most production efficiency. Even if all trade barriers, non-trade barriers and tariffs between the US and Asian countries were eliminated, relocating manufacturing production back to the US would remain unappealing for businesses due to the significantly higher labour costs in America. Instead, freer trade would likely strengthen existing trade relationships based on each country’s comparative advantages. For example, with zero tariffs and trade barriers, firms would still favour Vietnam as a labour-intensive final assembly location whilst positioning the US as a key provider of chip design and innovation.
How the global economic structure will turn out in the end still relies on the outcome of tariff negotiations between the US and other countries. Despite the uncertainties, the benefits of TSMC’s investment in America still stand true so far. First and foremost, the investment will enable TSMC to capitalise on the “First-mover advantage” in the emerging AI industry in the US. Less than one month before the TSMC released its investment plan, OpenAI, SoftBank, and Oracle announced the largest AI infrastructure project in the US. Other tech giants, such as Apple, Microsoft, and Nvidia, have also committed to investing in the AI industry in the country. The chip plants in the US will facilitate TSMC’s advanced chip supply to the local customers in the AI industry.
Expanding chip fabrication in the US will help TSMC to develop an economy of scale, thus bringing down the overall production cost. Moreover, setting up an R&D centre in America will also help TSMC to advance its technology since the US has a much larger number of talents from all over the world in high-tech industries.
TSMC’s promising business prospect in the US, driven by the booming AI industry, will also benefit its largest shareholder—the Taiwanese government. The company’s annual report indicates that the Executive Yuan (6.38%) and Labour Pension Fund (1.31%) account for 7.69% of TSMC’s shares.
Greater investment in the US over the last few years has increased America’s importance in TSMC’s business. In the first quarter of 2025, 77% of the company’s net revenue is from North America, rising from 62% in 2018. The company’s global foundry market share also grew from 58% in Q2 2023 to 67% in Q4 2024, while the shares of other competitors diminished, according to the data from Counterpoint. The benefits from this investment extend beyond TSMC alone. The long-term positive impact on the American economy should be emphasised to the US government. For instance, TSMC’s investment in the US could create additional job opportunities in high-value-added manufacturing sectors—precisely what the country needs most. The fabrication of advanced chips might not only satisfy domestic demand but also boost America’s potential exports of chips and other high-tech goods to international markets, thereby helping to reduce the US trade deficit. Thanks to TSMC’s investment, the US is expected to hold 28% of the global advanced chip fabrication capacity by 2032, from 0% in 2022.
Even though the US will fabricate more advanced chips, more than 80% of TSMC’s advanced chips will still be fabricated in Taiwan in the next five years. Overall, Taiwan will still hold nearly 60% of global advanced chip fabrication by 2030. Therefore, the global reliance on made-in-Taiwan chips could continue to protect the island from China’s military invasion. On the one hand, the US might have to intervene in the military conflict in the Taiwan Strait due to the potential disruption of the global supply chain network and the impact on the world economy. On the other hand, China might restrain its military actions as the war with the island could sabotage its domestic economy, which also relies on chips made in Taiwan.
In the long term, the shrinking population on the island implies that there is a limit to how many advanced chips Taiwan can fabricate for the whole world. A small island like Taiwan will always need a larger business territory to sustain its domestic economy. For example, China’s abundant and cheap labour force and much larger export platform allowed Taiwanese firms to expand their global sales. Taiwan’s export-oriented economy also benefited from supplying key components and capital equipment to China for the final assembly. The US market today, the largest one in the world, will provide Taiwanese firms with new business opportunities if properly approached.
In sum, President Trump’s tariff policy will hurt TSMC only when manufacturers in East Asia can no longer afford to export final consumption goods to the US and thus reduce the industrial input from the company. If that is the case, the US economy will suffer from hyperinflation due to a severe shortage of supply. So far, the worst scenario has not happened yet. Instead, the policy has encouraged numerous countries, including Taiwan, to try to strike a new deal with America. TSMC is still Taiwan’s best chip in negotiating with the US. The question is how to properly place the company, the key player in the industry, on the global chessboard.
TSMC’s significant role in the global supply chain network should give Taiwan leverage. For example, its investment in America is likely to encourage both Taiwanese and foreign companies to follow suit. Therefore, the company will be key to kick-starting the global economic reshuffle and benefiting the US manufacturing revival as well as America’s national interests.
Min-Hua Chiang is a non-resident fellow at the Taiwan Research Hub, University of Nottingham.
This article was published as part of a special issue on ‘Trump’s Tariffs: What does it mean for Taiwan?‘.
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