TSMC’s US Expansion: Economic Strategy or Political Bargaining Chip?
Abigail Darwish | 17 March 2025
Summary
Taiwan Semiconductor Manufacturing Company (TSMC) announced a USD 100 billion investment in the United States for five new fabrication plants in Arizona.
This investment would avoid TSMC being subject to tariffs, as proposed by the Trump Administration.
The prospect of investment would place a further strain on US-China relations as the agreement would effectively bolster Taiwanese economic and political security.
Situation Overview
Recently, Taiwan Semiconductor Manufacturing Company (TSMC)–the world’s leading producer of advanced computer chips–announced a further USD 100 billion investment in the United States (US) to establish five new fabrication plants in Arizona, with the construction of three plants already underway. The announcement builds on the USD 65 billion investment the company had previously committed to the US.
President Donald Trump has emphasised that TSMC’s decision to expand its US operations would allow it to avoid potential tariffs on foreign-made chips, which his administration has considered imposing as part of a broader effort to revive domestic semiconductor manufacturing. However, the administration remains divided on whether to follow through with a stringent tariff policy. Likewise, experts argue that such a policy would be difficult to enforce. The semiconductor supply chain is highly globalised, making it challenging to tax chips directly. Especially since many of TSMC’s products, such as iPhone processors, are manufactured in Taiwan but assembled into finished products in China or India before being shipped to the US. As a result, these chips enter the US as part of consumer electronics, which are taxed based on their country of final assembly, not their component origins.
It should also be noted that TSMC’s announcement occurs amidst escalating geopolitical tensions, especially concerning Taiwan’s security. Trump’s suspension of military aid to Ukraine has heightened apprehensions in Taiwan regarding the administration’s willingness to uphold commitments in the event of Chinese aggression. As such, Taiwanese officials increasingly view the nation's strategic dominance in the semiconductor industry as a crucial leverage point for securing sustained US support, particularly since Taiwan produces approximately 90% of the world’s most advanced semiconductors–a key factor in its strategic importance. Lo Chih-Cheng, a former lawmaker from Taiwan’s ruling Democratic Progressive Party, echoed this sentiment, arguing that “Taiwan’s strategic importance is much bigger than that of Ukraine” given that the country has “a central role in the global chip industry supply chain.”
Implications
For decades, the US’ Taiwan policy has been guided by the Taiwan Relations Act with the stance of strategic ambiguity, which commits Washington to supply Taipei with defensive weapons and oppose any use of force or coercion threatening Taiwan’s security. However, Trump has previously expressed scepticism toward Taiwan, accusing it of “stealing” the US semiconductor business and “freeriding” on American military support without sufficient reciprocation. The tariffs on Taiwanese semiconductors would thus undermine the integrity of the Taiwan Relations Act, in favour of American domestic–as opposed to foreign–interests at the likely expense of Taiwan’s economic, and by extension, political security. The uncertainty over US-Taiwan relations aligns with a broader pattern in the Trump administration’s foreign policy and embrace of tariffs.
On the other hand, TSMC’s investment announcement has prompted criticism from Beijing, with the latter accusing Taipei of relinquishing its chip industry as a “souvenir” in exchange for American political support. In this light, should tariffs not be implemented and TSMC investment proves fruitful, US-Taiwan relations could strengthen amidst escalating US-China tensions and the mounting likelihood of Chinese hostility towards Taiwan.
曾成訓 via Wikimedia, CC BY 2.0
Forecast
Short-term
It is very likely that US-China relations will further deteriorate with the prospect of strengthened US-Taiwan ties amidst an ongoing trade war and US sanctions on China’s semiconductor industry.
It is likely that TSMC’s investment plan will continue, with three out of five of the manufacturing plants already under construction in Arizona.
Long-term
It is likely that, should TSMC’s investment continue, it could improve US supply chain resilience by boosting the manufacturing base, potentially reducing reliance on foreign imports. However, it is unlikely that the US will be able to fully realise a self-sufficient semiconductor industry due to the highly globalised supply chain.
It is likely that US efforts to technologically decouple from China will continue amidst worsening relations, potentially leading to greater fragmentation of the global semiconductor industry, with the US, Europe, and Taiwan on one side, and China and its allies on the other.
