‘Impossible’: Taiwan pushes back against Washington’s 40% chip supply relocation goal

Taiwan has told Washington that its proposal to move 40% of the island’s semiconductor supply chain to the U.S. was “impossible,” 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 over decades, could not simply be relocated.

Taiwan’s international expansion, including its investments in the U.S., is predicated on the notion that the industry remains’ rooted in Taiwan and continues to expand domestic investments, she said in Mandarin, translated by CNBC.

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. Lutnick said he wanted 40% of Taiwan’s entire chip supply chain to shift to the U.S. within President Donald Trump’s ongoing term.

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.

Washington on its part lowered levies on most goods from Taiwan to 15% from 20%, waived tariffs on generic drugs and ingredients, aircraft components and natural resources unavailable domestically, and promised higher quotas for tariff-free exports of Taiwanese chips to the U.S. 

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 have also leveraged grants under the U.S. CHIPS and Science Act.

But according to Lutnick, Washington is also looking for hundreds of other smaller companies in the chip supply chain to come to the U.S.

“We’re going to build giant semiconductor industrial parks in America … This is a $500 billion down payment on let’s bring those semiconductors home,” he said in January, adding that Taiwan-based chip companies that don’t build in the U.S are likely to face a 100% tariff Trump has threatened against the sector.

However, 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. 

TSMC shares were trading up 2.75% in Taiwan on Tuesday.

— CNBC’s Matthew Chin contributed to this report.