A new U.S.–Taiwan trade and investment agreement is unlikely to weaken Taiwan’s dominance in advanced semiconductor manufacturing in the near future, analysts say, leaving the island’s so-called “silicon shield” largely intact.
Taiwan remains central to the global chip supply chain, with Taiwan Semiconductor Manufacturing Company producing the majority of the world’s most advanced chips. This concentration has long been viewed as a strategic deterrent against potential military action by China, which claims Taiwan as its territory.
Under the deal announced last week, Taiwan agreed to provide $250 billion in credit guarantees to help its technology and semiconductor firms expand production capacity in the United States. In return, Washington will cut tariffs on most Taiwanese goods to 15% and offer exemptions for selected products, including certain aerospace components and pharmaceuticals.
U.S. officials say the goal is to shift up to 40% of Taiwan’s semiconductor supply chain to American soil. However, industry experts and policymakers in Taipei remain sceptical that such a move can be achieved quickly or fully.
Analysts note that Taiwan enforces strict rules limiting the export of its most advanced chipmaking technologies. Under current policy, overseas fabrication plants operated by Taiwanese firms cannot use processes closer than two generations behind the most advanced nodes developed on the island.
As a result, while TSMC is producing cutting-edge 2-nanometer chips in Taiwan, its U.S. facility in Arizona has only recently begun manufacturing 4-nanometer chips, with more advanced production planned later in the decade.
TSMC Chief Financial Officer Wendell Huang has said the company’s most advanced technologies will continue to be developed in Taiwan due to the need for close coordination between research and manufacturing teams.
Despite large U.S. investments and political support, analysts say Taiwan’s engineering talent, supplier networks and manufacturing scale cannot be replicated quickly elsewhere. Higher costs and labour shortages have already slowed progress at overseas facilities.
China has criticised the agreement, reiterating its opposition to Taiwan signing what it describes as official agreements with countries that maintain diplomatic relations with Beijing.
For now, experts believe Taiwan’s role at the heart of the global semiconductor industry will remain unchanged, even as production gradually expands abroad.
