Taiwan Semiconductor Manufacturing Co. (TSMC) has made waves by investing heavily in the U.S. semiconductor market, with plans to build multiple wafer fabs in Arizona, expanding its reach in one of the world’s largest markets for advanced chips. While this investment has raised concerns about Taiwanese suppliers following suit, experts suggest that any significant shift in the supply chain could be seven to eight years away.
Taiwan’s Economics Minister Kuo Jyh-huei addressed these concerns during a legislative briefing on Tuesday, noting that while TSMC’s U.S. investment could eventually lead suppliers to relocate, the current low production volume at TSMC’s U.S. facilities means suppliers will likely stay put for now.
Key Details:
TSMC’s U.S. Expansion Plans: In March, TSMC committed an additional US$100 billion to its operations in the U.S., which includes building three new advanced wafer fabs, two IC assembly plants, and a research and development center in Arizona. This is part of TSMC’s broader strategy to diversify its production capabilities and reduce exposure to geopolitical risks, particularly those related to tensions with China.
Currently, TSMC is investing US$65 billion to build three wafer fabs in Arizona, with the first already starting production in 2024, while the second is set for 2028. Despite this, U.S. President Donald Trump has levied a 32% tariff on Taiwan due to its trade surplus with the U.S., although a 90-day pause on tariffs was announced in early April to allow negotiations.
Impact on Taiwanese Suppliers: Despite TSMC’s expansion in the U.S., Kuo emphasized that its suppliers are unlikely to follow the move until production in the U.S. increases significantly. He stated that the suppliers’ relocation is likely to happen in seven to eight years, once TSMC ramps up its production capacity.
Suppliers of chemical materials to TSMC, which are key to the chip production process, have also been consulted about potential U.S. investment, but currently, the production volume in the U.S. market is too low for suppliers to consider a shift.
Other Industry Trends: Kuo also pointed out that industries like printed circuit board manufacturers and server producers might consider expanding their U.S. operations sooner to meet growing American demand. These sectors, unlike semiconductor suppliers, could more easily scale their operations in existing U.S. plants.
Currency and Economic Challenges: In addition to the shifting supply chain, Taiwan faces potential economic challenges from fluctuations in the Taiwan dollar. TSMC’s global competitiveness could be undermined if the U.S. forces Taiwan’s currency to appreciate as part of the “Mar-a-Lago Accord,” which would make Taiwanese goods more expensive on the global market.
The Taiwan Institute of Economic Research (TIER) has warned of potential currency wars, urging Taiwanese businesses to hedge against the possibility of an appreciated Taiwan dollar.
Additional Insights:
Geopolitical and Trade Dynamics: The ongoing U.S.-China trade war has led to greater scrutiny of Taiwan’s role in the global tech ecosystem. Taiwan, as a crucial player in semiconductor manufacturing, faces increasing pressure to balance its relationships with the U.S. and China. While TSMC’s U.S. expansion is a strategic move to mitigate geopolitical risks, Taiwan’s broader tech industry will need to carefully navigate changing trade policies and international relations.
Supply Chain Shift: Although TSMC’s immediate suppliers are not expected to follow suit, the long-term outlook suggests a gradual shift. If TSMC’s production increases in the U.S. over the next decade, suppliers could follow suit, particularly those in the materials sector, which plays a critical role in chip production.
FAQs
Why is TSMC investing in the U.S.?
TSMC is investing in the U.S. to diversify its production capabilities, reduce exposure to geopolitical tensions, and meet growing demand for advanced chips, especially in industries like AI and automotive.
How will TSMC’s investment in the U.S. affect Taiwanese suppliers?
While TSMC’s U.S. investment could eventually encourage Taiwanese suppliers to follow suit, the relocation of suppliers is not expected to happen for another seven to eight years, as TSMC’s production volume in the U.S. remains relatively low.
What challenges does Taiwan face with its currency?
Taiwan is concerned that its currency could appreciate as a result of U.S. economic policies, which would impact Taiwan’s export competitiveness, especially in the semiconductor sector.
What is the “Mar-a-Lago Accord”?
The “Mar-a-Lago Accord” refers to a proposal by the U.S. to force the appreciation of the Taiwan dollar against the U.S. dollar to boost the competitiveness of U.S.-made goods.
