U.S. Officials Demand Taiwan’s TSMC Split Semiconductor Output

UPDATE: U.S. Commerce Secretary Howard Lutnick sent shockwaves through Taipei with a startling announcement in late September 2023, declaring that the U.S. cannot guarantee defense for Taiwan unless it agrees to a 50-50 split of semiconductor production with the United States. This dramatic shift in the perception of Taiwan’s semiconductor prowess, often seen as a protective “silicon shield,” now raises urgent questions about the island’s strategic security.

The implications of this announcement are immediate and critical. Taiwan’s dominance in semiconductor manufacturing is no longer viewed solely as an asset; it is now considered a potential liability for U.S. interests. Analysts have long assessed the threats to Taiwan’s semiconductor industry primarily through the lens of China’s ambitions for self-reliance and TSMC’s expansion into markets like Arizona. However, the real vulnerability lies within Taiwan itself — the disconnect between the Taiwanese government and TSMC, a privately held firm.

Currently, the Taiwanese government holds merely 7.69 percent of TSMC shares, a position that appears more symbolic than substantial. The government, led by President Lai Ching-te, recognizes TSMC’s crucial role in Taiwan’s survival but often defers to the company’s business decisions. This has allowed TSMC to pursue unprecedented investments overseas, framing them post-factum as beneficial to Taiwan’s national interests, rather than ensuring alignment with a coherent security agenda.

The urgency of this situation is magnified by the ongoing geopolitical tensions. Earlier this year, TSMC announced it would increase its investments in the United States to a staggering $165 billion, a move framed as necessary to mitigate supply chain risks and secure major contracts with clients like Apple and Nvidia. Yet, these decisions are being driven by commercial interests rather than national security considerations.

Compounding these complexities, the U.S. government has intensified pressure on Taipei, demanding closer alignment with its national security priorities. The potential ramifications of TSMC’s expansion into Arizona are significant, as they reflect a shift away from Taiwan’s domestic interests towards U.S. demands. This misalignment raises concerns about how far TSMC’s business decisions could diverge from Taiwan’s security needs in the future.

The political landscape in Taiwan is also shifting. The opposition party, Kuomintang (KMT), has accused the Lai administration of allowing TSMC to dictate national security policy. This internal discord plays into the hands of Beijing, which has framed U.S. pressure on TSMC as evidence that Washington could abandon Taiwan.

Despite the political sensitivities, the Taiwanese government has historically refrained from utilizing its legal authority to block TSMC’s overseas investments, which could be deemed contrary to national interests. This reluctance stems from fears of straining ties with the U.S. and creating market instability. As a result, TSMC’s decisions have largely been approved after the fact, reflecting a reactive rather than proactive approach to Taiwan’s strategic needs.

In a critical legislative move, earlier this year, Taiwan’s Legislative Yuan amended Article 22 of the Industrial Innovation Act to introduce the “N-1” rule, limiting overseas facilities of Taiwanese chipmakers to producing chips one generation behind their most advanced technology. This ruling aims to ensure that TSMC’s most advanced technologies remain in Taiwan and underscores the importance of aligning corporate decisions with national security.

The relationship between TSMC and Taiwan is more intricate than often perceived. While TSMC relies heavily on Taiwan for talent and infrastructure, Taiwan must also recognize its dependence on TSMC for economic stability. The ongoing U.S.-China rivalry highlights the urgency for Taiwan to strengthen its semiconductor industry while ensuring that its national security needs are not compromised by corporate interests.

As tensions escalate, it is imperative for the Taiwanese government to increase transparency and assert a firmer role in shaping TSMC’s decisions. Without clear guidelines and alignment between business and national interests, Taiwan risks jeopardizing its future security and economic stability.

Readers are urged to stay tuned as this situation develops, with potential ramifications that could affect the global semiconductor landscape and Taiwan’s strategic position in the face of international pressures.