Taiwan Semiconductor Manufacturing Company (TSMC) announced, together with U.S. President Donald Trump, its decision to invest massively in the United States. Per TSMC CEO C.C. Wei, this investment will direct $100 billion to the construction of three new fabrication facilities featuring the company’s most advanced process nodes, two advanced packaging plants, and a research and development center in Arizona. The construction process will take place over the coming years, reportedly to counter potential tariffs, ranging from 25 to 100 percent, that the Trump administration might impose on Taiwan. The investment plan will bring TSMC’s critical semiconductor production closer to the company’s U.S. clients.
Commenting on the agreement, Trump declared, “We must be able to build the chips and semiconductors that we need right here. It’s a matter of national security for us.”
This Taiwan-U.S. investment plan aligns with the broader U.S. industrial policy objectives of reshoring vital supply chains and reducing dependency on semiconductor chokepoint economies in Asia. These objectives are especially relevant to Taiwan, given its dominant position in the semiconductor field and escalating tensions between the two sides of the Taiwan Strait.
In one sense, the investment decision reflects the TSMC’s adaptability, and other Asian companies such as South Korea’s Samsung and LG are also reportedly considering moving plants to the United States. However, such moves transcend their face value, as they raise fundamental challenges to local regulatory frameworks concerning foreign investment reviews, core key technology protection, and, particularly in the case of Taiwan, national security law. Indeed, some have characterized TSMC and its surrounding ecosystem as the foundation of Taiwan’s “Silicon Shield.” Although many assess this narrative differently, TSMC’s massive expansion in the United States has raised concerns about Taiwan’s ability to maintain its technological supremacy, strategic centrality, economic prosperity, and national security amid shifting geopolitical dynamics.
The strategic importance of the semiconductor industry is undeniable, and this is not the first time that the U.S. government has acted so aggressively to intervene in and reshape this critical sector. A similar moment occurred in the 1980s, when the Reagan administration, under mounting pressure from U.S. semiconductor firms, took decisive action against Japan in response to its growing influence in the industry.
While the United States, at the time, was still the world’s dominant manufacturer generally, Japanese firms managed to catch up to and surpass their U.S. counterparts in the specific field of memory-chip production. Between 1978 and 1986, Japanese firms essentially dominated the production of dynamic random-access memory (DRAM) chips – then the most popular type. The U.S. global market share fell from 70 percent to 20 percent, while Japan’s surged from 30 percent to 75 percent (though interestingly, Japan’s share of the U.S. market remained insignificant during this period).
Washington, then still committed to neoliberalism, initially hesitated to act against Japan. However, the decline of U.S. DRAM chip manufacturers raised national security concerns in both economic and military terms, which were amplified by industry lobbying. Under pressure, the Reagan administration abandoned laissez-faire policies for protectionism, culminating in the 1986 Japan-U.S. Semiconductor Agreement. This deal was hardly reciprocal: it imposed market access requirements, managed production, and price controls, partly backed by threats of antidumping and Section 301 investigations. Despite its asymmetry, it marked an example of East Asia-U.S. intergovernmental negotiation to strike policy arrangements in the semiconductor industry through dialogue and coordination.
Problems With Informal, Ad Hoc, Company-Specific “Silicon Statecraft”
Trump’s interventionist approach to the global semiconductor industry, framed under national security and “America First,” to a certain extent echoes Reagan’s “Managed Trade” playbook from decades past. Like Reagan, Trump responded to foreign dominance in critical technology by adopting an aggressive governmental intervention involving unilateral tariffs. Both administrations viewed technological leadership as essential to United States economic resilience and military supremacy.
However, a key distinction between the two lies in how each administration attempted (or is attempting) to reconfigure a key tech industry. Under Reagan, the reconfiguration proceeded chiefly through government-to-government negotiations and formal agreements, backed by tools like antidumping measures and tariffs. The framework expanded U.S. market access while curbing Japanese firms’ dominance domestically and abroad, benefiting U.S. chipmakers.
By contrast, the Trump administration has largely worked outside of the intergovernmental model. The Trump administration bypassed the Taiwanese government, directly engaging TSMC to reshape the global semiconductor supply chain – a move with potentially lasting implications. Unlike the Japanese government in the 1980s, today’s Taiwanese government has been notably absent from the discussions. Indeed, not until days after the TSMC investment had been agreed upon did Taiwan’s President Lai Ching-te, accompanied by C.C. Wei, hold a joint press conference providing a belated explanation mainly to the Taiwanese public regarding the matter.
The delayed response highlighted a lack of transparency, as the Taiwan government’s role remains unclear. This is especially concerning given that the National Development Council, a major TSMC shareholder with board representation, should have been aware of such a significant decision. Beyond the mixed and sometimes conflicting information, TSMC’s decision and the government’s alleged prior knowledge do not align with the outbound investment approval process overseen by the Ministry of Economic Affairs’ Department of Investment Review. One point is almost certain: TSMC’s investment announcement at the White House left little, if any, room for proper review by Taiwanese authorities after the fact.
This “silicon statecraft” is troubling for several reasons. For one, the process’ informal, ad hoc, and company-specific nature exploits the power asymmetry between the U.S. government and foreign corporations. The Trump–TSMC dynamic is arguably unprecedented and carries significant implications beyond Taiwan and the semiconductor industry. Consider, for example, the implications for Panama Canal ports or SoftBank. Directly “negotiating” (for lack of a better term) with the U.S. president – who publicly threatens tariffs and other punitive measures – over the reported TSMC-Intel joint venture puts TSMC at a severe disadvantage. TSMC lacks the bargaining power and political leverage a government would wield in high-stakes negotiations.
Taiwan’s government also faces constraints in navigating the complexities of China-U.S. relations under Trump 2.0, especially given the lack of formal diplomatic relations, which complicates any government-to-government interaction. Still, bypassing formal channels strips away even the limited protections and diplomatic leverage intergovernmental engagement could offer. Conversely, East Asian governments like Japan and South Korea have engaged directly with the United States on projects such as Alaska’s natural gas pipeline, underscoring the state-to-state dialogue absent in Taiwan’s case.
To some extent, the arrangement may make long-term business sense for the TSMC as it considers operations diversification, energy and water resilience, workforce shortages, and overall production capacity. That said, concerns about tariffs reportedly drove TSMC to embrace the investment arrangement; however, there is no guarantee that the Taiwanese chip industry will be free from future U.S. tariffs or other economic pressures. This absence of a guarantee leaves the industry vulnerable to shifting U.S. policies.
Worse still, the financial incentives previously granted to TSMC under the CHIPS and Science Act of the Biden administration might no longer be available, further limiting TSMC’s ability to offset the considerable costs of its U.S. expansion. There are, theoretically, legal avenues that the TSMC can pursue to challenge the possible revocation of promised benefits under U.S. law, but in practice, political pressure could make such a move unfeasible. These concerns will likely be compounded if TSMC ends up having trouble recovering from sunk costs and lost opportunities, particularly if the company’s planned expansion fails to materialize or encounters unexpected obstacles such as a shortage of experienced engineers or cultural clashes between Taiwanese management and local U.S. staff.
Paying attention to all of these potential pitfalls are Japan, South Korea, the Netherlands, and other key players in the global semiconductor supply chain. The broader concern is that if Trump’s unilateral, strategic moves prove effective in the case of Taiwan, they will only reinforce the belief that tariffs are an effective and even legitimate tool to pressure trading partners generally. Even more troubling is the precedent this informal, ad hoc, and company-specific silicon statecraft sets: if Trump can selectively target specific companies and pressure them directly rather than engage their home governments, the global balance of economic power may shift unhealthily toward Washington.
