Hsinchu, Taiwan – April 16: The entrance to the factory of Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwanese multinational semiconductor contract manufacturing and design company, in Hsinchu, Taiwan, on April 16, 2025.
Daniel Cheng | Anadolu | Getty Images
The U.S.-Taiwan deal aimed at expanding chip production capacity in the U.S. makes it unlikely that the U.S. government will completely withdraw from Taiwan’s cutting-edge semiconductors anytime soon, and the so-called “silicon shield” remains largely intact for now, multiple analysts told CNBC.
Taiwan dominates global chip production, with Taiwan Semiconductor Manufacturing Company producing most of the world’s most advanced chips. It is estimated that nearly one-third of the world’s demand for new computing power is manufactured in Taiwan.
The island’s central role in the global semiconductor supply chain has made preserving its de facto autonomy and deterring Chinese aggression a strategic priority for the United States and its allies, an idea dubbed the “Silicon Shield.” The Chinese government claims territorial control of the democratically ruled island.
As part of the trade deal signed Thursday, Taiwan’s government has pledged $250 billion in credits to chip and technology companies to expand production capacity in the United States.Taiwanese companies will also enjoy expanded tariff-free import quotas for chips into the United States.
In return, Washington will reduce tariffs on most goods from Taiwan from 20% to 15% and waive duties on generic drugs, raw materials, aircraft parts and natural resources not available domestically.
Commerce Secretary Howard Lutnick told CNBC on Thursday that the goal is to bring 40% of Taiwan’s entire semiconductor supply chain to the United States. But experts doubt the plan will be an easy one, given Taipei’s insistence on keeping cutting-edge technology at home.
Semianalysis analyst Sravan Kundjara said Taiwan’s “silicon shield” remained strong until the end of the decade, with the world’s most important advanced production capacity concentrated in Taiwan.
Taiwanese authorities have restricted TSMC’s overseas manufacturing plants from operating technologies that are at least two generations behind those developed domestically, known as the N-2 rule.
The semiconductor ecosystem cannot be repositioned overnight, so the silicon shield may weaken, but it still exists in the short term.
Dennis Luchun Wen
Associate Professor of Political Science, Sam Houston State University
TSMC domestically produces cutting-edge chips, or nodes, using 2-nanometer technology, but its Arizona plant recently began producing advanced 4-nanometer chips for U.S. customers, with plans to scale up to 2-nanometer and A16 nodes by 2030.
In semiconductor manufacturing, decreasing nanometer size increases transistor density, increases processing speed, and improves energy efficiency.
Kundojara said this four- to five-year delay would allow Taiwan to maintain its advantage, adding that if Taiwan were invaded tomorrow, the world economy would face a Great Depression-level event.
China’s Foreign Ministry spokesperson said in a press conference on Friday that Beijing “resolutely opposes any agreement concluded between Taiwan and countries with which China has diplomatic relations” and called on the United States to uphold the “one China principle.”
TSMC Chief Financial Officer Wendell Huang told CNBC on Thursday that the company will continue to develop cutting-edge technology in Taiwan because it requires “very intensive collaboration” between its domestic research and development teams and manufacturing operations.
“We’re going to have hundreds of engineers moving back and forth (between) different locations in Taiwan, so they’ll stay in Taiwan as we ramp up our cutting-edge technology,” Fan said.
Still, the world’s largest contract chipmaker has already committed to investing $165 billion in chip manufacturing and processing facilities and research and development labs in the United States to supply customers such as Nvidia and Apple.
Wu Cheng-wen, who oversees Taiwan’s National Science and Technology Commission, told the Financial Times last year that it was important for Taiwan to keep cutting-edge research and development at home and avoid “hollowing out” the domestic industry.
“If we move R&D overseas, it will be dangerous for us,” Wu said in an interview.
U.S. onshoring hurdles
Analysts said it would be difficult to move chip production out of Taiwan.
William Reinsch, senior adviser at the Center for Strategic and International Studies, said Taiwan’s engineering talent pipeline and production capacity in the semiconductor supply chain, particularly in advanced manufacturing, “cannot be replicated at scale elsewhere.”
Reinsch said a lack of trained workers and rising production costs have led to delays in opening TSMC’s U.S. factory, adding that the new trade deal does little to address these constraints. He expects that the fulfillment of the investment commitments made will take longer than expected and is unlikely to reach the promised levels.
“Semiconductor ecosystems can’t be repositioned overnight, so the silicon shield may weaken, but it’s still there in the short term,” said Dennis Lu-Chun Wen, an associate professor of political science at Sam Houston State University.
“The bigger question is what happens after Trump. If future U.S. administrations continue to push for large-scale relocation, Taiwan’s loss of monopolistic advantage will become a matter of when, not if,” Wen warned.
Taiwanese officials have emphasized the need to diversify its economic model, foster more industrial growth and strengthen its defense capabilities to counter Chinese military pressure.
Eva Shen, a Taiwan and China diplomacy expert at Eurasia Group, said a Chinese invasion of Taiwan remains an unlikely event and a trade deal is unlikely to change Beijing’s calculations. Shen said mainland officials would place more emphasis on the military balance against the United States and the level of American defense support for Taipei.
