Taiwan’s Government Faces Urgent Semiconductor Dilemma Amid U.S. Pressure

UPDATE: Taiwan’s government is grappling with a critical semiconductor crisis as U.S. Commerce Secretary Howard Lutnick sent shock waves through Taipei with a stark warning: Washington may not defend Taiwan unless the island agrees to a 50-50 split of its semiconductor production with the United States. This urgent development, revealed in late September 2023, has shifted the perception of Taiwan’s semiconductor dominance from a protective “silicon shield” to a potential liability.

The implications of this statement are profound, as Taiwan’s strategic value in global supply chains comes under scrutiny. Analysts are now questioning whether Taiwan’s semiconductor strength can truly safeguard its national security amid escalating pressures from Washington and Beijing. While many focus on external threats, the real vulnerability lies within Taiwan itself—specifically, the misalignment between the Taiwanese government and the private sector powerhouse, TSMC.

Despite holding a mere 7.69 percent stake in TSMC and having a representative on its board, the Taiwanese government has little influence over the company’s strategic decisions. President Lai Ching-te acknowledges TSMC’s pivotal role in Taiwan’s economy but often defers to the company’s business priorities, approving unprecedented overseas investments that fail to align with national security objectives.

In a shocking twist, former TSMC Chairman Mark Liu downplayed the significance of semiconductors in Taiwan’s defense against potential Chinese aggression, underscoring the company’s desire to remain apolitical. This disconnect raises concerns about TSMC’s trajectory and its implications for Taiwan’s security.

Earlier this year, TSMC committed to invest USD $165 billion into U.S. operations, framing the move as a strategy to mitigate supply chain risks and secure contracts with tech giants like Apple and Nvidia. However, the decision has drawn criticism as it appears driven more by U.S. pressure than by economic rationale.

The U.S. government has intensified its push for TSMC to increase production in the U.S., further complicating Taiwan’s geopolitical landscape. The tension escalated with fears that a potential return to Trump-era policies could shift U.S. strategic ambiguity regarding Taiwan. As a result, TSMC’s expansion into Arizona is seen as a concession to U.S. demands, raising alarm about Taiwan’s diminishing leverage.

Despite the Ministry of Economic Affairs having the legal authority to block significant foreign investments deemed contrary to national interests, it has never exercised this power against TSMC. Halting U.S. fab construction could jeopardize critical ties with Washington, leaving Taiwan in a precarious position.

The Democratic Progressive Party (DPP) government has attempted to present TSMC’s overseas investments as beneficial to national security, but critics argue this narrative is reactive rather than proactive. The opposition party, Kuomintang (KMT), accuses the Lai administration of letting TSMC dictate terms, warning that U.S. pressure could weaken Taiwan’s bargaining power in the semiconductor arena.

As TSMC’s strategy continues to evolve amid U.S. demands, Taiwan’s government faces mounting pressure to assert its authority over the semiconductor giant. Recent legislative changes, such as the amendment of Article 22 of the Industrial Innovation Act, aim to limit TSMC’s overseas production capabilities, preventing them from advancing beyond the 2-nanometer chip generation in foreign facilities.

The urgent question remains: Can Taiwan effectively align the interests of TSMC with national security? As the island navigates the complex landscape of U.S.-China relations, the need for transparency and a clear strategy becomes paramount. Without it, Taiwan risks becoming increasingly tethered to corporate decisions that may not align with its survival.

This developing situation underscores the importance of maintaining Taiwan’s semiconductor dominance in the global supply chain. As the stakes rise, the Taiwanese government must find a way to balance corporate interests with national security imperatives. The future of Taiwan’s economic and geopolitical standing hangs in the balance.

Stay tuned for updates as this critical story unfolds.