Unpacking TSMC’s $100 Billion Investment in the United States

On Monday, March 3, U.S. President Donald Trump announced that Taiwan Semiconductor Manufacturing Company (TSMC) would invest an additional $100 billion to expand its advanced semiconductor manufacturing operations in Arizona. This money will be put toward three new fabrication plants (or fabs), two advanced packaging facilities, and a major research and design (R&D) center. TSMC touted this as the largest single foreign direct investment in U.S. history, bringing its total investment to $165 billion and doubling its planned manufacturing plants from three to six.

President Trump’s focus on semiconductors, and in particular Taiwan’s outsized role in the production of these tiny chips that enable modern life, is not new. He has repeatedly accused Taiwan, which produces around 90 percent of the world’s most advanced semiconductors, of stealing the U.S. chip industry. Trump has threatened to impose tariffs between 25 and 100 percent on all chips entering the United States to force companies to establish a manufacturing presence in the country.

Trump is not alone in worrying about U.S. overreliance on chips made in Taiwan, which are not only needed for smartphones and washing machines but also for most modern weapons systems. In 2022, President Joe Biden signed into law the CHIPS and Science Act, which was intended to incentivize companies to build fabs in the United States. TSMC received $6.6 billion in direct funding and $5 billion in low-cost loans through the CHIPS Act to build a foundry in Arizona. Trump, though, has criticized this as a “ridiculous program,” stating, “we don’t want to give them billions of dollars.”

With this announcement, TSMC is likely looking to avert tariffs, secure its CHIPS Act funding, and demonstrate Taiwan’s indispensable role in in the artificial intelligence (AI) revolution, which it hopes will translate into President Trump demonstrating broader political support for Taiwan.

What Does This Mean for U.S. Manufacturing?

Trumpeting the announcement alongside TSMC CEO C.C. Wei, President Trump declared that “The most powerful AI chips in the world will be made right here in America.” The investments will create tens of thousands of construction and engineering jobs, and, with TSMC’s first investments in advanced packaging in the United States, help strengthen the country’s semiconductor ecosystem and domestic AI supply chain.

TSMC’s first Arizona fab, which started high volume chip production earlier this year, produces four nanometer (4nm) chips, which are used in Nvidia’s most advanced graphics processing units (GPUs). The second fab, set to become operational in 2028, aims to produce 2nm and 3nm chips. The third, which is expected to come online at the end of the decade, will produce 2nm chips and more advanced technology.

Trump claimed that the TSMC investment, along with investments planned by Samsung and others, could bring the United States to 40 percent of the global chipmaking market. But even with the expansion, it seems likely that TSMC will continue to produce the majority of the most advanced chips in Taiwan in the near term.

What Questions Remain?

President Trump has stated that he intends to levy massive tariffs on imported chips. One question is whether TSMC’s investment in the United States will be enough to grant the company a reprieve or whether Trump will still proceed with tariffs. Tariffs on chips could very well proceed, as Trump stated in the press conference announcing the investment, “if they did them in Taiwan to send them here, they’ll have 25 percent or 30 percent or 50 percent or whatever the number may be someday…by doing it here, he has no tariffs.” Commerce Secretary Howard Lutnick similarly remarked, “They’re coming here in huge size because they want to be in the greatest market in the world, and they want to avoid the tariffs that, if they’re not here, they’d have to suffer.”

Given Trump’s repeated attacks on the CHIPS Act, it is uncertain whether his administration will continue to disburse funds provided under the law for semiconductor manufacturing and whether TSMC will receive the grants it has already been awarded. Interestingly, in announcing the investment, Wei touted the “needed government support” as a reason for the success of the company’s facility in Arizona.

The biggest question, though, may concern the fate of Intel’s chip manufacturing business. While Intel used to dominate the production of semiconductors, it has since lost its leadership position and is struggling to compete with TSMC, Samsung, and others. Through the CHIPS Act, it received nearly $8 billion in grants, intended to help the company produce leading edge chips. Yet Intel has continued to struggle, and there have been reports that TSMC may take control of Intel’s manufacturing business in a new joint venture. Whether this remains a priority is another open question.

How Will This Affect Taiwan?

Some in Taiwan, including former president Tsai Ing-wen, have likened the island’s dominance of the semiconductor manufacturing industry to a “silicon shield” that protects it against Chinese aggression. The logic is that China would not attack Taiwan because it needs Taiwanese chips as inputs for the manufactured goods it produces, and aggression would therefore crater its economy. At the same time, U.S. reliance on Taiwanese chips and its desire to prevent this technology from falling into China’s hands would make it more likely to defend the island if deterrence fails.

This is one reason why Taiwan has attempted to keep its most advanced semiconductor technology at home. Until yesterday, TSMC consistently insisted that its R&D would only occur in Taiwan, and that the most advanced chips would be made in Taiwan. This also has an economic logic: new chip production requires close coordination and proximity to specialized suppliers and experienced engineers, which are concentrated in Taiwan. 

Some Taiwanese are unnerved by TSMC’s announcement, fearing that the United States is “hollowing out” the island and that once it establishes sufficient domestic semiconductor manufacturing capacity it will abandon Taiwan. When Trump’s approach to Ukraine and his tilt toward Russia is added to the mix – he cut off U.S. military assistance to Ukraine only hours after announcing this deal – this only heightens fears on the island that Taiwan may be sold out as part of a larger U.S.-China deal.

Taiwan’s main opposition party, the Nationalist Party (KMT), is seeking to stoke these fears. The leader of the KMT’s legislative caucus, Fu Kun-chi, asked “Where is Taiwan’s national security if TSMC become ASMC and the sacred mountain that protects the country is gone?”

In response to these worries, a spokesperson in Taiwan’s presidential office stated that the government would ensure TSMC “will keep its most advanced manufacturing processes in Taiwan.” Taiwan’s Premier Cho Jung-tai has said the government is closely coordinating with industry, and the two are pursuing a strategy that serves Taiwan’s interests. At the same time, Wei said that TSMC would be “producing the most advanced chip on U.S. soil.” This may be a debate over semantics: TSMC may eventually produce its most advanced chips in the United States but this could well take years to come to fruition.

What Does this Mean for U.S.-Taiwan Relations?

TSMC’s huge investment should at the very least stabilize U.S.-Taiwan relations and could very well provide momentum for even closer ties. It has the potential to influence how President Trump ultimately views the value of Taiwan to the United States. He has previously voiced skepticism about defending Taiwan and reportedly doubted whether the United States could even do so, while also stating that Taiwan should pay the United States for protection. By demonstrating the contribution its companies can make toward reindustrializing the United States and the indispensable role that they will play in AI, though, Taiwan could change this narrative.

At the same time, the U.S.-Taiwan relationship cannot be reduced to chips. The United States has commitments to Taiwan under the 1979 Taiwan Relations Act that predate the island’s emergence as a major technology power and it has interests beyond safeguarding access to chips. Regardless of the success of TSMC’s investment, the United States will still have a vital interest in Taiwan’s future and in maintaining peace and stability in the Taiwan Strait.