Taiwan Declines Trump’s Gambit in the Chips Chessboard
Taiwan firmly rejects US demand for a 50-50 semiconductor production split.
Taiwan Firmly Rejects US Demand for 50-50 Chip Production Split
Taiwan has categorically rejected the Trump administration’s demand to relocate half of its semiconductor production to US soil, dealing a significant blow to Washington’s strategy to reduce its dependence on Taiwanese chipmaking.
The Standoff
Taiwan’s Vice Premier Cheng Li-chiun, the island’s lead tariff negotiator, made the rejection crystal clear upon returning from Washington trade talks on Wednesday. “I want to clarify that this is the US’s idea. Our negotiation team has never made a 50-50 commitment to a chip split,” she told reporters. “Please be rest assured that we did not discuss this issue this time, and we will not agree to such a condition,” she emphasized.
This pushback came in direct response to US Commerce Secretary Howard Lutnick’s weekend television interview where he outlined the Trump administration’s ambitious goal. “The idea that I pitched them was let’s get to 50-50. We’re producing half, you’re producing half,” Lutnick stated on NewsNation. He argued this was essential because “95 percent of our chips are manufactured 9,000 miles away” while China threatens to “take” Taiwan.
Taiwan’s Strategic Concerns
The rejection reflects Taiwan’s deep concerns about preserving what experts call its “silicon shield” – the strategic protection that comes from being indispensable to global technology supply chains. Taiwan currently produces over 60 percent of the world’s semiconductors and 90 percent of the most advanced chips, with Taiwan Semiconductor Manufacturing Company (TSMC) alone controlling over 55 percent of the global foundry market.
“No one can sell out Taiwan or TSMC, and no one can undermine Taiwan’s silicon shield,” declared Kuomintang Chairman Eric Chu, while Taiwan People’s Party Chairman Huang Kuo-chang called the US proposal an attempt to “hollow out the foundations of Taiwan’s technology sector.”
Independent analyst Arisa Liu warned that “significant investments and capacity shifts towards the US will weaken Taiwan’s own ecosystem, undermining the integrity of its supply chain.” This concentration of manufacturing expertise, built over decades, has created what experts describe as “a fully functioning supply chain ecosystem essential for semiconductor production.”
Economic and Geopolitical Context
The dispute occurs amid escalating trade tensions, with Taiwan currently facing a 20 percent tariff on its exports to the United States. The Trump administration imposed this levy while threatening “fairly substantial tariffs” on semiconductors entering the country. More than 70 percent of Taiwan’s exports to the US are information and communications technology products, including chips.
Taiwan’s semiconductor exports have created a significant trade surplus with the United States, particularly driven by soaring demand for AI-related technology. This has put the island “in Trump’s crosshairs” as the administration seeks to address trade imbalances.
US Strategic Objectives
Secretary Lutnick outlined the administration’s broader goals, stating “Our objective is to get to 40 percent market share, and maybe 50 percent market share, of producing the chips and the wafers... for American consumption.” The US currently produces less than 10 percent of the global chip supply, down from its historical leadership position in the industry.
The Trump administration views this as both an economic and national security imperative. “If you can’t produce your own chips, how can you defend yourself?” Lutnick argued, dismissing Taiwan’s “Silicon Shield” concept and suggesting Taiwan would be more secure with balanced production between the two countries.
TSMC’s US Investment Reality
Despite the political pressure, TSMC has already committed to substantial US investments. The company announced a 165 billion dollar total investment in Arizona, including six chip fabrication plants, two packaging facilities, and a research center. However, this represents a fraction of TSMC’s global capacity, with the Arizona facility contributing less than 3 percent of the company’s overall revenue.
TSMC began producing advanced 4-nanometer chips in Arizona in January 2025, marking the first time such advanced semiconductors were manufactured on American soil. The company expects to produce 2-nanometer or more advanced processes by the end of the decade.
The Challenge of Reshoring
Industry experts have highlighted the “herculean” challenge of relocating Taiwan’s semiconductor ecosystem. Nvidia CEO Jensen Huang predicted the US is “somewhere between a decade and two decades from supply chain independence,” emphasizing it’s “not really practical for a country in a year or two.”
The complexity stems from the need to “transplant a dense, highly contingent and interlinked supply chain” involving “dozens and dozens of component and materials suppliers,” not just fabrication facilities themselves. Bloomberg characterized this as “a radical shift for the global semiconductor industry.”
Taiwan’s Counter-Strategy
Rather than accepting the 50-50 split, Taiwan is pursuing alternative strategies to address US concerns. The island has pledged to increase investment in the United States, buy more American energy, and increase defense spending to more than three percent of GDP. Cheng indicated hopes for “more comprehensive talks on special considerations under Section 232,” referring to the ongoing US national security investigation into semiconductor imports.
Implications for Global Tech Supply Chains
This standoff has significant implications beyond bilateral relations. Any disruption to Taiwan’s chip production would threaten global economic stability, affecting everything from smartphones and electric vehicles to artificial intelligence and quantum computing applications.
The rejection also reflects broader concerns about the erosion of Taiwan’s “silicon shield” strategy as both China develops domestic capabilities and the US pressures for production shifts. As one expert noted, “Taiwan cannot rely on semiconductors for protection and must bolster its defensive capabilities” to offset these eroding factors.
The Trump administration’s aggressive approach appears to have backfired, with Taiwan choosing to protect its technological crown jewel rather than accede to what opposition politicians characterized as “exploitation and plunder.” This resistance suggests Taiwan views its semiconductor dominance as too strategically valuable to compromise, even under intense US pressure.
China and India’s Likely Responses
China is expected to view Taiwan’s defiance of Washington as a strategic opportunity. Beijing will likely double down on accelerating its own semiconductor self-sufficiency under the “Made in China 2025” programme while framing Washington’s demands as proof of America’s exploitative intent. In parallel, it will continue to exert military and political pressure on Taiwan, portraying itself as the rightful guardian of Chinese technological sovereignty. India, meanwhile, is poised to act cautiously but strategically. New Delhi has already launched major semiconductor initiatives, inviting global players to set up fabrication plants under the Production-Linked Incentive (PLI) scheme. India could leverage the Taiwan-US rift to position itself as an alternative manufacturing hub, offering both geographic proximity and a more stable political relationship, while carefully balancing ties with both Washington and Taipei.
Trump’s Risky Gamble
Trump is playing a dangerous game. Given Taiwan’s geopolitical location and China’s stated policy of regarding it as a renegade province, pushing the envelope too far could jeopardize Washington’s most reliable ally in the Indo-Pacific. Taiwan is not just a geopolitical flashpoint; it is the linchpin of the global semiconductor ecosystem, controlling the predominant share of high-performance GPUs that power everything from AI to advanced defence systems. Overplaying America’s hand risks destabilising both East Asia and global technology supply chains, a gamble whose costs may outweigh its gains.