The U.S. Department of Commerce announced on Monday its proposal to invest up to $6.6 billion to establish a third manufacturing facility for Taiwan Semiconductor Manufacturing Company Limited (TSMC) in Arizona. This funding will be provided through the CHIPS and Science Act, aiming to enhance domestic semiconductor production and reduce reliance on international sources. While this initiative is part of a broader strategy to boost manufacturing within the U.S., it could also heighten tensions with China.
The proposed facility will be a greenfield project, meaning it will be built from scratch. It is set to focus on cutting-edge 2nm technologies, catering to a variety of applications, including advanced computing, 5G/6G wireless communications, and artificial intelligence (AI). TSMC Arizona, the subsidiary responsible for this project, aims to complete the construction by the decade's end. The chipmaker predicts that this new facility will create over 20,000 jobs, with around 6,000 positions dedicated to manufacturing once operational.
Localized manufacturing has been a key priority for the Biden administration, particularly since the COVID-19 pandemic exposed weaknesses in the global supply chain. As technology becomes increasingly integral to our daily lives, the demand for semiconductors continues to surge. The Semiconductor Industry Association reports that global sales reached $47.6 billion in January 2024, reflecting a more than 15% increase from the previous year.
“TSMC’s renewed commitment to the United States and its investment in Arizona symbolize a pivotal shift towards American-made semiconductor manufacturing, bolstered by support from leading tech firms,” President Biden stated in a press release regarding this investment.
Most of the government’s funding efforts have centered on U.S.-based companies, such as Intel, which recently received an $8.5 billion funding proposal. However, TSMC is a dominant player in the market, commanding a substantial share and leading in technological advancements. The company faces significant risks amid rising geopolitical tensions, particularly concerning the potential for China to gain control over Taiwan’s manufacturing infrastructure.
TSMC is acutely aware of these threats. Its two largest customers—Apple and Nvidia—are American companies, and some voices in the U.S. have even suggested drastic measures should geopolitical tensions escalate.
“We should make it clear to China: if you invade Taiwan, we will blow up TSMC,” stated Massachusetts Congressman Seth Moulton at a recent event. Though he later clarified that the remarks were taken out of context, similar sentiments have been echoed by others. Earlier this year, former National Security Advisor Robert O’Brien warned that the U.S. and its allies would never allow TSMC’s factories to fall under Chinese control, hinting at a potential destruction of such facilities, comparing it to wartime strategies from the Second World War.
This rhetoric has faced international backlash, not only due to ethical concerns but also because of the profound economic implications it could bring. Beyond Apple and Nvidia, TSMC serves major clients like Sony, MediaTek, AMD, Qualcomm, and Broadcom.
Despite ongoing governmental investments, Intel remains in a position of catching up to TSMC’s years of technological advancement. TSMC produces approximately 90% of the world’s most advanced chips. To mitigate future disruptions—whether from pandemics or geopolitical tensions—diversifying the supply chain is paramount, particularly in terms of production locations and operators.
While the CHIPS and Science Act aims to promote domestic manufacturing, TSMC recognizes the importance of a global supply chain. "The proposed funding from the CHIPS and Science Act enables TSMC to make a historic investment and provide the most advanced manufacturing services in the U.S.," expressed TSMC Chairman Mark Liu in a statement. "Our U.S. operations enhance our ability to support American customers, which include numerous leading tech companies, and bolster our capacity to pioneer future advancements in semiconductor technology."
As experts observe U.S.-China relations, the upcoming presidential election could be a pivotal moment. Former President Trump's aggressive trade policies heightened tensions, particularly with Huawei facing significant setbacks in access to essential components from American companies such as Google and Qualcomm.
In comments made last year, Avril Haines, former Director of National Intelligence, warned that a disruption to TSMC’s production capabilities in Taiwan would have a staggering global economic impact, estimating potential losses between $600 billion and $1 trillion annually for the initial years following an incident.
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