Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) is expanding abroad to sustain growth amid land constraints in Taiwan, with a new U.S.-Taiwan trade pact intensifying scrutiny over where its most advanced chips will ultimately be produced.
Taiwan Institute of Economic Research President Chang Chien-yi said companies face hard constraints on domestic expansion because Taiwan lacks sufficient land for large-scale industrial projects.
He said this reality, not tariffs, is driving firms to increase foreign direct investment.
Chang pointed to Taiwan Semiconductor as an example, noting that companies cannot simply add advanced facilities in dense urban areas like Taipei's Xinyi District, the Taipei Times reported on Tuesday.
Trade Talks Link U.S. Tariffs To New Investment
Chang's comments followed a tentative U.S.-Taiwan trade arrangement under which Taiwan's semiconductor and technology firms, led by Taiwan Semiconductor, would invest at least $250 billion in the U.S.
In return, Washington would apply a 15% tariff on Taiwanese goods, matching the rates imposed on South Korea, Japan, and the European Union.
Addressing concerns about an economic hollowing-out, Chang said estimates suggest 75% to 80% of Taiwan's semiconductor supply chain will remain on the island by 2030, despite U.S. ambitions to attract more production.
Citing Taiwan Semiconductor Chairman C.C. Wei, Chang said the company's overseas investments respond mainly to customer demand, not government pressure.
The contract chipmaker is ramping up its U.S. expansion in Arizona, but economists say only a small portion of its most advanced chip production will move to the U.S. in the near term.
Arizona Buildout Expands, But Advanced Output Stays Mostly In Taiwan
Chung-Hua Institution for Economic Research President Lien Hsien-ming said fewer than 15% of Taiwan Semiconductor's most advanced manufacturing processes are likely to relocate to the U.S. by the end of President Donald Trump's second term.
He said current construction schedules make it unrealistic for Washington to achieve its stated goal of shifting 40% of Taiwan's chip supply chain to the U.S. before 2029.
Lien pointed to the chipmaker's Arizona investments, where the company is spending $65 billion to build three fabs and has pledged another $100 billion for additional fabs, assembly plants, and a research center.
He said Taiwan Semiconductor has begun installing equipment at its second Arizona fab, slated for mass production in 2027, and started building a third fab this year, with later projects unlikely to reach full production before Trump's term ends.
The chipmaker continues to expand in Arizona to support customers like Nvidia Corp. (NASDAQ:NVDA), helped by a new U.S.-Taiwan trade deal that lowers tariffs on Taiwanese goods to 15% and includes significant investment commitments.
The company plans to anchor its U.S. strategy around a large Arizona "gigafab" hub and has expanded its land holdings to support future growth.
TSM Price Action: Taiwan Semiconductor shares were up 1.03% at $336.15 during premarket trading on Tuesday, according to Benzinga Pro data.
Photo by Jack Hong via Shutterstock
