When discussing the semiconductor industry, South Korea and Taiwan are often mentioned together. During the 1970s and 1980s, South Korea and Taiwan, as part of the Newly Industrialized Countries (NICs), ventured into the semiconductor industry. To prevent the rise of additional potential competitors in the semiconductor sector, the United States limited its collaboration with South Korea and Taiwan and strengthened its partnership with Japan. U.S changed its stances in the 1990s to support these and exclude Japan, a competitor. However, through the strategy of their business structures and government support, both South Korea and Taiwan have effectively secured and fortified their notable positions in the contemporary semiconductor industry. This success reflects a combination of business insight, technological innovation, and proactive government policies that have promoted these nations into significant roles within the highly competitive and rapidly advancing semiconductor landscape.        

Although South Korea and Taiwan share similarities in their semiconductor industries, their economic structures have led to distinct approaches to business development. Taiwan’s economy has been constructed on the foundation of small- and medium-sized, family-owned businesses. As Newburry mentions, Taiwanese workers usually stay with the company until they gain enough knowledge and capital. It also makes the business market competitive and intense.[12] However, due to this phenomenon, companies in Taiwan cultivated the ability to respond swiftly to changes in the market. This positive outcome has contributed to Taiwan establishing a crucial role in the field of manufacturing. The Taiwanese government played a strong role in developing the Taiwanese semiconductor industry.[13]  As a globally valuable semiconductor company, TSMC is a good example. TSMC was founded in 1987 and its headquarters was located in Hsinchu, Taiwan. It was a government program in the beginning and led by Morris Chang. The Taiwanese government had established public research institutes for future technology and innovation and created a specific area with special tax subsidies to support the development of technology.[14]  Besides the strong skill of original equipment manufacturers (OEM) of Taiwanese companies, the government engaged in cultivating talented and high-skill specialists to help the local semiconductor industry. It makes Taiwan an invaluable part of the semiconductor supply chain. These days, TSMC not only does the OEM task but also helps customers generate chipsets and assists with better designs.

As Wylegala mentions the United States and Taiwan have built a complementary and interdependent economic relationship in the past few decades.[15]  The United States is the second largest trade partner of Taiwan, and one-third of the goods it imports from Taiwan are Information and Communications Technology (ICT) related products.[16]  The United States exhibits a substantial demand for semiconductor chips sourced from Taiwan. Prominent U.S. technology firms, including NVIDIA, Qualcomm, and even the DOD, rely on TSMC as their supplier. Furthermore, under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, signed into law by President Joe Biden on August 9, 2022, the U.S. encourages increased investment from Taiwan. This act allocates approximately $280 billion over 10 years to strengthen domestic semiconductor research and manufacturing.[17]  In April 2024, TSMC announced it had signed a preliminary memorandum with the U.S. Department of Commerce to receive up to $6.6 billion in funding under the CHIPS Act. This funding will support TSMC’s plan to build a third semiconductor fab in Arizona to meet rising demand, bringing the company’s total investment in Arizona to over $65 billion—the largest foreign direct investment in the state’s history. The three fabs are expected to create 6,000 high-tech jobs and 20,000 construction jobs, bolstering the U.S. semiconductor ecosystem. The first fab in Arizona will start producing 4nm chips in 2025. The second fab, scheduled to open in 2028, will produce advanced 2nm and 3nm technology, while the third fab will manufacture chips with 2nm or more advanced processes by the decade’s end. TSMC prioritizes green manufacturing practices, targeting a 90% water recycling rate and near-zero liquid discharge through an industrial water reclamation plant. Additionally, TSMC is seeking $5 billion in loans and up to 25% in tax credits on qualified capital expenditures. The company aims for 15-20% annual revenue growth, a gross margin of at least 53%, and a return on equity (ROE) of 25% or higher.[18]  Nevertheless, given the complex and intense geopolitical situation, Taiwan faces a delicate challenge in managing its relationship with both the United States and China. Navigating this intricate balance requires thoughtful consideration of political sensitivities, economic interests, and regional dynamics to ensure a prudent and strategic approach.

Future Challenges

Despite Taiwan’s crucial position in the semiconductor industry, it faces several challenges. One key strategy is to maintain strong relationships with partners and uphold existing agreements. Under the CHIPS and Science Act, the United States restricted the export of advanced chips to China and directed tech giants like TSMC and Samsung not to produce these high-end chips within China. Although China raised objections and filed a complaint with the World Trade Organization (WTO), arguing that the U.S. had breached fair trade practices, its options for recourse were limited. In response, the Chinese government has increased support for its domestic semiconductor industry, emphasizing innovation and boosting investment in the local market. Given China’s importance as a major market, those tech companies must navigate trade carefully to avoid violating U.S. regulations. Additionally, with the new U.S. administration, the CHIPS and Science Act could undergo changes. According to DIGITIMES Asia, concerns have emerged regarding the impact of Donald Trump’s return to the White House on Taiwanese semiconductor suppliers. Macronix International CEO Miin Wu noted that TSMC may be pressured to replicate its most advanced semiconductor processes in the U.S., as Taiwan faces limited options under international pressure. The leadership shift could also lead to changes in subsidies and tariffs under the CHIPS Act. Wu emphasized that the impact will depend on how the U.S. adjusts its policies. While the CHIPS Act is already in place, new terms or tariffs could be introduced, compelling companies to comply with U.S. policies and potentially establish manufacturing within the U.S.[19]

On the other hand, competition is intense, particularly from South Korea, which has established a significant role in the semiconductor supply chain. Meanwhile, India is emerging as a rising player in this sector. With government investments and a close relationship with the United States, India may eventually develop into a strong competitor in the semiconductor industry, even if it takes time. Additionally, the Taiwan Strait issue poses a persistent threat to the island. Geopolitical risks have heightened uncertainty in the region. Since 2023, TSMC has expanded its factories on the island to increase production capacity. In February 2024, the Japan Advanced Semiconductor Manufacturing facility in Kumamoto began operations as TSMC’s first overseas branch. Currently, TSMC is also constructing factories in Arizona, United States, and Dresden, Germany, and plans to collaborate with the Czech Republic. These efforts not only aim to boost production but also to enhance TSMC’s status in the global market, thereby mitigating geopolitical risks.

Author’s Biography

YiTan Hsu is a master’s student at the Graduate School of International Studies, Korea University, specializing in International Commerce. Her research interests include international business strategy, geopolitics, and public diplomacy.

The author thanks Brendan Donnelly & Dr. Indu Saxena for their extensive feedback and review.

References