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How America’s CHIPS Act Hurts Taiwan

Although well intentioned, the US CHIPS Act is so poorly designed that it is likely to undercut Taiwan’s TSMC, the world’s leading semiconductor manufacturer, and leave the entire industry even more vulnerable than it already is. Both Taiwan and America stand to suffer from the legislation’s unintended consequences.

CHICAGO – The concentration of advanced semiconductor manufacturing in Taiwan has raised fears in the United States about the vulnerability of this supply chain should China blockade or invade the island. The US CHIPS and Science Act seeks to address that vulnerability with $52 billion in subsidies to encourage semiconductor manufacturers to relocate to America. But the legislation, as designed, will fall short of its objective; it may even weaken Taiwan’s most important industry, further threatening the island’s security.

Today’s semiconductor industry is dominated by specialized companies located around the world. TSMC in Taiwan focuses only on contract manufacturing, primarily of high-end chips, whereas other equally important parts of the semiconductor ecosystem include US companies such as AMD, Nvidia, and Qualcomm (which only design chips), the lithography specialist ASML in the Netherlands, Japan’s Tokyo Electron (which makes chip-manufacturing equipment), and Britain’s Arm (which produces software used to design chips).

All this specialization offers two main benefits. First, it means that each part of the global supply chain can focus and improve on what it does best, which benefits other parts of the supply chain. Second, global capacity has increased in all segments of the supply chain, which has made the industry more resilient to demand shocks.