[SCMP Column] Why Did Taiwan Surrender Its Semiconductor Sovereignty to the US?

A $500 Billion Burden Equal to 60% of GDP
Taiwan Government Claims a "Win-Win" While Concealing Details
Core Semiconductor Transfer Raises Security Concerns

Alex Ro, SCMP Columnist.

The Hollywood film "Fifty Shades of Grey" was one of the most boring and tedious movies I have ever seen. Upon hearing the news of the latest tariff agreement between Taiwan and the United States, I was reminded of this blockbuster, whose main theme is a sadomasochistic relationship of dominance and submission.

This agreement is less of a "deal" and more akin to a sweeping surrender by Taiwan. It is as if Taiwan must now say, "Thank you, Master," to the White House led by President Donald Trump. To describe President Lai Ching-te and the Democratic Progressive Party (DPP) government, a new concept such as "political sadomasochism" seems necessary. The choices made by the Taiwanese government simply cannot be explained by existing theories of international relations.

Cheng Li-chun, Deputy Premier of Taiwan, described the agreement as a "win-win," claiming it is not a concession by Taiwan but rather an expansion of investment within the United States. He argued that this move both broadens the overseas investment base of Taiwanese companies and encourages U.S. investment in Taiwan.

However, there are no concrete investment promises or guarantees from the United States for Taiwan. According to the agreement, the U.S. will lower tariffs on Taiwanese products from 20% to 15% and will apply zero tariffs to generic pharmaceuticals and their ingredients, aircraft parts, and certain natural resources. In exchange, Taiwanese companies have agreed to invest a total of $250 billion (approximately 335 trillion won) in the United States to expand semiconductor, energy, and artificial intelligence (AI) production capacity. This includes the $100 billion investment already pledged by TSMC last year. U.S. Secretary of Commerce Howard Lutnick stated that additional investments are expected to follow.

TSMC, the core company of Taiwan's semiconductor industry, pledged a total of $165 billion in investments in the United States after 2020, spanning both terms of President Trump. As a result, TSMC must build at least six semiconductor manufacturing plants, two packaging facilities, and a large-scale research and development (R&D) center in the U.S. The Taiwanese government also promised to provide at least $250 billion in credit guarantees to support companies making additional investments in the U.S. In total, the burden Taiwan effectively assumes in relation to the U.S. amounts to $500 billion. This is not a simple political declaration but an irrevocable commitment. New Shuting, spokesperson for the opposition Kuomintang, pointed out that even if President Trump's tariff measures are overturned by the U.S. Supreme Court, Taiwan will still be obligated to fulfill its investment promises to the U.S.

Last October, President Trump pressured Taiwan to relocate half of its semiconductor manufacturing industry to the U.S. in exchange for lower tariffs. At the time, Deputy Premier Cheng, who led the Taiwanese negotiation team, argued that splitting semiconductor production 50-50 between the U.S. and Taiwan was practically impossible. However, the current agreement will result in the transfer of 40-50% of Taiwan's semiconductor industry to the United States. While the exact figure may vary depending on the calculation method, there is little difference between U.S. demands and the agreement's content. Secretary Lutnick explained this even more bluntly. According to him, the original U.S. goal was to bring at least 40% of Taiwan's semiconductor supply chain and production to the U.S. He also warned that if semiconductors are not produced in the U.S., tariffs could soar as high as 100%.

The $500 billion burden assumed by Taiwan is equivalent to about 60% of Taiwan's gross domestic product (GDP). When compared to the scale of Japanese and South Korean investments in the U.S.-both of which are also subject to the 15% tariff-the excessive nature of Taiwan's commitment becomes clear. Japan and South Korea, which have defense treaties with the U.S., have agreed to invest $550 billion and $350 billion, respectively. However, when these amounts are measured as a percentage of GDP, Japan's figure is about 12%, and South Korea's is 18%.

In this context, Wu Chongxian, a member of the Kuomintang's cultural and publicity committee, has called for a clearer public disclosure of the details of this negotiation, especially to compare with the cases of Japan and South Korea. He emphasized the need for a specific explanation regarding the GDP burden ratio. Wu criticized the agreement with the U.S. as being one-sided, arguing that the U.S. used the 15% tariff as bait to test the extent of Taiwan's concessions. He accused the government of hiding important details by not transparently releasing the specifics of the negotiation. Wu also warned that if Taiwan agrees to transfer many high value-added industries to the U.S., the country's industrial structure will fundamentally change, and the number of quality jobs in Taiwan will inevitably decrease significantly.

Spokesperson New Shuting also questioned whether the negotiated tariff rate is truly advantageous for Taiwan. He expressed concern that the agreement could accelerate the relocation of advanced industries, including semiconductors, to the U.S., and further hasten the decoupling of the entire industrial supply chain from Taiwan. This is why there are claims that President Lai Ching-te and the ruling DPP have mortgaged the future of Taiwan's advanced industries in order to overcome the immediate trade crisis.

On the other hand, some argue that Taiwan cannot afford to defy U.S. demands for the sake of its security. However, when Taiwan has given up half of its core semiconductor industry and mortgaged the future of its industries, one must ask what exactly is being protected by these choices.

Deputy Premier Cheng stated that the goal of the tariff and investment agreement is for Taiwan to become a close strategic partner of the U.S. in the field of AI. Compared to the costs of improving relations with mainland China, this choice may have seemed less burdensome. Nevertheless, there is criticism that the DPP and separatist forces have chosen to cling to the U.S. rather than cooperate with China.

Perhaps the current situation is the U.S.'s ultimate strategy. By relocating the core industrial base of Taiwan to the U.S. as much as possible, even if China eventually regains Taiwan, the key industries and added value will have already left. In the end, America's "Grey" is satisfied, while Taiwan's "Anastasia" bows her head and says, "Thank you, America."

Alex Ro, SCMP Columnist

This article is a translation by The Asia Business Daily of the South China Morning Post (SCMP) column, "Taiwan has just sold out TSMC and half its chips industry to the US."