A planned move by Taiwan Semiconductor Manufacturing Co. to locate some of its chipmaking facilities abroad will be “very beneficial” for Taiwan because it will let the chipmaker work more closely with customers and help it recruit the best talent, according to a senior government official.

Fears about Taiwan’s manufacturing leadership eroding as TSMC sets up factories overseas have percolated among local commentators and shown up in newspaper op-eds. TSMC is the world’s biggest contract chipmaker, with Apple Inc. and Nvidia Corp. relying on it for their most important products, and the centrality of the island to the semiconductor supply chain is seen as an essential element of its international security.

“Our semiconductor investment overseas is actually very beneficial to Taiwan, both economically and from a security aspect,” Taiwan’s Deputy Minister of Economic Affairs C.C. Chen said in an interview on May 21. “First of all, they are close to their customers and they are close to the best talent, the best and the brightest. And thirdly, they will work with their customers to develop the most advanced, the most needed technologies.” 

Taiwan’s Deputy Minister of Economic Affairs C.C. Chen

Striking a similar note, TSMC Chief Executive Officer C.C. Wei in 2022 said that it’s not easy to replicate Taiwan’s chip industry in another country, as TSMC’s success took more than 30 years to build with help from its suppliers.

Major governments around the world are racing to boost chip output at home to avoid a repeat of supply disruptions that cost companies hundreds of billions of dollars in sales. Such efforts also act as a hedge against growing tensions in the Taiwan Strait, with China claiming Taiwan as part of its territory. TSMC and South Korea’s Samsung Electronics Co. have been the most sought-after partners to help with semiconductor development. 

Hsinchu-based TSMC has now pledged to build three advanced plants in the US state of Arizona with total investments exceeding $65 billion, and it is slated to receive $11.6 billion in US grants and loans for the project. The third plant in the US is expected to make chips using 2-nanometer or more advanced technology, with production starting by the end of the decade. TSMC is on track to start churning out 2nm semiconductors in Taiwan next year.

Chen said the Taiwanese government has granted approval for TSMC to make less advanced 3nm, 4nm, and 5nm chips in the US, but if the company wants to produce its most advanced chips overseas, the plan needs to be green-lit by Taipei first. Taiwanese officials will review outbound investments based on national and economic security considerations, he added. 

The minister said that he cannot predict the government’s decision should TSMC decide to apply to roll out its latest technology on American soil, something that US officials including Secretary of Commerce Gina Raimondo have championed. 

While the American government hopes TSMC will help bring advanced chip manufacturing back to the US, the Taiwanese chipmaker has been grappling with labor issues. Chen identified management of the Arizona unit as one of the biggest challenge facing the chipmaker.

“They are becoming more internationalized,” he said. “The information on management is something they need to pick up — how to manage an overseas subsidiary and then how to manage their activity or their talents and to be very in compliance with the local regulations and a different culture.” 

At a time that Taiwanese companies are diversifying their production lines away from China, Asia’s largest economy remains Taiwan’s biggest trading partner. Chen described that relationship as “mutually beneficial” because the two sides collaborate closely in the global supply chain. 

“We think it’s good to maintain stability and also to have working relations and collaboration in terms of trade investment with the People’s Republic of China,” he said. “However, we also need to diversify our market and to become more resilient.”