America Needs Taiwan To Win the Semiconductor Race

COMMENTARY International Economies

America Needs Taiwan To Win the Semiconductor Race

Mar 12, 2025 4 min read
COMMENTARY BY
Michael Cunningham

Research Fellow, China, Asian Studies Center

Michael is a Research Fellow in The Heritage Foundation’s Asian Studies Center.
An image of an electronic wafer is displayed at the Taiwan Semiconductor Manufacturing Company (TSMC) Museum of Innovation in Hsinchu on November 21, 2024. I-HWA CHENG / AFP / Getty Images

Key Takeaways

The U.S. is by far the world leader in semiconductor technology, and as long as it continues following this formula, there’s little China can do to catch up.

If it becomes harder or more expensive to obtain these semiconductors, some of the very industries the U.S. government hopes to revive would struggle.

Taiwan will remain the semiconductor hub of choice for the foreseeable future. This isn’t a bug in the system that needs to be fixed.

Any successful coach will tell you that if you have a winning playbook, don’t throw it out. Stick with what works. And that principle applies not just in sports, but in other fields too.

Take the United States and China. They’re locked in a battle for semiconductor dominance because both know that the winner will have an edge in the technologies that will shape the economic and security environment for decades to come.

Fortunately, the U.S. is already way ahead. It’s by far the world leader in semiconductor technology, and as long as it continues following this formula, there’s little China can do to catch up. It might even bankrupt itself trying.

The golden formula is as follows: U.S. semiconductor firms pour enormous sums of money into developing the world’s most advanced microchips. To maximize the amount of cash available for research and development, they outsource manufacturing to third-party foundries, many of which are in Taiwan. Not having to foot the tens of billions of dollars required to build each fabrication facility, U.S. chip designers have more capital to use for R&D, which results in even more advanced chips, and the process continues.

It’s the perfect partnership. Each side specializing in what it does best ensures not only the availability of high-quality, low-cost chips, but also that U.S. chip technology remains the best in the world.

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If, however, we were to change the playbook—as politicians from both parties have been suggesting for some time—we’d break this partnership. Both sides would suffer. But as long as this partnership prevails, it’s hard to imagine China ever surpassing the U.S. in semiconductor technology.

It started way behind, and with Taiwan’s biggest foundry no longer producing advanced chips for Chinese firms, Beijing is having to spend substantial cash—in the form of state investments and subsidies to domestic companies—to try to catch up in both design and manufacturing, while most U.S. firms can focus entirely on the more valuable element of chip design.

In addition to helping the U.S. outcompete China, Taiwan’s semiconductor production is also critically important for realizing President Trump’s dream of American reindustrialization. Reindustrialization won’t be possible without reliable access to high-quality chips. U.S. industry needs all the chips it can get, and as industrial activity increases, this demand will only grow.

Taiwan currently accounts for almost half of U.S. logic chip imports and the vast majority of the most advanced chips. If it becomes harder or more expensive to obtain these semiconductors, some of the very industries the U.S. government hopes to revive—such as automobiles and manufacturing—would struggle to stay in business.

In theory, semiconductors don’t have to be made in Taiwan. The same model would work with American contract manufacturers, provided the division of labor could continue at a comparable price and level of sophistication. But only Taiwan and South Korea currently have foundries that are even capable of producing the most advanced logic chips, and 92% of those are made in Taiwan.

This is a result of historical developments. The foundry model got its start in Taiwan. The biggest foundry, Taiwan Semiconductor Manufacturing Company (TSMC), has had four decades to perfect its craft.

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Its success—and that of its competitors on the island—has resulted in an abundance of first-rate semiconductor talent and driven the emergence of the world’s most complete assortment of manufacturers and importers specializing in the chemicals and materials needed to make high-end chips. U.S. officials may talk about creating industry clusters around new fab developments in Arizona and Ohio, but Taiwan is an island-wide industry cluster bigger than some U.S. states, and this results in a quality and cost efficiency that hasn’t been matched anywhere. It’s no wonder that TSMC reports that its U.S. operations cost 50% more than those in Taiwan.

No country can expect to produce every part needed for even its most strategic sectors. Supply chains are complicated. Thousands of components, chemicals, and minerals are needed to produce complex manufactured goods. Some critical components are supplied only by a handful of small family-owned businesses in one part of the world, and some resources are only available in a small number of countries.

Seen from this perspective, semiconductors aren’t really that unique. Fortunately, unlike some critical minerals and pharmaceutical ingredients, semiconductors are produced mainly by countries that enjoy relatively political stability and are friendly to the U.S.

As America’s industrial capacity grows, more semiconductor firms will naturally want to produce chips in this country to strengthen supply chain efficiency. The government can even continue its efforts to accelerate that process but it must do so in ways that will strengthen the manufacturing sectors these semiconductors serve.

Taiwan will remain the semiconductor hub of choice for the foreseeable future. This isn’t a bug in the system that needs to be fixed. It is the formula through which the U.S. can remain ahead of China in semiconductor technology. It’s also a crucial contributor to America’s reindustrialization.

Sounds like a playbook worth keeping.

This piece originally appeared in RealClear World

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