By Industry Consultant Jerry Peng (彭茂榮)
The importance of the US–Taiwan Agreement on Reciprocal Trade (ART) lies less in the tariffs themselves than in the institutional certainty it creates. Tariffs have never been limited to customs clearance costs. Instead, they shape capital expenditure timelines, production capacity planning, supply-chain contingencies, and risk premiums embedded in long-term contracts.
When reciprocal tariffs are capped at 15% without Most-Favored-Nation stacking, and semiconductors and their derivatives qualify for preferential treatment under the Section 232 framework — alongside institutional arrangements granting duty-free access for US-bound investment quotas and preferential tariff treatment for volumes exceeding those quotas — policy risk is substantially reduced.
More importantly, commitments to tariff exemptions or preferential treatment for the equipment, raw materials, and components required to establish factories in the US allow cost models to return to engineering efficiency and process capabilities, rather than being driven by policy fluctuations. Corporate investment decisions can then return to the logic of market demand and technological evolution, rather than being driven by worst-case risk assumptions. This ensures that the cross-border flow of AI servers, high-performance computing chips, and advanced packaging supply chains is no longer amplified into strategic risk by tax uncertainty.
As long as semiconductor R&D centers, the most advanced manufacturing processes, and large-scale mass production remain concentrated in Taiwan, the nation can maintain its core strategic position in the global semiconductor supply chain. The foundation of this position lies not in symbolism, but in three quantifiable factors: R&D hubs, leading-edge technology nodes, and mass-production scale. When institutional certainty and technological concentration converge, strategic positioning is anchored in industrial structure rather than short-term policy shifts.
Expansion without hollowing-out
Whether the country’s overarching strategic goal of “Taiwan as the core, global in scope” (a framework articulated in Taiwan's industrial policy) becomes a sustainable industrial framework hinges on interpretation. Is this model industrial offshoring or supply-chain extension? Is it a manufacturing shift or structural rebalancing?
Through a combination of the Taiwan–US MOU on investment and the US–Taiwan ART, Taiwan and its key partners can align their competitive conditions while establishing mechanisms that facilitate two-way investment and deeper strategic cooperation in AI and other high-tech sectors.
While recent discussions have focused on the US proposal for partial localization of production capacity, industrial structure data provides a clearer perspective. Looking to 2030, across various expansion scenarios, Taiwan's domestic production capacity is projected to retain a 70%–80% share of global output. Even as global expansion accelerates, core manufacturing capabilities and production density are expected to remain highly concentrated in Taiwan.
This suggests that overseas investment is primarily driven by supply-chain extension and customer proximity rather than offshoring or industrial hollowing-out. For enterprises, this development brings two long-term advantages.
First, companies can engage earlier in customer product design-in phases, strengthening their influence over technology, roadmaps, and platform ecosystems. Second, supply-chain resilience will extend beyond backup production capacity to include institutional adaptability and regulatory compliance capabilities. Firms capable of maintaining stable delivery under different tariffs and regulatory frameworks will gain higher trust and longer cooperation cycles amid the ongoing restructuring of global supply chains.
AI drives structural growth
The global semiconductor sector has entered a new phase of structural growth, driven by strong demand for AI computing power and data center infrastructure. The global semiconductor market is projected to exceed US$700 billion in 2025, US$900 billion in 2026, and US$1 trillion by 2027.
This wave of computing power expansion has created a highly integrated relationship between advanced manufacturing, advanced packaging, and testing. The continued advancement of 2-nanometer and below process nodes is driving rapid capacity expansion in heterogeneous integration technologies such as CoWoS, while back-end packaging and testing, probe cards, and test interface equipment are simultaneously gaining momentum.
The parallel growth of front-end processes and back-end packaging and testing suggests that Taiwan’s competitive advantage is evolving. Rather than relying on dominance in a single process node, Taiwan's competitive strength increasingly lies in the systemic efficiency and integration of its semiconductor supply chain. When processes, packaging, and testing operate with high synergy, competitive advantage shifts from single-point technological leadership to system-level industrial efficiency.
The semiconductor industry remains a globally specialized ecosystem. The US leads in design, Japan in materials, Europe in equipment, and South Korea in memory. Taiwan's irreplaceable role lies in wafer fabrication and advanced packaging, particularly the mass production of leading-edge logic chips.
Looking ahead, the key to competitiveness will lie not only in expanding production scale but also in integrating process technology, packaging, testing, and materials. If production lines can be planned with a platform-based mindset, allowing a single line to support multiple customers and product types while optimizing yield and delivery efficiency, structural demand can be converted into long-term profitability and operational stability. Platform-oriented capacity expansion has the potential to transform cyclical industry risks into opportunities for sustained growth.
Building Taiwan’s chip ecosystem
The nation’s policy landscape is shifting from distributed support toward the development of foundational capabilities. The localization of heterogeneous integration packaging equipment, advanced process equipment, and critical components — supported by system-level validation and industry collaboration mechanisms — helps reduce R&D risks and shorten implementation cycles. This process gradually strengthens local capabilities in semiconductor equipment and materials, accelerating process iteration while enhancing cost control.
Concurrently, the establishment of 12-inch R&D and pilot production facilities lowers verification barriers for startups and small-to-medium-sized IC design companies, enabling faster technology validation and commercialization.
Semiconductors are no longer merely an industrial sector. They are now recognized as critical infrastructure for the global economy. As Taiwan continues to serve as a key R&D hub and the world’s largest mass production base for advanced chips —while simultaneously strengthening domestic capabilities in equipment, materials, and advanced packaging — the stability of the global semiconductor supply chain is further reinforced.
For enterprises, future competition will depend less on the scale of investment in a single fab and more on ecosystem integration capabilities. The ability to integrate R&D, pilot production, mass manufacturing, equipment and materials collaboration, and talent development into a unified innovation system will become the most decisive source of competitive advantage in the coming decade.
Resilience over risk elimination
Uncertainties in the external environment persist. Recent developments in US trade policy, including the Supreme Court’s ruling against tariffs imposed under the International Emergency Economic Powers Act and the subsequent use of Section 122 of the Trade Act of 1974 to introduce temporary tariffs, highlight the continued volatility in global trade. Further tariff adjustments or trade investigations remain possible as negotiations evolve.
In such an environment, the objective should not be the elimination of risk, but the capacity to absorb it. The ability to maintain stable delivery across shifting tariff regimes and regulatory frameworks is precisely where Taiwan's vertically integrated supply-chain model has a structural advantage.
For businesses, the current phase points to two strategic priorities. First, companies should deepen overseas expansion by integrating local partnerships and production capacity with local services, enabling closer collaboration with clients on technology development and market entry. Second, firms must continue strengthening Taiwan’s domestic competitive advantages, including advanced manufacturing processes, advanced packaging, specialized processes, testing and verification capabilities, equipment localization, materials upgrades, energy resilience, and talent development.
Looking ahead to 2030, even as Taiwanese manufacturers accelerate overseas capacity expansion, 70% to 80% of production capacity is expected to remain in the country. This concentration of advanced manufacturing capabilities will continue to underpin Taiwan’s central role in the global supply chain, ensuring that Taiwan remains the world’s most critical semiconductor hub.
* Market Intelligence & Consulting Institute (MIC) was established as a division of the Institute for Information Industry (III) in 1987 in Taiwan. MIC serves as an industry consultant, and a government think tank. With over 100 analysts, our focus on ICT research offers a deep understanding of tech trends and their geopolitical impacts. In partnership with the Taiwan government, we transform insights into policies that enhance the nation's industrial strength, boost technological competitiveness, and adeptly manage geopolitical challenges.
