Taiwan’s Stand Against U.S. Chip Proposal: A Deep Dive Into Tariff Talks.

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Introduction

In the ever-evolving global semiconductor landscape, Taiwan has rejected a U.S. proposal regarding a shared model for chip production. The proposal, often referred to as the “50-50” model, suggested that Taiwan collaborate with the United States on semiconductor production, specifically to have a joint manufacturing structure where both countries share equally in the production and innovation of chips. However, Taiwan has now pushed back against this proposal, stating that any talks between the two nations should first focus on trade-related matters, particularly tariffs.

What is the 50-50 Chip Production Proposal?

The “50-50” chip production proposal was a U.S. strategy to strengthen semiconductor production capabilities between Taiwan and the U.S. in response to rising global competition, particularly from China. The idea was that both countries would jointly manage and contribute equally to chip production and technological advancements. The U.S. viewed this as a way to ensure more stable, secure access to crucial semiconductor supplies, especially given the geopolitical tensions surrounding Taiwan’s central role in the global semiconductor industry. However, Taiwan has expressed reservations about the proposal. According to Taiwanese officials, the focus of current trade discussions should first be on resolving tariff issues and improving trade relationships. The Taiwanese government has made it clear that, before any agreements on shared manufacturing or technology, there must be a resolution to trade imbalances, especially regarding tariffs that may hinder Taiwan’s ability to benefit fully from any new agreements.

Advantages / Benefits (for Taiwan, and for its negotiating position)

Preservation of industrial leadership & specialization

Taiwan, especially via TSMC, is among the world’s most advanced nodes’ semiconductor producers. Relinquishing or diluting its dominance would risk eroding its technological edge. By rejecting a forced “50‑50” split, Taiwan maintains control over its high-end, high-margin processes.

Safeguarding the “silicon shield” / geopolitical leverage

Taiwan’s semiconductor capacity gives it strategic global importance and a kind of diplomatic / deterrent value. Ensuring much of the chip production remains on the island helps preserve that leverage. If too much is relocated, Taiwan might lose a major bargaining chip.

Avoidance of huge relocation costs & disruption

Shifting large shares of production, with associated supply chains, skilled labor, equipment, and logistical ecosystems, would incur enormous costs, delay, risk, and complexity. By rejecting the split, Taiwan avoids these disruptions.

Maintaining optionality in trade & diplomacy

Not being locked into a rigid production split leaves Taiwan more flexibility to negotiate tariffs, incentives, and investment terms on more favorable grounds. It can push first on tariff reductions, supply chain cooperation, preferential terms, etc. Indeed, Taiwan says the current talks are focused on tariffs first.

Protecting domestic employment and high‑value ecosystem

Many upstream and downstream industries materials, tool suppliers, supporting services depend on proximity to the core fabs. Shifting large capacity abroad might lead to job losses or deindustrialization effects at home.

Negotiating leverage on subsidies, incentives, and market access

Because Taiwan holds a desirable asset (leading semiconductor production), it can push harder for tariff relief, exemptions from trade restrictions (e.g. Section 232 in U.S. law), favorable investment conditions, or co‑development with the U.S., rather than accept a rigid production quota. Taiwan’s trade negotiators have signaled this is their preferred path.

Avoid undermining economies of scale & cluster effects

Many semiconductor advantages arise from closely integrated clusters (supply chain, talent, R&D, specialized services). Fragmenting production risks reducing those externalities and raising costs.

Avoiding precedent of coercive industrial policy demands

Accepting a 50‑50 split under pressure could set a precedent that other countries or partners demand similar “localization quotas.” Rejecting it helps push back against that norm.

Pros and Cons of Taiwan’s Rejection

Pros

Maintains technological leadership and high-margin production
Retains geopolitical leverage / “silicon shield” status
Avoids massive relocation cost, supply chain disruption, talent migration
Keeps flexibility in negotiating trade terms (tariffs, exemptions, cooperation)
Protects domestic jobs, ecosystem, cluster effects
Prevents precedent of demanding forced localization
Preserves economies of scale and network benefits in Taiwan
Strengthens negotiating position by signaling “we won’t be coerced”

Cons

Could face greater U.S. pressure (tariffs, trade restrictions, national security rhetoric)
May be seen by U.S. as uncooperative, risking deterioration in U.S.–Taiwan relations
Risk of missing out on U.S. incentives, subsidies or favorable terms tied to onshore production
U.S. may retaliate with stricter trade measures under laws like Section 232
If U.S. pushes ahead independently, Taiwan might lose future U.S. market share or contracts
Over time, U.S. might strengthen indigenous capacity and reduce dependency on Taiwan
Taiwan may need to offer other concessions (e.g. more investment in U.S., technology sharing)
Some U.S. policymakers may view it as rejecting U.S. security interests

Observations

Taiwan’s Vice Premier Cheng Li‑chiun said the 50‑50 condition wasn’t even discussed in the latest round and that Taiwan would not accept it.
The Taiwanese government sees the 50‑50 demand as being “against Taiwan–U.S. supply chain cooperation.”
The U.S. has already had some success convincing Taiwanese firms (notably TSMC) to invest in U.S. fabs (e.g. in Arizona). But those investments are complementary, not substitutes for Taiwan’s main production.
The ongoing U.S. investigations (e.g. Section 232) into semiconductors and tariffs are a key leverage point in the negotiations. Taiwan’s focus is to first secure favorable tariff treatment and trade safeguards before deeper structural production changes.