Taiwan investment in U.S. will not cause industrial hollowing out: DGBAS

Taipei, April 5 (CNA) With the Trump administration using tariffs in part to encourage Taiwanese manufacturers to invest massively in the United States, the Directorate General of Budget, Accounting and Statistics (DGBAS) said on Saturday such fund flight would not cause the industrial hollowing out of Taiwan.

Amid Trump's tariff threats, contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC) has pledged to invest an additional US$100 billion in the U.S. state of Arizona to build three more advanced wafer fabs, two IC assembly plant and one research and development center, bringing its total investment to US$165 billion in the U.S. state.

With TSMC's plans to invest in the U.S., many of its suppliers are mulling following the chipmaker to obviate tariff risks. However, the DGBAS dismissed concerns over possible industrial hollowing out in Taiwan which could repeat the low economic growth three decades ago when Taiwanese investors rushed to China and reduced their investments in Taiwan.

DGBAS Department of Statistics chief Tsai Yu-tai (蔡鈺泰) told CNA that 30 years ago, many Taiwanese firms wanted to benefit from low labor costs in China and enjoyed prosperity for a while. Indeed, investment in China became a major trend after Taiwan's government lifted a ban on China-bound investment in the 1990s, when environmental awareness became more prevalent at home, Tsai said.

However, most of these Taiwanese firms from old economy industries such as petrochemical, textile, food and metal firms did not focus on high-end technology development, Tsai said, so they were replaced by Chinese counterparts when China intensified efforts to cultivate its own industries.

Under such circumstances, Tsai said, Taiwan's economic development gap with China narrowed and its economy fell into low growth mode, leading to the hollowing out of industrial development.

In contrast, as a result of the trade war between the U.S. and China in recent years, many Taiwanese firms mulled launching operations in the U.S. to avoid high tariffs, Tsai said.

It was easy for old economy industries like petrochemical firms to be replaced by Chinese counterparts, but the semiconductor industry is very different, he added.

TSMC is already investing US$65 billion in Arizona to build three wafer fabs, the first of which started mass production at the end of 2024, using the sophisticated 4 nanometer process.

The second fab is under construction and scheduled to begin commercial production in 2028, using the more sophisticated 3nm, 2nm, and A16 processes. TSMC is seeking to break ground on the third fab as soon as possible.

Although Tsai admitted political factors influenced semiconductor firms like TSMC to some extent when deciding to go to the U.S., the company places greater emphasis on whether it can capitalize on investments and rake in profits.

In addition, many of these semiconductor firms consider Taiwan to be their home and keep the latest technologies at home by spending more on R&D, Tsai said.

"It is unnecessary to worry semiconductor firms' knowhow will be stolen when they go to the U.S.," Tsai said. "The U.S. market is a capital-intensive place so investing there is expected to help Taiwanese semiconductor firms upgrade their technologies."

As Taiwan has limited manpower and resources, the U.S. is expected to make up such a shortage by using its high-end tech professionals to advancing R&D efforts, he added.

TSMC has repeatedly said its investments in the U.S. aims to cater to its American clients and meet demand from them.

Echoing Tsai, Wang Jiann-chyuan (王健全), vice president of the Chung-Hua Institution for Economic Research (CIER), said Taiwanese high tech manufacturers will have to consider their customer base and raw material supplies when they decide to go to the U.S. market. Wang added it is not easy to quickly replicate the semiconductor ecosystem that exists in Taiwan.

Investment in the U.S. is expected to extend Taiwan's footprint by taking advantage of technologies, talent and the capital market there to help Taiwan's industry to grow, adding as long as companies list their shares on the U.S. stock markets, they can use the U.S. capital market to make themselves stronger, Wang said.

Currently, TSMC and several Taiwanese companies such as United Microelectronics Corp., a smaller contract chipmaker, have listed their American depositary receipts on the U.S. market.

Pai Tsung-cheng (白宗城), head of the Supply Management Institute, said if Taiwan is able to use the world as its base to grow, that will help Taiwanese firms to seize on more global business opportunities.