Taiwan rejects ‘impossible’ US demand to relocate 40% of chip production

A senior Taiwanese official has rejected American demands to move a big chunk of the island’s semiconductor manufacturing to the United States, calling the plan unrealistic.

Vice Premier Cheng Li-chiun made an appearance on the local television network CTS on Sunday night, February 8, 2026. She stated that she informed U.S. officials that their goal of shifting 40% of production was unrealistic. According to Cheng, Taiwan’s decades-old chip-making infrastructure cannot be easily relocated to another place.

Official calls relocation target unworkable

“I have made it very clear to the United States that this is impossible,” Cheng said when asked about the 40 percent figure. Taiwan can establish new factories in other countries, America included. But she made clear that domestic production will continue to keep expanding at the same time. “Our overall capacity in Taiwan will only continue to grow,” the vice premier said.

Her position conflicts sharply with what US Commerce Secretary Howard Lutnick has been saying. Lutnick’s pointed out that most advanced chip-making occurs less than 80 miles from China. He calls that “illogical.” The US government wants 40 percent of sophisticated semiconductor production on American soil by 2029.

There’s a conflict between industrial reality and political objectives. Cheng described the operation of the chip industry using a “iceberg” analogy. The factories that are visible to all are only the beginning. A vast local network of suppliers and employees lies beneath that. Relocating production entails moving hundreds of specialized businesses that are currently nonexistent in the United States.

Taiwan views its chip concentration as a “silicon shield.” It maintains the island is crucial to global security. Washington views it as a vulnerability. Cheng’s position is that Taiwan will support American development, but it will not sacrifice the home base that underpins its defense strategy.

Tariff threats and economic pressure mount

Lutnick’s warned of harsh financial consequences if things don’t change. On CNBC, he said Taiwan’s 15 percent import duty now could spike all the way to 100 percent. A January 15, 2026 deal had lowered those rates from 20 percent. But that relief is now tied to hitting production targets.

That January agreement had Taiwanese firms pledging $250 billion in US investments. There’s another $250 billion in government credit guarantees backing it up. Still, those numbers might not get to the 40 percent benchmark. The pressure did work to some extent, TSMC committed $165 billion to an Arizona project. But retaliatory tariffs would increase costs for US military hardware and AI systems.

Economic experts in Taiwan are skeptical about such a big transformation happening. Lien Hsien-ming, who runs the Chung-Hua Institution for Economic Research, said recently that the talk about bringing production back might be overblown. His analysis suggests less than 15 percent of TSMC’s advanced manufacturing will be in the United States by the end of this administration.

According to TSMC’s leadership, US activities are undoubtedly expanding. For logistical considerations, the most sophisticated manufacturing remains in Taiwan. By 2029, the Arizona “Megafab” plans to produce 2nm and 1.6nm (A16) chips. Only once those state-of-the-art procedures are stable domestically will they move abroad.

Taiwan is ready to help the US build similar industrial hubs while keeping its technology parks domestic. Cheng remains confident that Taiwan’s internal capacity, current facilities plus future ones, will consistently outpace international investments.

The recent trade agreement cut standard tariffs to 15 percent, providing relief. TSMC’s moving ahead with its $165 billion Arizona expansion and just added 900 acres in Phoenix. But Taipei’s position remains unchanged. US facilities supplement Taiwan’s central manufacturing role, they don’t replace it.

The 2029 deadline is getting closer. The standoff between Washington’s “onshoring” push and Taipei’s “rooted” strategy means the chip industry remains a critical flashpoint in trade.