MAGA's Chipmaking Dream Faces a Hard Reality

TSMC Will Continue to Dominate Advanced Chip Production for the Foreseeable Future

During a recent summit in Paris, J.D. Vance, America’s vice president, expressed a bold vision: that the world’s most powerful artificial intelligence (AI) systems would be built on “American-designed and manufactured chips.” While the aspiration is lofty, it faces a harsh reality. Although the U.S. leads in designing AI chips, it has long relinquished its role as the global hub for semiconductor manufacturing to Taiwan.

Today, Taiwan is responsible for producing two-thirds of the world’s most advanced semiconductors, a situation that frustrates American politicians across the political spectrum. Former President Donald Trump, Vance’s boss, has accused Taiwan of "stealing" the U.S. semiconductor industry, even suggesting a 25% tariff on foreign-made chips. However, despite these political moves, the global manufacturing landscape is unlikely to change significantly during his term.

At first glance, American chip manufacturing seems to be experiencing a renaissance. The CHIPS Act, a $50 billion initiative introduced by the Biden administration, has spurred a wave of investment. Intel, once a dominant force in the U.S. semiconductor industry, has committed to spending $100 billion on chip factories (or "fabs") in four states. Samsung, a South Korean tech giant, is investing $37 billion in semiconductor facilities in Texas. Meanwhile, Taiwan’s TSMC is investing $65 billion to build three leading-edge fabs in Arizona, with the first already operational.

However, a closer inspection reveals a more uncertain picture. Samsung has delayed the opening of its Texas fab from late 2024 to sometime in 2025. Moreover, the company is reportedly planning to cut its global chipmaking investment by more than 50% next year, as it struggles to keep pace with TSMC’s dominance in advanced chip production.

Intel’s situation is even more concerning. The company is behind schedule in deploying its much-anticipated “18A” production process, which was intended to close the gap with TSMC in cutting-edge semiconductor manufacturing. As profits evaporate and debts mount, analysts are speculating that Intel could be broken up. Broadcom, a fabless chipmaker, is rumored to be interested in acquiring Intel’s design division, while Trump has reportedly approached TSMC for a possible joint venture to rescue Intel’s manufacturing operations.

This leaves TSMC as the linchpin of America’s effort to secure advanced chip production at home. The Taiwanese giant is increasingly a class of its own. Research firm SemiAnalysis predicts that TSMC’s revenue will grow by 25% this year, significantly outpacing the broader industry’s growth in the mid-to-high single digits. TSMC’s sales of AI chips are expected to double in 2025. At the same time, the company continues to advance its manufacturing technology every two to three years, producing ever smaller chips while expanding its capacity. TSMC is projected to invest between $38 billion and $42 billion in capital expenditures in 2025, a 41% increase from the previous year. Claus Aasholm, a semiconductor analyst, notes that TSMC has the capacity to "drive the AI revolution" for at least the next two years.

Yet despite these impressive numbers, current projections show that nearly all of TSMC’s advanced chip production will remain in Taiwan well beyond the end of Trump’s second term. Bloomberg Intelligence estimates that by the end of this year, just 3.5% of TSMC’s leading-edge production capacity will be based in the U.S. Even by 2030, when all of TSMC’s American fabs are operational, this figure will still only account for around 10% of the company’s total advanced production.

While Trump has criticized the CHIPS Act as wasteful, the imposition of tariffs—which he favors over subsidies—may have limited impact. In 2023, semiconductor exports to the U.S. amounted to just $82 billion, according to Bernstein, compared to global semiconductor sales of $628 billion. Most chips bound for America are first sent to other countries to be integrated into final products, such as smartphones and server racks. Even if tariffs were applied to these embedded chips, customers of advanced semiconductors tend to prioritize performance over cost, potentially making them willing to absorb higher tariffs.

Another tactic Trump could pursue is to pressure TSMC to ramp up production in the U.S. as part of a broader deal with Taiwan. Taiwan has long viewed its semiconductor industry as a "silicon shield" that protects it from potential Chinese aggression. For this reason, the island has historically required TSMC to keep its most advanced chip production at home. This year, for example, TSMC is set to begin manufacturing two-nanometer (nm) chips in Taiwan, even as it produces 4nm chips in Arizona.

In an effort to placate Trump, Taiwan has recently loosened some of these restrictions. TSMC, for its part, could announce further investments in the U.S. and might even collaborate with the Trump administration to help revive Intel.

However, even if TSMC agrees to increase its U.S. production, any significant expansion will take time. Engineering firm Exyte estimates that it takes around 38 months to get a new fab in the U.S. up and running—about twice as long as it would in Taiwan. C.C. Wei, TSMC’s CEO, has expressed frustration with the slow pace, noting that "every step requires a permit" when building fabs in America.

Building new fabs is also incredibly expensive. TSMC has received $6.6 billion in grants and $5 billion in loans under the CHIPS Act, but the actual cost of setting up a fab is far higher. Brian Potter of the Institute for Progress, an American think tank, estimates that semiconductor fabs in the late 1960s cost roughly $30 million in today’s money to build. In contrast, TSMC’s newest fabs in Arizona are projected to cost around $20 billion each.

There’s another technical challenge on the horizon: advanced AI chips require specialized packaging to integrate multiple components, or “chiplets.” While TSMC plans to build an advanced-packaging facility in Arizona, the vast majority of its packaging capacity remains in Taiwan. As a result, AI chips manufactured in the U.S. will likely need to be shipped back to Taiwan for packaging, adding an additional layer of complexity.

No matter how much American politicians push for semiconductor self-sufficiency, the reality is that the U.S. will remain dependent on Taiwan—and on TSMC—for the foreseeable future if it hopes to remain at the forefront of the AI revolution.