Taiwan has told the US that its plan of relocating nearly 40% of its semiconductor supply chain to America is “impossible”, CNBC reported.

Taipei’s top tariff trade negotiator, Vice Premier Cheng Li-chiun, made these remarks in a local television broadcast on Sunday, adding that she had made it clear to Washington that Taiwan’s semiconductor ecosystem, built over decades, could not simply be relocated.

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She added that Taiwan’s international expansion, including investments in the US, is based on the understanding that the semiconductor industry will remain rooted in Taiwan and continue to expand domestically.

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Her remarks were in response to onshoring goals laid out by US Commerce Secretary Howard Lutnick, who told CNBC in January that he wanted 40% of Taiwan’s chip supply chain to move to the United States during President Donald Trump‘s present term. Lutnick’s comments came days after the two sides signed a trade agreement.

US-Taiwan trade agreement

Under the trade agreement, Washington lowered the tariffs on most Taiwan goods to 15% from the previously announced 20%. Further, it waived off tariffs on generic drugs, ingredients, aircraft components, and natural resources unavailable domestically, and promised higher quotas for tariff-free exports of Taiwanese chips to the US. Taiwan, on the other hand, promised direct investments worth $250 billion by its tech companies, along with $250 billion in credit support to help expand their manufacturing capacity in the United States.

TSMC takes steps to align with US policies

Following the agreement, Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest chipmaker, started taking steps to align more closely with the US policies.

In recent years, TSMCpledged over $65 billion towards manufacturing in the US, and said it plans to raise that amount significantly to $165 billion, supplying chips to American firms like Apple and Nvidia. These investments have also drawn support through grants under the US CHIPS and Science Act.

However, Lutnick said Washington is seeking commitments not only from major players but also from hundreds of smaller firms across the semiconductor supply chain. “We’re going to build massive semiconductor industrial parks in America. This is a $500 billion down payment on bringing those semiconductors back home,” he said in January and warned that Taiwan-based chipmakers that fail to set up operations in the US could face a 100% tariff, as threatened by Trump.

US plans exemption from chip tariffs for Big Tech

According to a Financial Times report, the Trump administration is considering exempting major tech companies such as Amazon, Google and Microsoft from new taxes on imported computer chips as the companies race to build data centres powering the artificial intelligence (AI) boom.

Washington is considering tariff exemptions for hyperscale tech companies and is associating the relief with the investment pledges made by TSMC.

Washington’s relocation plans for Taiwan’s chip industry unfeasible: Analysts

Semiconductor analysts have agreed with Cheng’s assessment and have termed Washington’s onshoring plans “unfeasible” on the grounds of difficulties in relocating such an advanced supply chain. Further, they have pointed out some key obstacles, including labour shortages in the US and elevated costs, CNBC reported.

Analysts have also cited the so-called “Silicon Shield” theory, which argues that Taiwan’s central role in the global semiconductor supply chain makes protecting its autonomy a strategic priority for the United States, thereby discouraging potential aggression from China. Beijing claims sovereignty over the self-governed island.

The so-called Silicon Shield further discourages Taiwan from relocating its supply chains abroad.