Taiwan’s Investment Focus Shifts Tides

Last year, Taiwanese investments in the United States outpaced those in China for the first time in over two decades, according to the Department of Investment Review under the Ministry of Economic Affairs (MOEA). The milestone reflects a notable shift in Taiwan’s economic priorities, highlighting deeper alignment with U.S. markets against the backdrop of evolving global trade dynamics.

MOEA estimates that Taiwanese investment in the United States amounted to US$9.69 billion in 2023, dwarfing the US$3.04 billion directed toward China. It reports that investment in North America – particularly the United States and Canada – has seen the most robust growth of any region, surging from a modest year-on-year (YoY) increase of 1.73% in 2016 to a remarkable 36.47% in 2023.

The surge in Taiwanese investment has been fueled in part by the United States’ efforts to attract leading Taiwanese manufacturers like semiconductor giant TSMC, which has been encouraged to establish operations on American soil to bolster domestic manufacturing jobs. From January to September 2023, Taiwan’s investments in the United States climbed to US$13.93 billion, according to the MOEA, with much of the growth driven by TSMC’s substantial investment in its Arizona subsidiary.

Taiwanese foreign direct investment has risen sharply overall. Ma Tie-ying, a senior economist at Singapore-based bank DBS, notes that in the first nine months of 2024, Taiwan’s outbound investment more than doubled compared to the same period the previous year, reaching approximately US$45 billion.

Meanwhile, China’s share of Taiwan’s outbound investment has plummeted, falling from a commanding 83.81% in 2010 to just 11.41% in 2023, according to the MOEA. The decline has been even more pronounced this year – China’s share dropped further to 7% YoY from January to September, notes Ma.

This shift is mirrored by the growing prominence of investments in South and Southeast Asia, spurred by Taiwan’s New Southbound Policy targeting these countries for investment and business cooperation. In 2022, investments in Southeast and South Asia surpassed those directed toward China for the first time – a trend that persisted into 2023. Taiwanese businesses, wary of escalating labor costs in China and pandemic-induced supply chain disruptions, increasingly turned to these regions to diversify their operations and mitigate risks.

These have been profound changes, considering that for more than two decades, China received the bulk of Taiwan’s outbound investments.

In a significant move, TSMC announced in April that it would expand its planned investments in the United States from the US$40 billion announced in 2022 to over US$65 billion, including the construction of a third fabrication plant in Arizona. The decision follows a US$6.6 billion federal grant under the CHIPS and Science Act, aimed at boosting domestic semiconductor production. According to TSMC, the new facility will mark the largest foreign direct investment in Arizona’s history.

TSMC’s three Arizona fabrication plants are set to produce semiconductors using 4-nanometer, 3-nanometer, and 2-nanometer processes, with the first facility expected to commence mass production in the first half of 2025. In mid-November, the Biden administration finalized a US$6.6 billion grant under the CHIPS and Science Act to support TSMC’s expansion, a move that solidifies the initiative before the incoming administration of President-elect Donald Trump, who has previously criticized such subsidies. This federal support positions TSMC as one of the primary beneficiaries of the CHIPS and Science Act, underscoring the U.S. government’s commitment to bolstering domestic semiconductor manufacturing.

President-elect Trump has called the CHIPS Act a giveaway that “provides billions of dollars for rich companies,” and suggested that imposing stiff tariffs on foreign-made chips would be a more effective solution, The New York Times reported.

However, Kelvin Lau, senior economist for Greater China and North Asia at Standard Chartered Bank, sees Taiwanese investments, including TSMC’s operations in the United States, as aligning with the incoming administration’s focus on creating American jobs.

“I don’t think Trump wants to push this investment away,” Lau says. However, he adds that future negotiations could address specifics, including whether companies like TSMC should continue receiving government subsidies and other benefits.

Chen Been-lon, professor at Academia Sinica’s Institute of Economics, notes that TSMC’s Taiwanese suppliers will likely follow the company to America. However, these companies – many of which are small and medium-sized enterprises – will face challenges related to navigating regulations and double taxation. While U.S.-Taiwan negotiations on an agreement on double taxation avoidance are underway, it is not yet clear when such an agreement can be reached.

Son Bum Ki, a regional economist at Barclays, predicts that the trend of Taiwanese investment in the United States will persist, with little likelihood of reversal over the next four years. He adds that Trump’s proposed tariff hikes, if implemented, could further incentivize Taiwanese companies to expand their presence in the United States to circumvent potential trade barriers.

“Under the Biden administration, Taiwan companies got incentives to invest in the U.S.,” he says. “Under the Trump administration, they’ll be penalized if they don’t invest in the U.S.”