When Geopolitics Takes Over Growth: The New Language of Efficiency at ASML and TSMC

At the height of the semiconductor boom driven by AI, both ASML and TSMC have begun to repeatedly emphasize a single word: efficiency. This is not simply about operational fine-tuning. It reflects a deeper response to structural constraints.

ASML, facing export restrictions and order delays, has shifted its focus toward servicing its installed base. TSMC, constrained by global resource bottlenecks, is reallocating internal capacity and improving throughput to meet surging demand for advanced packaging. Both companies reveal a common logic. When the freedom to expand is no longer guaranteed, efficiency governance becomes the only viable strategic language.

It may be an early sign of a new industrial structure. One that is increasingly political, constrained, and shaped by systems of governance rather than markets alone.

Amid the AI boom, both ASML and TSMC delivered strong results in the second quarter of 2025. ASML reported steady growth in its service revenue, while TSMC continued to improve utilization in both advanced nodes and packaging capacity. These signals suggest that the semiconductor industry remains in a high-growth cycle, with AI-driven demand showing little sign of cooling down.

Yet during this peak, both companies repeatedly emphasized one word: efficiency. That choice of language caught our attention.

Why would companies highlight efficiency at a time of strong performance? Perhaps it is not merely about operational fine-tuning, but a strategic response to deeper structural constraints.

This is not an article about the strength of AI orders. It is an observation about a shift in language.

Starting from ASML and TSMC’s earnings calls, we ask: What role is efficiency now being asked to play?

When Efficiency Replaces Expansion as the Central Theme

To capital markets, ASML and TSMC have long stood as two pillars of the advanced semiconductor era. ASML supplies EUV tools, while TSMC turns those machines into the world’s most advanced chips. Yet in their second-quarter 2025 earnings calls, both companies showed a rare alignment in language. Instead of emphasizing surging demand or aggressive capacity expansion, they returned again and again to a single word: efficiency.

This shift is more than just a change in strategy vocabulary. It signals a broader transformation in how technology companies are governed. When expansion is no longer a given, efficiency governance becomes the language that keeps the growth narrative going.

ASML and TSMC’s Efficiency Logic: Rooted in Different Pressures

ASML’s turn toward efficiency stems from a slowdown in external demand and geopolitical export controls. With orders from China restricted and new equipment purchases delayed, the company is shifting its focus to service revenue from its installed base. This includes extending machine lifespans, improving utilization rates, and expanding after-sales services. It marks a shift from selling new tools to extending the value of existing ones.

TSMC’s efficiency, in contrast, is driven by internal resource constraints. Facing a surge in demand for AI-related advanced packaging, the company has limited short-term capacity to expand, even if space remains available at some sites. As a result, TSMC has focused on increasing the throughput of each machine to narrow the supply gap. It is pursuing greater output per unit of capital, without significantly increasing capital expenditure.

Growth Is No Longer a Free Choice

Although ASML and TSMC face different constraints, their efficiency strategies share a common logic. These are not innovations chosen under free market conditions, but strategic adjustments to geopolitical and institutional limits.

ASML faces new restrictions in supplying China. TSMC must respond to customer demand that is highly concentrated in specific process nodes and products, while also complying with political expectations from the US, Japan, and Europe to diversify its manufacturing footprint. When companies lose the ability to choose whom they serve, where they expand, or how they allocate resources, efficiency becomes the only language left to speak.

This is not just the loss of growth as a free choice. It marks the beginning of a structural shift. Companies are no longer agents of capital expansion, but stewards of constrained resources. No longer just innovators in the market, they are now collaborators in institutional frameworks.

Companies Navigating a Dual Narrative: Mediating Between State and Capital

These constraints force companies to operate between two narratives. To governments, they are strategic partners safeguarding supply chain security and technological sovereignty. To markets, they must still demonstrate growth potential and earnings stability.

ASML plays a key role in Europe’s technological strategy, yet must also maintain its valuation and investor confidence. TSMC emphasizes its image as a trusted manufacturing partner in global operations, while its earnings calls highlight cautious capital spending and throughput optimization.

When the growth narrative is no longer led by companies but shaped by policy and institutions, their role begins to shift. They are no longer just economic actors, but governance nodes embedded within a broader institutional framework.

They Are Not Outliers. They Are Forerunners

1.  Institutional Constraints and a Shifting Narrative

In the short term, efficiency governance can sustain operational resilience during demand peaks. Both ASML and TSMC have delivered strong performance. But over time, as each machine’s throughput approaches its physical limits, efficiency alone may struggle to support a continued growth story. What we are seeing is not an expression of broad market optimism, but a compromise with a reality where expansion is no longer unconstrained.

The language of efficiency used by ASML and TSMC is not just a company-specific strategy. It may signal the arrival of a new phase in techno-capitalism, one that is more politicized, more constrained, and increasingly shaped by governance. In this structure, companies no longer lead the narrative. Instead, they must navigate between the logic of states and the demands of capital.

This is a narrative space they did not choose, but were pushed into. When the external environment no longer allows for free expansion, internal optimization becomes the only option. ASML and TSMC are not anomalies. They are early examples of how growth is being redefined. More companies will follow this path and face the same question: when growth is no longer a free choice, how should we rethink what efficiency really means?

2.  Proactive Governance by Industry Leaders

To see these strategies only as responses to external pressure would be to overlook the deliberate pacing choices made by companies in leading positions. For firms already ahead in technology and market share, the language of efficiency can also reflect a proactive shift in governance and rhythm.

ASML’s machines are technically groundbreaking, yet market demand has been softer than expected. Export controls have further limited sales to China. In response, the company has pivoted toward strengthening its installed base services. This includes extending the lifespan of existing equipment, improving utilization, and expanding aftermarket value. The shift suggests that when the next wave of innovation lacks a clear commercial pull, industry leaders may choose to slow down and deepen their current platforms instead.

TSMC, meanwhile, faces geopolitical constraints in its global expansion. With simultaneous projects in the United States, Japan, and Taiwan, capital and talent are increasingly stretched. As AI-related demand for advanced packaging surges, the company cannot expand production as flexibly as before. It must instead reallocate resources between packaging and advanced nodes, relying on higher throughput and internal efficiency to manage bottlenecks under pressure.

These choices may be shaped by rational calculations, such as incentives to improve resource efficiency, or by institutional signals, such as geopolitical demands and subsidy frameworks. Either way, they show that even industry leaders no longer drive innovation solely through market opportunity. They now operate at the intersection of politics, resource constraints, and commercial viability. This emerging logic of governance may soon define the common path for more tech companies in the post-narrative era.

Conclusion: When Efficiency Becomes Language, the Narrative Has Quietly Shifted

As the era of unconstrained expansion fades and geopolitical limits deepen, efficiency has emerged as a new language for companies to communicate with the market. Yet this is not necessarily a display of strategic ambition. It is more a form of strategic accommodation.

The more important question is not how much efficiency has improved, but why companies are now collectively emphasizing it.

For the Industry:

1. Efficiency is not a substitute for expansion. It is a signal that expansion is being constrained. When companies shift from adding capacity to maximizing throughput, they are often responding to limitations in resource allocation. This reflects a reduced freedom in capital investment, shaped by policy interventions, market restrictions, technological bottlenecks, and rising capital costs.
2. Efficiency governance can limit future flexibility and innovation. An intense focus on minimizing waste and maximizing short-term performance may undermine the system’s long-term resilience and adaptability. It can reduce a company’s ability to absorb shocks, pivot quickly, or explore new directions beyond the current core.
3. The language of efficiency can become a trap for the industry. If both upstream equipment makers and downstream foundries use efficiency as a way to justify short-term strategies, the entire sector may gradually stop talking about new platforms, applications, or markets. Over time, this can narrow the narrative space and shrink the room for technological imagination.

For Capital Markets and Investors:

1. Efficiency is a signal, not a long-term growth catalyst. When a company emphasizes efficiency, it may be signaling a loss of expansionary freedom. This reflects a weakening of the growth narrative, rather than an improvement in operational fundamentals.
2. Efficiency-focused messaging warrants a closer look at the company’s cash flow structure. Can efficiency gains support sustained gross margin improvements or expanded free cash flow? If throughput is rising in the short term without improvements in ASP or product mix, the room for valuation expansion may remain limited.
3. From growth-based valuation models to cash flow governance logic. As companies shift from aggressive expansion to efficiency governance, their valuations may need to move from growth-driven models like PEG (Price / Earnings to Growth ratio) to more conservative free cash flow discounting. Continuing to apply high-multiple growth expectations risks a narrative breakdown.

As more companies across an industry begin to speak the language of efficiency, it may not be a sign of progress. Instead, it could be a signal that we’ve entered a new era of constrained expansion. This shift in language is a form of strategic accommodation, and also a way to maintain trust. For the industry, it may point to a narrowing space for innovation. For investors, it could be a reminder to reassess the foundations of valuation.

When firms adopt efficiency governance as a response to policy restrictions, they may also, unintentionally, normalize those very constraints. Efficiency is not the enemy of growth. But when it becomes the only story left to tell, we should begin to ask: is the narrative of growth quietly being rewritten?

This article is part of our Global Business Dynamics series.
It explores how companies, industries, and ecosystems are responding to global forces such as supply chain shifts, geopolitical changes, cross-border strategies, and market realignments.

See more in this category, or explore more notes here.

The Rise of the AI Industrial Complex: How America is Quietly Building Its Sovereign AI Semiconductor Ecosystem

Why is the U.S. investing heavily in semiconductors? Is TSMC’s Arizona expansion merely a response to political pressure?

In reality, U.S. semiconductor policy is focused on building a sovereign AI manufacturing ecosystem. OpenAI can be seen as the starting point of America’s AI and semiconductor strategy, but the true battleground is in chip manufacturing. The U.S. is quietly orchestrating an “AI Semiconductor Industrial Renaissance.”

To clarify this argument, we will break it down into several parts:

1. How the U.S. AI semiconductor “sovereign version” is taking shape.
2. TSMC’s critical role in this framework.
3. The hidden AI supply chain the U.S. is constructing and how it aims to curb China’s competition.
4. Finally, we will revisit TSMC’s dual role in this transformation and Taiwan’s unique position as a supply chain management hub.

Our Analysis

1.  How is the U.S. Sovereign AI Semiconductor Ecosystem Taking Shape?

1.1  The 2019 U.S.-China Trade War: The Beginning of the “Semiconductor Security Era”

For the past 30 years, the global semiconductor supply chain has prioritized efficiency, operating under a vertical specialization model (with design, manufacturing, and packaging handled by separate companies). This approach lowered chip costs but concentrated critical technologies in a few countries and corporations. However, this model was disrupted in 2019 by the U.S.-China trade war.

At that time, the U.S. imposed chip restrictions on Huawei but was unable to fully block Chinese companies from accessing advanced semiconductors. This experience highlighted that controlling design alone was insufficient—securing manufacturing and equipment supply chains became equally crucial. From then on, U.S. semiconductor strategy shifted from an “efficiency-first” to a “security-first” approach, accelerating efforts toward localization and establishing a sovereign supply chain.

1.2  The 2022 CHIPS Act: America’s Semiconductor Policy Takes Shape

In 2022, the CHIPS Act became the cornerstone of U.S. semiconductor policy, with the Biden administration committing $52.7 billion to subsidize domestic chip manufacturing and R&D. However, this funding is not merely aimed at revitalizing the semiconductor industry—it is focused on establishing a U.S.-led AI semiconductor ecosystem.

This ecosystem spans the entire supply chain, from materials to AI design, and includes:

• Materials: DuPont, Entegris
• Equipment: Applied Materials, Lam Research
• Manufacturing: TSMC Arizona, Amkor
• Design: NVIDIA, OpenAI

Through this structure, the U.S. seeks greater autonomy in AI semiconductors while reducing reliance on foreign supply chains.

1.3  The Trump Administration Extends Biden’s Policy, Strengthening AI Semiconductor Independence

While the Trump administration may differ from Biden’s policies in other areas, both share a common strategy in semiconductor localization. In fact, the Trump administration has further reinforced this direction.

By 2025, the Trump administration prioritized the localization of the AI chip supply chain, aiming to establish a fully domestic production ecosystem. This includes materials, equipment, manufacturing, packaging, design, and even research and development. This shift marks a move from “partial U.S. manufacturing” to a fully sovereign AI semiconductor supply chain, further securing the industry’s stability.

1.4  AI Semiconductors as a Strategic Technological Asset in the Geopolitical Landscape

Under both the Biden and Trump administrations, AI semiconductors have become a national strategic asset. The U.S. is not just revitalizing manufacturing but positioning itself as the global leader in AI semiconductor technology.

This tightly integrated ecosystem—spanning materials to design—has been deliberately structured through regulations and subsidies to exclude China and other potential competitors, ensuring full control over the supply chain.

Currently, the U.S. AI semiconductor sector is focused on six key areas (as shown in Table 1):

• Materials Supply
• Semiconductor Equipment
• Chip Manufacturing
• Packaging
• GPU Design
• AI Software Infrastructure

Through a deliberate strategy, the U.S. government is securing its dominance over the entire AI chip ecosystem, further strengthening its technological competitive edge.

Table 1   U.S. AI Semiconductor Industry Landscape

Source: Researcher and Research

2.  TSMC’s Critical Role

As shown in Table 1, TSMC is the sole non-U.S. company within the American AI semiconductor ecosystem. This raises an important question: why has the U.S. placed such heavy reliance on TSMC?

2.1  Using TSMC to Bridge Intel’s Manufacturing Gap

TSMC serves as the technological foundry within the U.S. “sovereign supply chain.” While this position appears crucial, it is also a highly risky intermediary role. The U.S. aims to strengthen Intel but must simultaneously compensate for its technological lag. Through a “critical gap-filling policy”, the U.S. leverages TSMC’s U.S. operations to sustain the overall AI semiconductor ecosystem.

In other words, the U.S. strategy is to have TSMC temporarily fill Intel’s manufacturing gap, gaining 5 to 10 years for Intel to catch up technologically. We have previously suggested that a potential response from TSMC could be acquiring part of Intel’s advanced manufacturing fabs (though TSMC currently has no such plans).

TSMC’s role can be likened to a metaphor: If the U.S. AI semiconductor ecosystem is a castle, TSMC is the only gateway to the inner stronghold. Currently, the U.S. needs TSMC to guard this gate. However, once Intel becomes strong enough, will this gateway remain—or will it be dismantled entirely? This question will be further explored in the final section.

2.2  The U.S. Steering the Supply Chain Toward Closure

TSMC’s Arizona plant is positioned as a “strategic partnership” with the U.S. government, which is why the U.S. has emphasized the importance of an R&D center. However, while TSMC has committed a $100 billion investment in U.S. manufacturing, it has resisted fully transferring its most advanced technologies. The key reason lies in the evolving trajectory of the global supply chain.

The U.S. AI semiconductor supply chain is increasingly moving toward greater closure, which poses a long-term risk to TSMC. Historically, TSMC’s competitive edge has been built on a globalized supply chain, but as the supply chain becomes more self-contained, TSMC’s bargaining power will be substantially weakened. This is why TSMC CEO C.C. Wei has repeatedly stressed the importance of resilience—TSMC recognizes that if the global supply chain becomes fragmented, its leverage and market influence will be significantly challenged.

3.  The Hidden U.S. AI Manufacturing Chain

3.1  The True Focus of the U.S. Strategy: Materials and Equipment

Let’s begin with two publicly available yet less-known pieces of information. First, in 2023, Applied Materials announced the establishment of an EUV material R&D center in Arizona; second, in 2024, the U.S. government provided a $310 million grant to Lam Research for advanced packaging technology. What lies behind these actions? In reality, they are part of a larger plan to revive high-tech heavy industries. While the U.S. AI industry’s spotlight often focuses on OpenAI’s product launches, NVIDIA’s soaring stock prices, or TSMC’s Arizona plant investments, the true driving forces behind future AI sovereignty lie in Applied Materials’ photoresist formulations, Lam Research’s atomic layer deposition equipment, and DuPont’s EUV photoresist material plants. In other words, the U.S. AI manufacturing chain is gradually taking shape, with companies like Applied Materials, Lam Research, and DuPont playing a key role in constructing the U.S. AI Industrial Complex.

3.2  Highly Vertically Integrated Closed Systems Are Key

To understand the backbone of this ecosystem, we need to examine the roles of companies like Applied Materials, Lam Research, TSMC, OpenAI, and NVIDIA, and how the U.S. government uses subsidies and policy incentives to integrate them into its supply chain. For clarity, we’ll use a three-tier framework to show how the U.S. is leveraging policies and industrial alliances to forge a tightly integrated closed system.

3.2.1  Materials and Equipment Layers

Continuing with the metaphor of the U.S. AI semiconductor ecosystem as a “castle,” Lam Research’s etching and cleaning equipment, Applied Materials’ thin-film deposition equipment, along with advanced photoresists from companies like Entegris, serve as the gatekeepers of this castle, guarding the U.S. key technologies in semiconductors. The control over these technologies represents the “invisible hegemony” of the U.S. in the global semiconductor competition. Since the U.S. cannot fully control photolithography machines (ASML), strengthening its control over materials and equipment has made all advanced processes reliant on critical materials and equipment supplied by U.S. companies. This means that even TSMC, with its advanced manufacturing processes, would face a bottleneck if the U.S. decided to cut off the supply of equipment or materials.

3.2.2  Manufacturing Layer

In the advanced process field, TSMC is the only foundry capable of mass-producing 3nm and 2nm processes globally. However, the U.S. government’s goal in supporting local foundry Intel is to close the technological gap, as Intel is at least two generations behind TSMC. As mentioned in the section “TSMC’s Critical Role,” the U.S. strategy is not to replace TSMC with Intel but to support TSMC’s U.S. plants to bridge the gap while allowing Intel to gradually catch up with the technological disparity.

3.2.3  Design Layer

This layer represents the core of AI hardware and software architecture. The emerging key players are OpenAI and NVIDIA. OpenAI, through its ChatGPT and GPT series, defines the computational patterns of AI workloads (based on Transformer models); NVIDIA, with its CUDA platform and GPUs, leads the design of AI chip hardware architecture. These two companies together drive the co-design of hardware and software, locking in AI chip design from the start to NVIDIA’s hardware architecture. In other words, once OpenAI’s model becomes the industry standard, NVIDIA automatically becomes the hardware standard for global AI chips. This structure creates an industry-binding effect, which is not merely the result of market competition.

3.3  The Landscape of the U.S. AI Industrial Complex

After deconstructing the U.S. AI semiconductor ecosystem, it becomes clear that the U.S. plans to control three key areas of the AI semiconductor supply chain: materials, equipment, and design. The goal is to build a closed AI semiconductor ecosystem. While this vision will take time to fully materialize, the critical factor lies in whether U.S. equipment and materials suppliers, along with Intel, can rise to the challenge. Their success will determine whether the U.S. can establish a complete AI semiconductor sovereign supply chain. The U.S. goal is not to monopolize the global semiconductor industry, but rather to rebuild a national security-driven semiconductor ecosystem through the AI technological revolution.

3.4  Restricting China’s Access to Advanced Chips

As previously mentioned, the U.S. is not only building the AI semiconductor ecosystem through geopolitical, industrial competition, and supply chain restructuring but also reshaping the global supply chain power structure. Another critical objective is to prevent China from accessing advanced chips. However, the U.S. doesn’t intend to entirely block China from acquiring AI chips—this would not prevent Chinese companies from obtaining the latest chips. The strategy is to create multiple technical barriers that gradually isolate China from the global technology competition, ensuring it remains two generations behind the U.S. This containment strategy can be broken down into three layers:

3.4.1  Materials and Equipment Layers

By controlling key semiconductor technologies from companies like Lam Research, Applied Materials, and Entegris, and collaborating with ASML, the U.S. ensures that China cannot independently manufacture advanced-process chips.

3.4.2  Manufacturing Layer

Through subsidies and technological cooperation with TSMC, the U.S. ensures that TSMC does not transfer its most advanced packaging technologies to other countries, limiting China to using 7nm process chips.

3.4.3  Design Layer

With technical barriers like CUDA and Transformer technologies, the U.S. ensures that China cannot independently develop AI chip architectures.

4.  Discussion: The Future of AI Semiconductor Supply Chains

When we shift our focus from the technical specifications of chips to the entire supply chain structure, a striking phenomenon emerges: the competition in the U.S. AI industry is not limited to technological development but seems more like a global re-coding process. The U.S. aims to establish an autonomous AI semiconductor supply chain, but will this ecosystem truly remain fully closed as planned?

Several structural challenges are unavoidable, including: high domestic production costs in the U.S., the delicate balance of technology transfer and talent mobility, and the potential backlash from the advanced chip blockade against China during the de-risking process. These factors are commonly seen as important variables that could affect the development of this blueprint.

Therefore, in this discussion, we will focus on two key points that are often overlooked: TSMC’s dual role and Taiwan’s central position in supply chain management. We believe these two factors will play a crucial role in the future AI industry ecosystem.

4.1  TSMC’s Dual Role

Currently, industry discussions about TSMC largely remain centered on its role as “the foundry for the world’s most advanced processes.” However, from the perspective of the complex AI industry ecosystem, TSMC’s role is quietly evolving. It is no longer just a technology supplier but is beginning to act as a supply chain arbiter.

This shift can be attributed to three factors:

First, the time lag in the U.S. establishing domestic manufacturing capacity. Even with the semiconductor plant in Arizona running at full speed, it will take at least 3 to 5 years before stable production can be achieved.

Second, the bottleneck in advanced processes. Even if the U.S. heavily invests in its own capacity, it will still rely on TSMC’s expertise in 2nm and advanced packaging technology. This transforms TSMC from a “pure producer” to a “strategic controller of manufacturing.”

Finally, TSMC’s CoWoS (Chip-on-Wafer-on-Substrate) technology and influence in advanced packaging should not be overlooked. This technology is critical for AI accelerator chips (such as the NVIDIA H100), and TSMC holds a 90% market share in this area. While the U.S. actively rebuilds its semiconductor manufacturing capabilities, it has not prioritized packaging technology as a core policy, which has become a breakthrough point allowing TSMC to maintain its irreplaceability. Even if the U.S. successfully establishes its own production lines, it will still need TSMC for final packaging and integration.

Thus, in the next decade, whether Intel rises or TSMC maintains its leadership, TSMC’s role in the AI semiconductor ecosystem will be indispensable.

4.2  Taiwan as the Hub of Supply Chain Management

The U.S. aims to build an autonomous AI semiconductor supply chain through subsidies and reshoring of manufacturing. However, a complete AI industry ecosystem not only requires domestic manufacturing capabilities but also two invisible core nervous systems: one is Ecosystem Integration, the strategy of the U.S., and the other is Supply Chain Orchestration, which requires cooperation from Taiwan and other countries.

If we compare the U.S. semiconductor ecosystem to a sovereign island under construction, Taiwan and other countries’ roles are akin to the nervous system connecting this island to the global supply chain. They may seem insignificant but are crucial for the overall operation. Therefore, what truly determines the direction of the supply chain is often those seemingly minor but highly flexible and irreplaceable roles.

Although the U.S. is striving to establish a sovereign supply chain, each link in this chain still requires cross-national cooperation and coordination among various companies. Taiwan is not only a manufacturer but also plays a pivotal role in packaging, testing, and supply chain coordination.

This central role does not necessarily rely on cutting-edge technology but is instead based on a deep understanding of and coordination within the supply chain network. This is an advantage that Taiwan has cultivated over time in its industry. Just as in the semiconductor sector, key technological advantages often lie in the lesser-known stages rather than the most visible advanced processes.

This also makes us reconsider the concept of industrial sovereignty: compared to China’s sovereignty-building, which is policy-driven (through government resources invested across the entire industry chain), the U.S. sovereignty-building is geographically driven (by reshoring manufacturing). However, for the ecosystem to thrive, the key lies in technology and supply chain management. This may represent a more flexible form of “Networked Sovereignty” rather than one achievable through a closed ecosystem. It requires embedding itself in critical nodes of the global supply chain to continue thriving.

This article is part of our Global Business Dynamics series.
It explores how companies, industries, and ecosystems are responding to global forces such as supply chain shifts, geopolitical changes, cross-border strategies, and market realignments.

See more in this category, or explore more notes here.

The transformation of the semiconductor industry under the ‘America First’ policy.

In the global semiconductor industry’s development, the implementation of the U.S. “America First” policy has led governments to increase support for their local semiconductor industries. As a result, the global semiconductor industry is entering an era of regionalized development. This shift will disrupt the previous model of global collaboration, introducing challenges related to geopolitics and economic structures. It will also accelerate regionalization, alter regional competition, and give rise to three major camps and an “internal circulation” model. Taiwan’s semiconductor industry, particularly TSMC, faces multiple challenges. On one hand, it must navigate increasing policy pressures from various countries, and on the other, it needs to maintain a delicate balance between global competition and cooperation to preserve its leadership in technology and market.

According to a Reuters report, under the “America First” policy, the Trump administration shifted its stance on the semiconductor industry and is considering adjustments to the CHIPS Act, including changes to incentive conditions or terms, to further promote domestic semiconductor manufacturing.

Our Perspective

With the implementation of the U.S. “America First” policy, the U.S. government has shown increasing concern for the semiconductor supply chain, especially regarding the revitalization of domestic manufacturing. This policy has created challenges for the global semiconductor industry and, under the influence of geopolitics and economic structures, has broken the previous global collaborative model, shifting toward regional development. How this change will affect the future of the semiconductor industry is a topic we will explore below.

1. Acceleration of Semiconductor Regionalization

In the past, the semiconductor industry was centered on globalization, with highly divided roles in design, manufacturing, and packaging. However, with the U.S. increasing support for its domestic semiconductor industry, China promoting the development of its semiconductor technology, and Europe pushing forward the European Chips Act to support local industry, regional development is now accelerating. This shift will disrupt the global division of labor, and semiconductor industries in different regions will form independent ecosystems, reducing global collaboration to some extent.

2. Changes in Regional Competition

As the semiconductor industry regionalizes, competition among regions will intensify and may take on new forms.

2-1. Widening technology gaps
The U.S. and its allies (such as Taiwan, South Korea, Japan, and Europe) will continue to lead in advanced process technologies, particularly in high-end semiconductor products. China will speed up the development of domestic technologies. While its technology may lag in the short term, government initiatives (such as the “Made in China 2025” plan) will help drive growth in China’s semiconductor market. Europe has strong technology but lacks large-scale foundries, and will face many challenges in the future.

2-2. Rising supply chain costs
In regionalized supply chains, each region will need to reinvest in and independently develop core technologies, which will increase overall costs and raise product prices, slowing down innovation.

2-3. Expanding geopolitical risks
As supply chains become more regionalized, the semiconductor industry will increasingly depend on political factors.

3. Future Development of the Semiconductor Industry

If the trend toward regionalization continues, several possible future scenarios for the semiconductor industry include:

3-1. Accelerating the formation of three major semiconductor camps
The global semiconductor industry will likely split into (1) the U.S. and its allies (Taiwan, South Korea, Japan, Europe), forming tight cooperation in semiconductor manufacturing and technology R&D; (2) China, which aims to produce its own semiconductors while facing U.S. technological restrictions; and (3) Southeast Asia/India, emerging as new semiconductor manufacturing hubs to attract more foreign investment. These three camps will compete fiercely in terms of technology, capacity, and market.

3-2. The rise of an “internal circulation” model
Regionalization policies will lead to more closed semiconductor supply chains in various countries. For instance, the U.S. CHIPS Act aims to bring semiconductor manufacturing back home, China’s “Made in China 2025” plan focuses on strengthening its domestic supply chain, and the EU’s European Chips Act promotes local technological development.

3-3. Changes in Taiwan’s semiconductor industry role
With the “America First” policy, Taiwan’s semiconductor industry, particularly TSMC, is facing increasing challenges. TSMC must not only be a global semiconductor manufacturer but also a key hub for global cooperation and competition. Under growing global political pressure, TSMC needs to expand its production facilities worldwide, strengthen international cooperation, and reduce dependence on any single market. At the same time, maintaining technological leadership, preventing key technology leakage, and balancing innovation with protection will become core challenges.

Overall, if the “America First” policy continues, the global semiconductor industry will enter a more regionalized competitive landscape. This will lead to intense competition in technology, capacity, and market, possibly reshaping the global semiconductor ecosystem. Competition between countries and regions will decentralize supply chains, raise supply chain costs, and potentially hinder technological innovation, especially when different regions try to establish independent, self-sufficient supply chains. Additionally, the intensifying geopolitical risks will force semiconductor companies to deal with more complex political and economic environments.

Nonetheless, regionalization will also stimulate the development of emerging markets and local markets, creating new business opportunities. For semiconductor companies, this is not just a challenge but an opportunity for innovation. As different regions strengthen their manufacturing capabilities, local market demand will surge, and companies that can establish a solid foundation in these markets will gain more opportunities. Furthermore, with the restructuring of the global semiconductor supply chain, companies that can leverage flexible production layouts and regional technical advantages will be more competitive in this intense environment. Therefore, companies that quickly adapt to regionalization will mitigate risks and find opportunities for growth and expansion.

Ultimately, how Taiwan’s semiconductor industry, particularly TSMC, finds a delicate balance between global competition and cooperation will determine whether the semiconductor industry can maintain its leadership. As a leader, TSMC must find a sustainable path between responding to policy pressures from governments, maintaining technological leadership and innovation advantages, and building stable relationships with global partners. Especially in the face of fierce competition from countries like the U.S. and China, as well as the rise of regionalized supply chains, how TSMC maintains its technological edge in global semiconductor manufacturing while strengthening cooperation with different regions will determine whether it can continue to lead the global market and effectively navigate geopolitical risks in the future.

This article is part of our Global Business Dynamics series.
It explores how companies, industries, and ecosystems are responding to global forces such as supply chain shifts, geopolitical changes, cross-border strategies, and market realignments.

See more in this category, or explore more notes here.

The impact of U.S. tariffs on the high-tech industry and TSMC’s potential response

The Trump administration’s tariff threats against TSMC and Taiwan’s semiconductor industry reflect the U.S. strategic goal to reduce its reliance on foreign-made chips. However, the global semiconductor supply chain is complex, and U.S. companies depend heavily on TSMC’s advanced manufacturing processes. Even with increased tariffs, it will be difficult to change the supply chain structure in the short term, which could impact the competitiveness of U.S. tech companies and present challenges for the global semiconductor industry. We suggest that TSMC might consider acquiring Intel’s U.S.-based semiconductor fabrication plants to accelerate local production. This tariff dispute will reshape the future of the global chip industry.

According to a report by the Financial Times, Taiwan and TSMC are actively responding to Donald Trump’s tariff threats on foreign-made semiconductors. Trump’s goal is to bring semiconductor production back to the U.S. and cancel the subsidy plan for TSMC’s U.S. investments, which could significantly affect TSMC’s operations. Taiwan’s Deputy Minister of Economic Affairs, John Deng, is in negotiations with U.S. officials, while TSMC is holding meetings in Arizona to discuss possible responses. Analysts suggest that the U.S. may have misunderstood the dynamics of the semiconductor supply chain, and this tariff threat has raised concerns among Taiwan’s exporters and tech companies. The report highlights two main issues: the U.S. government’s tariff threats on semiconductor imports and how TSMC plans to respond.

Our Perspective

To understand the current situation: TSMC holds over 50% of the global foundry market share, with its share in advanced processes exceeding 90%, making it critical to the global high-tech industry. Although Taiwan’s direct chip exports to the U.S. account for less than 5%, these exports are vital to industries such as defense technology, advanced medical equipment, precision instruments, aerospace, and smart automotive, all of which rely on advanced semiconductor technology. If the U.S. imposes higher tariffs, the cost will be passed on to these companies and their supply chains, directly affecting these industries.

Furthermore, the core supply chain of the U.S. high-tech industry still depends heavily on TSMC’s advanced process technology. For instance, companies like Apple, NVIDIA, AMD, Qualcomm, Broadcom, and Marvell rely on TSMC for their Surface-Mount Technology (SMT) production. Even if the U.S. imposes a 100% tariff on Taiwanese chips, these companies would still need to import chips through overseas supply chains, making it unlikely that the “local supply” policy can be achieved. Moreover, rising costs in SMT and Printed Circuit Board (PCB) production could undermine the competitiveness of U.S. companies.

Now, let’s look at the feasibility of U.S. companies shifting orders. The conclusion is that the feasibility of moving advanced orders is low. If U.S. companies decide to shift production, it typically takes 1 to 2 years to adjust for mature processes. It is more likely that production will be shifted to U.S.-based GlobalFoundries (GF) or TSMC’s Arizona facility, or to wafer fabs in Singapore operated by TSMC, UMC, or GF. European Integrated Device Manufacturers (IDMs) are less likely to benefit from such shifts due to technological and capacity limitations.

As for advanced processes, the difficulty in shifting orders is even greater. While Intel has secured some defense semiconductor projects and owns Altera FPGA technology (used primarily in industrial instruments and defense sectors), it is constrained by technical capabilities, research and development resources, and a shortage of process engineers. In the short term, Intel will not be able to fill TSMC’s supply gap, further reducing the likelihood of such shifts benefiting other companies.

Finally, let’s consider TSMC’s possible response strategies. Beyond expanding its U.S. investments or seeking a compromise with the U.S. government, we propose another perspective: In the event that the U.S. enforces semiconductor supply chain localization, TSMC could consider acquiring some of Intel’s advanced process wafer fabs. Although this would involve high costs and face challenges such as technological differences, corporate culture integration, and regulatory scrutiny, it would allow TSMC to quickly meet U.S. government demands. Acquiring existing plants would be faster and less risky than building new plants from scratch. However, this strategy would still need to account for the stability of U.S. government policies and the future direction of the global supply chain. In any case, this tariff dispute will significantly influence the future development of the global chip industry and should be closely monitored.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

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