Taiwan & the American Economy

In 2025, U.S. goods and services trade with Taiwan reached an estimated $283.6 billion, an increase of almost 53 percent in a single year. U.S. imports of Taiwanese goods reached $201.4 billion, up more than 73 percent. By comparison, U.S. goods and services trade with mainland China totaled $494.6 billion in 2025, but declined 25.1 percent from the previous year.

Then came an extraordinary development.

During the first seven months of 2026, seasonally adjusted U.S. goods imports from Taiwan reached approximately $165.7 billion. Imports from mainland China during the same period were approximately $164.9 billion.

For that period, the United States imported slightly more goods by value from Taiwan than from mainland China. A year earlier, the comparable figures were approximately $103.0 billion from Taiwan and $203.7 billion from China. Census data therefore show two trajectories moving rapidly toward — and ultimately through — one another.

TSMC is the most important company in the global technology supply chain that most Americans have never heard of. Founded in 1987 by Morris Chang with backing from the Taiwanese government, it pioneered the pure-play foundry model — a chipmaker that manufactures designs for others rather than competing with its own products. That model attracted every major fabless semiconductor company in the world.

Today TSMC manufactures chips for Apple (A-series and M-series processors), Nvidia (data center GPUs), AMD (CPUs and GPUs), Qualcomm (mobile processors), and hundreds of other customers. Its N3 and N2 process nodes — representing the current and next frontier of chip density — have no commercial equivalent outside Taiwan. Samsung's foundry division competes at the leading edge but trails in yield and customer adoption. Intel Foundry Services is years behind.

The concentration is not accidental. Taiwan built its semiconductor industry through deliberate industrial policy: government-backed research institutions, subsidized land and utilities for the Hsinchu Science Park, and a talent pipeline from top engineering universities. The result is an ecosystem — equipment suppliers, materials companies, packaging specialists, and design houses — that cannot be replicated quickly anywhere else.

TSMC's U.S. investment has expanded dramatically. The company now describes its planned U.S. commitment as $265 billion, encompassing six semiconductor logic fabs, two advanced-packaging facilities, an R&D center, and plans for additional advanced manufacturing capacity in Arizona. That investment represents something larger than one company's expansion: Taiwanese firms now sit at the intersection of several American priorities that were previously discussed separately — artificial intelligence, data centers, semiconductor independence, advanced manufacturing, supply-chain resilience, and competition with China. Arizona production costs remain significantly higher than Taiwan, and the company's most advanced processes will remain concentrated in Taiwan for the foreseeable future. But the scale of the commitment is without precedent in the history of foreign direct investment in U.S. manufacturing.

Taiwan's economic significance extends well beyond semiconductors. The island is a major producer of printed circuit boards, passive components, networking equipment, servers, and display panels. Companies like Foxconn (Hon Hai), Pegatron, Wistron, and Quanta Computer assemble the majority of the world's iPhones, MacBooks, and enterprise servers — often in factories located in mainland China, but owned and managed from Taiwan.

This creates a layered exposure for American companies. Their products are designed in the United States, their chips are fabricated in Taiwan, their assemblies are manufactured in China by Taiwanese contract manufacturers, and their components come from a network of Taiwanese suppliers. Disruption at any node propagates across the entire chain.

The server and networking equipment sector illustrates the depth of integration. Companies like Quanta, Wiwynn (associated with the Wistron group), and Inventec manufacture the majority of hyperscale data center servers for Amazon, Microsoft, Google, and Meta. As AI infrastructure spending has surged, so has the strategic importance of these Taiwanese ODMs (original design manufacturers).

American companies have been diversifying assembly operations to Vietnam, India, and Mexico — a process accelerated by U.S.–China trade tensions and COVID-era supply disruptions. But the component and chip supply chains remain heavily Taiwan-centric. Moving final assembly is relatively straightforward; moving the upstream ecosystem is not.

The United States and Taiwan do not have a formal free trade agreement — a gap that has been a persistent source of frustration for Taiwanese officials and American exporters alike. In 2026, the two sides concluded the U.S.–Taiwan Agreement on Reciprocal Trade, which contemplates greater Taiwanese investment in U.S. semiconductor supply chains, electronics manufacturing services — including AI applications — and energy. The accompanying framework expressly cites Taiwan's economic and national-security alignment with the United States in providing preferential treatment in certain semiconductor-related trade measures.

Taiwan runs a significant goods trade surplus with the United States, driven overwhelmingly by electronics and semiconductor exports. American exports to Taiwan include agricultural products, aircraft, machinery, and chemicals. The services trade — financial services, software, education — is less tracked but substantial.

Taiwanese investment in the United States has accelerated sharply since 2020. TSMC's Arizona commitment is the headline, but it is not alone. Taiwan-based companies have announced or expanded facilities in Texas, Ohio, and the Pacific Northwest. The CHIPS Act's domestic content and investment requirements have made U.S. manufacturing more attractive for companies that depend on American customers and government contracts.

American investment in Taiwan flows primarily into the semiconductor ecosystem — equipment suppliers like Applied Materials, Lam Research, and KLA have deep operational presences in Taiwan — as well as financial services and consumer goods. Taiwan's stock market, the TWSE, is one of the most heavily traded in Asia and is accessible to U.S. institutional investors through ADRs and ETFs.

Taiwan's semiconductor industry is built on human capital as much as capital equipment. TSMC and its peers employ tens of thousands of highly specialized engineers whose knowledge of advanced process technology is not easily codified or transferred. This talent base is a strategic asset — and a target.

The People's Republic of China has made aggressive efforts to recruit Taiwanese semiconductor engineers, offering salaries multiples above Taiwan market rates. SMIC, Hua Hong, and other Chinese foundries have hired former TSMC and UMC employees. Taiwan has enacted laws restricting the transfer of chip technology to China and prosecuting trade secret theft, but enforcement is difficult and the talent drain is ongoing.

The United States has its own exposure. TSMC's Arizona fabs require transferring process knowledge from Taiwan to American facilities — a process that involves moving Taiwanese engineers to Phoenix and training American workers. The cultural and operational challenges of that transfer have been well-documented, including public friction between TSMC management and American labor practices.

Export controls are a second dimension. The October 2022 chip rules and subsequent updates restrict the export of advanced semiconductor equipment and chips to China — rules that apply to American companies and, through foreign direct product rules, to non-American companies using American technology. TSMC, which manufactures chips for Chinese customers, has had to navigate these restrictions carefully, cutting off advanced node production for Chinese clients including Huawei.

American policy toward Taiwan has evolved from a posture of deliberate ambiguity into something more commercially interventionist. The CHIPS and Science Act, the CHIPS guardrails restricting recipients from expanding advanced capacity in China, and the export control regime collectively represent a coherent — if not fully coordinated — industrial policy built around Taiwan's centrality.

Mainland Chinese companies increasingly operate inside a federal regulatory architecture specifically concerned with the People's Republic of China. The Department of Defense's Section 1260H process identifies qualifying "Chinese military companies" and Military-Civil Fusion contributors. Commerce Department export controls impose extensive restrictions involving advanced technology and China. The FCC's Covered List has historically included major PRC companies including Huawei and ZTE.

Taiwanese companies generally do not enter the American market carrying that same PRC-specific regulatory presumption.

Indeed, U.S. policy increasingly treats Taiwan as a high-technology and supply-chain partner. The 2026 U.S.–Taiwan Agreement on Reciprocal Trade contemplates greater Taiwanese investment in U.S. semiconductor supply chains, electronics manufacturing services — including AI applications — and energy. The accompanying framework expressly cites Taiwan's economic and national-security alignment with the United States in providing preferential treatment in certain semiconductor-related trade measures.

But the distinction is not absolute.

Washington is also developing restrictions based on foreign manufacture rather than Chinese nationality. In 2026, for example, the FCC extended its Covered List framework to foreign-produced routers and maintains restrictions on foreign-produced uncrewed aircraft systems and critical components, subject to exemptions and conditional approvals. Those rules can affect Taiwanese manufacturers as well as Chinese manufacturers.

The emerging regulatory distinction is therefore more precise: mainland companies can face American regulation plus an additional layer of China-specific national-security scrutiny. Taiwanese companies generally face American regulation without the same PRC-specific presumption — although increasingly broad supply-chain security rules can reach both.

The companies most exposed to Taiwan are, in most cases, the most valuable companies in the American economy. Apple, Nvidia, AMD, Qualcomm, and Broadcom collectively represent trillions of dollars in market capitalization and depend on Taiwanese manufacturing for their core products. Their exposure is not a failure of risk management — it reflects the fact that no alternative exists at the required scale and capability.

For China Inside America, Taiwan is therefore neither an appendage to China coverage nor an exercise in cross-strait politics.

It is a commercial story in its own right.

The United States is simultaneously attempting to reduce certain dependencies on mainland China while deepening selected dependencies — and domestic partnerships — with Taiwan. The two relationships increasingly form opposite sides of the same American industrial strategy.

As Chinese and Taiwanese companies compete to supply American technology, infrastructure, and industry, the questions become increasingly concrete: