Taiwan is shifting from export-driven manufacturing toward a co-production model with the United States, as Washington accelerates efforts to rebuild its industrial base. The transition reflects a broader realignment of global supply chains—and presents both opportunities and challenges for Taiwanese firms.
From OEM to Strategic Partner
The shift comes as Taipei and Washington move forward under the Agreement on Reciprocal Tariffs (ART), prompting Taiwanese manufacturers to rethink their long-standing role in global production. Rather than serving primarily as an original equipment and design manufacturing (OEM/ODM) base, Taiwan is increasingly positioning itself as a strategic partner in joint production, innovation, and risk-sharing.
Speaking at a Taipei forum on Taiwan-U.S. co-manufacturing strategies, Chu Chen-tso (朱宸佐), a visiting scholar at Harvard Kennedy School and secretary-general of the International Foundation for Artificial Intelligence Law Research (IFAILR), said the transition involves more than relocating production.
"The question is no longer whether to go, but which production lines to move, how to build local talent, and how to manage cross-border operations effectively," Chu said.
Risks and Opportunities in U.S. Expansion
From Washington's perspective, the push is driven by dual priorities: reducing reliance on China and revitalizing domestic manufacturing. At the same time, the United States continues to depend on allied partners to fill gaps in industrial capacity.
"In that context, Taiwan will find the opportunities it needs," Chu said.
Still, expanding into the United States comes with significant hurdles. Taiwanese companies must navigate higher operating costs, as well as legal, tax, and site-selection challenges. Chu said the shift also requires firms to move toward higher-value, higher-margin manufacturing in order to remain competitive.
A New Model: Innovation in California, Manufacturing Across States
Looking ahead, Chu proposed a new division of labor between Taiwan and the United States. While Silicon Valley remains a global hub for innovation, manufacturing could be distributed across different U.S. states—forming what he described as a model of "innovation in California, manufacturing across the states."
He also warned of structural constraints in the U.S. labor market, noting that higher education and vocational training systems are not yet sufficient to meet the needs of advanced manufacturing, particularly in the semiconductor sector.
TSMC's Arizona Turnaround
At the same forum, Steve Hsu (徐竹先), Executive Director of the Arizona-Taiwan Trade and Investment Office, said Taiwanese investment in the state has gained momentum in recent years. Delegations visiting Arizona have grown significantly, from around 25 participants two years ago to about 200 this year.
Hsu also pointed to Taiwan Semiconductor Manufacturing Company (TSMC, 台積電) as a key example. He said the company's Arizona operations, which were loss-making two years ago, have returned to profitability within a relatively short period.
Once profitable, TSMC becomes eligible for a 35 percent investment tax credit under the One Big Beautiful Bill Act, significantly reducing its tax burden. With further expansion, Hsu said, the value of these tax incentives could potentially exceed the company's profits.
"Every dollar saved is a dollar earned," he said.
Supply Chain Expansion and Strategic Shift
Hsu added that TSMC's presence is likely to attract more suppliers to the United States. With roughly 800 companies in its supply chain, he said there remains substantial room for further investment and expansion.
He also suggested that Taiwan could consider establishing science park–style industrial clusters in the United States to help supply chain firms scale and localize their operations.
While TSMC founder Morris Chang (張忠謀) has previously declared that "globalization is dead," Hsu argued that conditions for Taiwanese companies in Arizona have fundamentally changed. Unlike earlier waves of Taiwanese investment in the United States, which focused largely on sectors such as food and beverage, the current expansion represents high-technology investment on an unprecedented scale.
"Arizona is not just another destination," he said. "It represents high technology—and one of the largest foreign investments in U.S. history."
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