Key Takeaways:

- ICE’s raid on Hyundai has raised alarms among major Asian investors in the U.S., signaling that even aligned partners are not immune to political or regulatory shocks.

- Taiwan—deeply invested in U.S. semiconductor manufacturing through TSMC—faces rising risks amid Trump-era uncertainties on labor, tariffs, and industrial policy.

- To safeguard its strategic semiconductor edge, Taipei must diversify investments, institutionalize economic-security dialogue with Washington, and build resilient linkages with other regional allies.

Following the recent immigration raid conducted by the US Immigration and Customs Enforcement (ICE) on the Hyundai Motor Group’s offices in September, over alleged labour and immigration violations in its supply chain, concerns have grown among other industrial partners about how and to what extent the incident might affect the broader investment and geopolitical climate. Major investors from US allies such as Taiwan and Japan are now bracing for potential spillover effects as Washington signals a tougher stance on border and foreign worker enforcement. 

If Hyundai can face such treatment despite its alignment with US industrial and strategic goals, what might await Taiwan’s Taiwan Semiconductor Manufacturing Company (TSMC) or Japan’s semiconductor ventures in the States? While an immigration inspection might appear to be a routine legal matter, for Taiwan, whose semiconductor champion has invested tens of billions of dollars into its Arizona fabs, the stakes could not be higher. Taipei should consider recalibrating its semiconductor investment strategy by diversifying its outward investment, institutionalising economic-security dialogue, coordinating regionally with other investor allies, and strengthening domestic capacity to mitigate any potential backlash from the US political uncertainty under the second Trump administration on its semiconductor investment.

Taiwan’s Semiconductor Dilemma in the US

The enactment of the CHIPS and Science Act in 2022 under the Biden administration marked a new phase in the US de-risking industrial strategy aimed at attracting investment from allied partners and diversifying semiconductor supply chains away from China. The U$278.2 billion act seeks to bolster U.S. manufacturing capacity for advanced, leading-edge semiconductors currently produced abroad, increase the supply of mature-node chips, promote research and development within the semiconductor industry, and create thousands of new domestic jobs[1].

The Act appeals to giant manufacturing companies such as TSMC and to the Taiwanese government in deepening economic alignment with the US, given the role semiconductors have played as a security shield deterring potential aggression or occupation by Beijing. However, significant challenges remain in sustaining long-term manufacturing investments. The Arizona fabs, for instance, have encountered issues, such as workforce safety concerns, a shortage of skilled labour, differences in work culture between Taiwanese and American employees, and high operating costs[2].

This condition has been further amplified by potential uncertainties created by Trump 2.0. administration, especially on the imposition of high tariffs on imported chips, as well as possible restrictions on foreign labour employment stemming from the US’s new immigration policies under the ICE regime. A dilemma arises for policymakers and semiconductor stakeholders in Taipei, as withdrawing investments from the US is not a feasible option due to Taiwan’s geopolitical tension vis-à-vis China, which makes continued economic and political support from Washington essential. On the other hand, remaining too deeply invested in the US market requires strategic measures to avoid putting all of Taiwan’s eggs in one basket, especially amid the resurgence of an ‘America First’ policy approach.

Diversifying Taiwan’s Semiconductors Outward Investment

To strengthen sustainability in semiconductor manufacturing and enhance supply chain resilience, Taiwan should diversify its overseas investments beyond the US. TSMC has already expanded production in Japan and Germany, while United Microelectronics Corporation (UMC) continues to grow its manufacturing and R&D operations in Singapore. By 2027, Vanguard International Semiconductor Corporation, a TSMC subsidiary collaborating with Dutch Chipmaker NXP Semiconductors, is expecting to produce its first batch of chips at its US$7.8 billion wafer fabrication plant in Singapore[3].

Among several options in European and East Asian countries, Southeast Asia emerges as a feasible and strategic destination for such diversification for several reasons. First, the region offers cost-competitive manufacturing environments, established electronics ecosystems, and increasingly supportive industrial policies in countries such as Singapore, Malaysia, and Vietnam. Second, their geographical proximities to Taiwan further enhance logistical efficiency and access to skilled engineering talent. Third, in the event of a cross-strait war, the US and its allies, such as Japan and those in Western European countries, would likely be preoccupied with defending Taiwan. In contrast, many Southeast Asian nations may adopt a neutral stance, reducing the likelihood of a complete halt in chip production and thereby sustaining supply chain resilience[4].

Nonetheless, challenges such as political instability, poor infrastructure, and a limited talent pool could constrain efforts to scale up advanced semiconductor technology. Taiwan, thus, should carefully assess whether the disadvantages of expanding manufacturing in Southeast Asia may outweigh the potential benefits.

Institutionalising Economic-Security Dialogues and Coordinating Regionally

One way Taipei can ensure more predictable investment conditions is by advocating for the establishment of a formal US-Taiwan Economic Security Dialogue. This framework could include dispute-resolution mechanisms and clear rules governing subsidy compliance. Although high-level official dialogues are unlikely due to the One China policy and the absence of formal diplomatic relations, institutions such as the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office (TECRO) in Washington, DC, could act as effective intermediaries to facilitate such exchanges. In addition, Track 1.5 and Track 2 dialogues on economic security should also be pursued to deepen mutual understanding between Taipei and Washington.

Another channel that Taiwan can utilise is regional coordination with other US allied industrial partners, such as South Korea and Japan. A trilateral investment forum could be organised under a regional economic framework, where Taiwan is a member, including the Asia-Pacific Economic Cooperation (APEC). Such an investor alliance could facilitate regular consultations on regulatory trends and labour compliance issues affecting their investments. This minilateral economic bloc would help build solidarity and strengthen its collective bargaining position in relation to the US investment climate.

Strengthening Semiconductor Domestic Capacity

While diversifying its semiconductor investment abroad, Taiwan should also strengthen its domestic production capacity by investing in workforce training, R&D incentives, and next-generation technologies such as advanced packaging and photonics. By focusing on its domestic capacity, Taiwan can also sustain its talent pipeline for both domestic and overseas chip industries, particularly by recruiting young professionals from Southeast Asian countries who have been educated in Taiwan. TSMC, for example, has been actively recruiting talented students from Southeast Asia and India to gain working experience through internships.

Another domestic aspect that requires attention is providing subsidies and incentives to encourage a sustainable domestic supply chain. While the introduction of the Industrial Innovation Statute in 2023 opened a new window of opportunity to boost domestic capacity by offering tax incentives and funding to drive technology advancement, the act should be more thorough in supporting domestic and medium-scale firms[5]. Such efforts would help sustain Taiwan’s position as a global leader in semiconductor technology, thereby enhancing its geopolitical and economic leverage amid rising pressure from China.