In a move to bolster its control over cutting-edge semiconductor technology, Taiwan has introduced new regulations that will impact semiconductor giant TSMC and its future expansion plans. These changes, part of an amendment to Taiwan’s Industrial Innovation Act, aim to protect Taiwan’s technological edge and national security amidst rising geopolitical tensions and fierce global competition in the semiconductor industry.

The New “N-1” Rule: Protecting Cutting-Edge Technology

One of the most significant updates in the new regulations is the introduction of the “N-1” rule, which restricts Taiwanese companies from exporting their most advanced semiconductor manufacturing technologies. Under this rule, companies like TSMC will only be allowed to deploy semiconductor technologies that are at least one generation behind the latest domestic innovations in their overseas operations.

This measure directly affects TSMC’s international expansion plans, particularly its investments in the United States, where the company had previously planned to export its most advanced chips. By ensuring that Taiwan retains control over the latest chip innovations, the government seeks to preserve its competitive advantage in the global tech industry.

Geopolitical Motivations and National Security Concerns

Premier Cho Jung-tai confirmed the revised policy, which will be enacted by the end of 2025. The goal behind these amendments is clear: Taiwan wants to safeguard its semiconductor dominance in the face of rising geopolitical tensions. The global semiconductor market has become a key battleground, with countries like the US and China heavily investing in their domestic chip industries to reduce reliance on foreign suppliers.

The Taiwanese government’s move to restrict the export of the latest semiconductor technologies also addresses national security concerns, as advanced semiconductor technologies can be pivotal for military and defense applications. With Taiwan caught in the middle of US-China tensions, it’s no surprise that the government has opted to take a more protective stance over its critical industry.

Impact on TSMC’s Overseas Investments

The new amendments also include stricter controls on overseas investments made by semiconductor companies. If TSMC or other Taiwanese firms invest abroad in ways that threaten national security, harm economic development, or violate international agreements, authorities now have the power to reject or revoke those investments. This also extends to companies that fail to secure approval for overseas investments, with fines ranging from NT$50,000 to NT$1 million (roughly $30,800) for first-time offenses. Repeat offenders or serious violations could face penalties of up to NT$10 million (about $308,000).

While these fines are significant, they are unlikely to deter TSMC, which has already announced plans to invest $165 billion in its US operations. Nonetheless, the new rules will certainly add complexity to the company’s global strategy and its plans to expand its overseas presence, especially in critical regions like the United States.

What Does This Mean for the Semiconductor Industry?

These new regulations mark a significant shift in Taiwan’s approach to managing its semiconductor industry, highlighting the country’s determination to stay ahead in the global chip race. As the semiconductor sector continues to play a crucial role in both global trade and national security, Taiwan’s policy changes are likely to influence the strategies of major semiconductor players like TSMC, Samsung, and Intel, all of whom are jockeying for position in a rapidly evolving market.

For now, it remains unclear which chip nodes will be classified as “flagship” and thus subject to export restrictions. TSMC’s N3P process node is the current leader in the industry, with its upcoming N2 process set to further cement the company’s position. The evolving nature of these regulations will certainly impact TSMC’s roadmap as it navigates the complexities of a changing global semiconductor landscape.

Conclusion: Taiwan’s Strategic Shift in Semiconductor Control

The tightening of controls over TSMC’s chip exports and overseas investments reflects Taiwan’s broader strategy to protect its technological dominance and national security. While these new policies will present challenges for TSMC’s expansion plans, they also underscore Taiwan’s commitment to staying at the forefront of the global semiconductor race. As the situation continues to unfold, it will be interesting to see how these changes affect both the chip industry and international relations in the years to come.