Taiwan and Japan Semiconductor Industries Navigate Global Supply Chain Reshaping with $85 Billion Investment

TAIPEI – The East Asian semiconductor industry is undergoing unprecedented transformation as geopolitical tensions and supply chain resilience concerns drive massive infrastructure investments, with Taiwan Semiconductor Manufacturing Company expanding production across Arizona, Japan and Germany through $65 billion commitments while Japan allocates 10 trillion yen over seven years to reclaim advanced chipmaking capabilities through Rapidus and foreign partnerships.

TSMC's first fabrication facility in Arizona ramped up to high-volume production late in 2024, marking a significant milestone in the company's global expansion strategy. The company has plans for a total of six semiconductor fabs, two advanced packaging facilities where chips are combined into sets, and a research and development center in Arizona. Seventy percent of TSMC's revenue comes from the United States, and most of these customers want advanced technology, according to Chief Financial Officer Wendell Huang.

The Biden administration's CHIPS Act took concrete steps to incentivize a buildout of chip production and keep high-end chips out of China's hands. In early April 2024, TSMC announced it would expand its U.S. investments to $65 billion after the Biden administration pledged up to $6.6 billion in incentives that would put Arizona on track to produce about one-fifth of the world's most advanced chips by 2030.

TSMC is expanding its footprint in Japan and Germany as well. The company's first plant in Kumamoto Prefecture, a joint venture with Sony and Denso, began mass production of 12-28 nanometer logic semiconductors in December 2024. The new plant, located in Kikuyo, caters to Sony, which produces camera sensors for Apple. TSMC is proficient in making general-purpose chips between 12 and 28 nanometers.

A second, more advanced plant in Kumamoto, slated to open by the end of 2027, will produce 6-nanometer semiconductors, bringing TSMC's total investment in Japan to over $20 billion. These facilities are critical not only for securing Japan's automotive and industrial supply chains but also as a hedge against potential disruptions in Taiwan. The 69,000-square-meter site, located east of the first fab, will add 1,700 jobs, bringing total employment across both facilities to over 3,400.

Backed by a 1.2 trillion yen government subsidy, the project marks Japan's direct leap from 28-nanometer to 6-nanometer technology. In June, TSMC CEO C.C. Wei blamed traffic congestion and infrastructure bottlenecks for delaying the company's expansion in southwest Japan, slowing the construction of its high-profile Kumamoto chipmaking project. The contract chipmaker's Japanese expansion has strained the rural region's limited infrastructure, as an influx of workers from the company's first plant overwhelms local capacity.

Taiwan commanded 67 percent of the global market share in contracted semiconductor manufacturing and nearly 80 percent in cutting-edge products in 2023, according to TrendForce. TSMC stock surged over 115 percent in the last 12 months. Goldman Sachs' Bruce Lu projected another year of robust revenue growth for TSMC in 2025, 26.8 percent, following 29.4 percent revenue growth in 2024. Demand in leading-edge nodes, mainly supported by artificial intelligence, backed this growth.

Japan has launched an ambitious effort to rebuild its semiconductor industry through Rapidus, a consortium backed by major Japanese corporations and substantial government subsidies. Its first fabrication facility is under construction in Chitose, Hokkaido, chosen for its robust infrastructure and lower seismic risk. Rapidus has forged crucial technological alliances with IBM for 2-nanometer process development and with Belgium-based IMEC for advanced microelectronics research.

The Japanese government has already committed substantial subsidies to Rapidus, totaling ¥1.72 trillion approximately $11 billion to date, including a ¥100 billion investment in November 2025 and an additional ¥200 billion for fiscal year 2025. About 100 engineers from Rapidus are in Albany, New York, working with IBM engineers on technology development. Meanwhile, extreme ultraviolet lithography equipment from ASML used for manufacturing advanced semiconductors is scheduled to be delivered at the end of 2024. Pilot production is expected to start as early as April 2025 in Hokkaido.

Japan aims to produce game-changing technology based on the convergence of photonics and electronics, which would benefit artificial intelligence data centers and 6G technologies that demand ultra-high speed data transmission, low latency, and energy efficiency. While its global production share has diminished, Japan retains formidable strengths in semiconductor materials, manufacturing equipment, and specialized components.

Beyond flagship projects, Japanese electronics manufacturers are actively implementing "China Plus One" strategies. Companies like Tamura are scaling back their China presence by up to 30 percent, expanding production to Europe and Mexico, with a full shift anticipated by March 2028. TDK is relocating smartphone battery cell production from China to Haryana, India, while Murata, a leading capacitor maker, plans to open its first multilayer ceramic capacitor plant in India in fiscal 2026.

Meiko, a printed circuit board supplier, commissioned a ¥50 billion factory in Vietnam in 2025 to support iPhone assembly operations in India and Southeast Asia. The "China Plus One" strategy, now bolstered by government subsidies for firms to relocate production from China to Southeast Asia, India, or Mexico, represents a systemic de-risking effort that will likely reshape regional manufacturing hubs and trade flows.

The potential for a Taiwan contingency, a constant shadow over the global semiconductor industry, further underscores the urgency of Japan's efforts to create redundant supply chains and secure domestic production. Cross-strait relations between China and Taiwan pose a risk to chip supplies and the electronics industry. At the same time, the U.S., for national security reasons, has been trying to contain China's rapid development of dual-use semiconductors.

The U.S. is turning to its allies to keep China's fledgling chip industry at bay. The U.S. has proposed a Chip 4 alliance, including Japan, Korea and Taiwan, to coordinate policies on semiconductor development and export controls. Japan is an integral part of this endeavor given its dominance in semiconductor equipment and materials.

Chip shortages during the pandemic severely affected Japan's sizable automobile industry, which had huge knock-on effects across the entire supply chain, from automotive parts and coating suppliers to car dealerships. Taiwan is Japan's top chip supplier, accounting for almost 60 percent of Japan's semiconductor imports, making supply chain diversification a strategic priority for Japanese policymakers and industry leaders.

At its Arizona facility, the cost to produce 4-nanometer chips is roughly 30 percent higher than in Taiwan, reflecting the premium of U.S.-based manufacturing. These higher costs are likely to be passed along to consumers, raising prices for electronics from smartphones to automobiles. However, strong AI demand is currently offsetting any major negative effects.

The industry has seen sharp swings in response to tariff news. For instance, Tokyo Electron's shares initially dropped 8 percent on tariff announcements, only to rebound after a pause was declared. This unpredictability is causing manufacturers to delay equipment purchases and rethink global strategies, potentially reducing industry growth to single digits in the coming year.

In December 2024, the U.S. rolled out another significant expansion of chip controls. The new measures targeted AI-specific memory chips, ensuring China cannot easily acquire advanced memory to pair with processors, further broadened the Foreign Direct Product Rule's scope, and created a novel Restricted Fabrication Facility rule to govern any new fabs in China. The U.S. also carved out incentives for allies like Japan and the Netherlands, rewarding them for aligning their own export rules with Washington's.

Looking forward, the semiconductor industry faces a period of significant restructuring as companies balance efficiency with resilience, navigate export controls and geopolitical tensions, and manage substantial capital investments required for advanced manufacturing facilities. The transformation underway in Taiwan and Japan reflects broader trends toward regionalization of semiconductor supply chains, with multiple countries seeking to establish or enhance domestic production capabilities to reduce vulnerabilities and maintain strategic technology access.