Taiwan Passes New Law to Restrict TSMC's Technology Transfer, Ensuring Cutting-Edge Chip Production Stays at Home

Taiwan is stepping up its efforts to maintain its dominance in the global semiconductor industry by legally restricting technology transfer abroad, particularly targeting TSMC's growing international expansion. This move reflects growing concern among Taiwanese officials about the island's critical strategic advantage being diluted by TSMC’s global investments — notably its massive $100 billion expansion into the United States under the Trump administration's revived "America First" industrial policies.

According to Taiwan media reports, Taiwan’s government has formally passed an amendment to Article 22 of the Industrial Creation Ordinance, granting the authorities the right to block deals that may threaten national security and mandating that cutting-edge semiconductor production must remain within Taiwan. Under this new law, Taiwan has implemented a so-called "N-1" policy: TSMC and other domestic firms can build foreign plants, but they will be limited to producing chips that are at least one generation behind the most advanced node manufactured domestically.

This legislation, expected to take full effect by late 2025, significantly tightens earlier practices. Historically, Taiwan has shown little tolerance for core technology transfers, although recent flexibility had allowed TSMC and others to set up facilities abroad, such as in the United States and Japan. However, the government now appears determined to keep the most advanced semiconductor technologies — crucial for both economic and national security reasons — on the island.

Taiwan’s Premier Cho Jung-tai reiterated that while foreign expansion will be tolerated to an extent, the domestic production of the latest process nodes must be strictly protected. The government fears that losing exclusive control over next-generation technologies like 2nm and future 1.6nm (A16) nodes could weaken Taiwan’s strategic importance globally.

Currently, TSMC’s Arizona facility is responsible for 4nm production and is expected to advance to 1.6nm (A16) capabilities by 2030. However, under the new legislation, any next-generation node beyond that (such as future 1.4nm and 1nm technologies) will likely remain restricted to Taiwan’s borders. TSMC is also investing heavily in U.S. research and development, with plans for multiple new fabs and a dedicated R&D center to support American operations without transferring its most sensitive manufacturing expertise.

For now, it appears that TSMC’s strategic “long-ball” approach — expanding global production while maintaining the most advanced capabilities at home — is still viable under Taiwan’s new legal framework. However, the geopolitical balancing act between Taiwan, the U.S., and China is becoming ever more complex, and semiconductor sovereignty is clearly becoming a top national priority.

What do you think about Taiwan’s new move to restrict TSMC’s cutting-edge tech from leaving the country? Will this reshape the future of the global semiconductor industry? Share your thoughts below!