Taiwan has played an increasingly important role in the global economy since the late 20^th century. Following Japan’s economic bubble in the 1990s, Taiwan shifted its export industries from light manufacturing toward heavy industry and electronics. China’s subsequent economic reforms and opening encouraged Taiwanese traditional manufacturers to relocate production across the Taiwan Strait, while Taiwan gradually developed an industrial structure centered on semiconductors and related electronic components.

The US-China trade war later became a major catalyst for industrial restructuring and upgrade. More recently, the America First policies of the US have encouraged leading semiconductor manufacturers to establish operations there, triggering another wave of supply chain relocation.

Taiwan’s industrial transformation has undergone four broad stages. The first followed Japan’s economic bubble. In 1985, the US reached the Plaza Accord with Japan, Germany, the UK, and France, seeking to appreciate the yen and curb Japan’s export competitiveness. The subsequent appreciation contributed to changes in Japan’s economic conditions and the asset bubble that followed.

Meanwhile, Taiwan, Korea, Hong Kong, and Singapore capitalized on their relatively affordable skilled labor forces and economic development strategies to attract substantial foreign capital and technology. Their rapid industrial growth earned them the collective moniker of the four Asian tigers.

The second stage was driven by China’s reform and opening. China attracted successive waves of Taiwanese investment, first in labor-intensive manufacturing, and later in electronics and technology. It subsequently became one of the world’s largest destinations for foreign direct investment.

The third stage involved the trade war and repatriation of Taiwanese investment. As China’s economy expanded, rising labor and land costs, stricter environmental regulations, and labor shortages in traditional manufacturing centers steadily increased operating expenses for Taiwanese businesses. Many had already begun relocating production to Taiwan or Southeast Asia.

China was also transitioning from contract manufacturing toward domestic brands, such as Huawei and Xiaomi, and innovation-driven industries, including 5G and the Internet of Things. At the same time, the US sought to address China's growing technological capabilities and its longstanding bilateral trade deficit. The resulting trade tensions accelerated the relocation of Taiwanese production.

The current period, which could be described as Stage 3.5, is characterized by America First policies and the relocation of semiconductor supply chains to the US. Following the trade war, Washington introduced substantial tariffs and subsidies to encourage domestic manufacturing and strengthen technological competitiveness. Together with customer requirements, these measures have prompted major semiconductor and technology companies to establish US operations.

According to their 2025 consolidated financial statements, approximately 74.4% of TSMC’s revenue and 70% of Wistron’s revenue came from the US market. These companies have subsequently expanded their presence in Arizona and Texas, respectively, encouraging related suppliers to follow.

Taiwan’s semiconductor and high-technology industries now occupy a critical position in global supply chains. The term “silicon shield” is often used to describe Taiwan’s strategic importance, reflecting its integrated industrial ecosystem spanning advanced semiconductor processes, foundry services, packaging and testing, ICT, and precision manufacturing.

With demand rising for artificial intelligence, high-performance computing, electric vehicles, cloud data centers, and defense tech, more than just a source of industrial competitiveness, Taiwan’s technological capabilities have become central to its global significance and strategic indispensability.

Against this backdrop, the financing guarantee mechanism for Taiwanese corporate investment in the United States, established under Taiwan-US agreements, carries important policy implications. It is designed to help Taiwanese companies move beyond their traditional role as manufacturers toward a broader global operational presence.

Supported by Taiwan’s National Development Fund and participating financial institutions, the mechanism provides credit enhancement through a dedicated guarantee facility, facilitating up to US$250 billion in corporate lending.

Its purpose is not simply to encourage capital outflows. Rather, it seeks to address the substantial capital expenditure required for semiconductor, ICT, and related supply chain investments in the US. By sharing credit risks, banks can improve access to medium- and long-term financing and lower funding barriers for cross-border investment.

In this sense, the financing guarantee mechanism can be viewed as an extension of Taiwan’s silicon shield strategy. While Taiwan retains its core strengths in advanced manufacturing processes and critical technologies, the mechanism supports the establishment of essential supply chain capacity in the US in response to customer demand and changes in the international political and economic environment.

In practice, however, the principal beneficiaries of this guarantee mechanism may not be large multinational corporations. Major corporations generally have banking relationships in their principal overseas markets, supported by sophisticated payment, remittance, and treasury management systems. Their strong credit profiles, capital market access, and cash flows also reduce their dependence on conventional lending. Under current conditions, most are not particularly constrained by funding availability.

By contrast, smaller companies within TSMC’s supply chain face greater financing needs because of their size, funding costs, and limited overseas operating experience. These businesses are therefore more likely to benefit directly, becoming important targets for financial institutions.

As semiconductor suppliers establish US operations alongside TSMC, several Taiwanese banks have begun gathering information on relevant companies and assessing potential lending structures, use of proceeds, collateral requirements, and cross-border repayment sources.

Numerous Taiwanese suppliers have already invested in the United States, particularly in Arizona, Texas, and California. Others are evaluating plans to establish manufacturing facilities or service operations. Demand is especially strong among companies providing cleanroom construction, mechanical and electrical integration, and other semiconductor facility engineering services, as well as suppliers of specialty chemicals and critical materials.

As TSMC increases its overseas production capacity, demand for localized supply chain services and financing is expected to grow accordingly. Notably, many Taiwanese suppliers have deployed engineers and technical personnel to the US while retaining financial decision-making, treasury management, and borrowing negotiations at their headquarters in Taiwan.

Banks therefore continue to work primarily with the finance departments of Taiwanese parent companies. They assess whether financing should be arranged through standalone loans to US subsidiaries, syndicated facilities, or integrated cross-border structures involving the Taiwanese parent. These arrangements can help suppliers meet initial investment requirements, including land acquisition, factory construction, equipment purchases, working capital, and security deposits.

For Taiwanese banks, they also provide an opportunity to extend existing domestic client relationships into overseas markets, aligning government policy objectives with commercial opportunities.

Given the substantial interest rate differential between Taiwan and the US, many Taiwanese companies investing in the US continue to raise funds domestically to reduce financing costs, but cross-border financing and treasury management introduce foreign exchange and tax risks. Particular attention must be paid to transfer pricing, taxation of repatriated profits, and withholding taxes on cross-border interest payments.

When Taiwanese parent companies provide funding to their US subsidiaries through intercompany loans or shareholder advances, failure to charge an arm’s-length interest rate may raise transfer pricing concerns. Tax authorities could challenge such arrangements, resulting in additional tax assessments or penalties.

To mitigate these risks, Taiwanese companies should maintain comprehensive transaction records and apply commercially reasonable interest rates, demonstrating the economic substance and arm’s-length nature of intercompany financing.

When a Taiwanese company invests in a US subsidiary through equity contribution, subsequent dividend distributions may be subject to a 30% US dividend withholding tax. The tax may qualify for a foreign tax credit against the domestic income tax liability of the Taiwanese parent, subject to applicable rules.

Alternatively, if the company operates through a US branch, repatriated earnings may be subject to a 30% branch profits tax. According to recent Taiwanese court rulings, this tax may not qualify for a foreign tax credit in Taiwan, potentially exposing Taiwanese businesses to double taxation.

Furthermore, if a US subsidiary borrows directly from a Taiwanese financial institution, interest payments may also be subject to a 30% US withholding tax. This additional tax burden can increase the effective cost of financing, potentially narrowing or eliminating the interest rate advantage of borrowing from Taiwan. These considerations highlight the importance of evaluating financing structures on an after-tax basis rather than by nominal interest rates alone.

As Taiwanese businesses invest in US production facilities and localize their supply chains, Taiwanese banks should move beyond conventional credit assessments focused on individual borrowers.

Instead, they should position themselves as financial partners connecting Taiwanese parent companies, US subsidiaries, and local business ecosystems. This broader role can allow banks to help businesses manage initial capital expenditure and operating uncertainties while supporting sustainable US expansion through effective compliance, tax planning, and foreign exchange risk management.

Looking ahead, the success of Taiwanese banks in the US market will depend not merely on their ability to provide financing, but on their capacity to support the global development of Taiwanese industry through a deeper understanding of industrial finance.

By combining government-backed financing guarantees, the credit strength of Taiwanese parent companies, and local US financial services, Taiwanese banks can assume multiple roles as lenders, risk managers, and facilitators of industrial connections. Such an approach can strengthen the competitiveness of Taiwanese companies in the US, while also creating long-term opportunities for banks in supply chain financing and SME banking.

The author is an Executive Vice President of First Commercial Bank.