Taiwanese Chips Made in Arizona Is the Future of U.S. Trade

For decades, the U.S. attitude toward global supply chains has been a defensive crouch. As the internet and a more open global economy made it easier to outsource production, U.S. manufacturers moved their factories overseas — first to places like Mexico and Southeast Asia, then in a huge flood to China. It was this last shock that was particularly damaging to the careers of many American factory workers. That negative experience scarred a generation, and created the popular perception that trade, supply chains and foreign investment were all simply ways for corporate overlords to ditch well-paid American workers for cheaper overseas labor. It was this attitude that caused the Trans-Pacific Partnership trade agreement to be scuttled.
But Taiwan Semiconductor Manufacturing Co.’s $12 billion Arizona factory is a sign that the world has changed from what it was 10 or 15 years ago. Yes, Taiwan’s flagship chipmaker — which by some measures is ahead of Intel Corp. in the race for advanced technology — is a special case. Taiwan is in danger of a blockade should China decide to force reunification with the island, so a factory in the U.S. helps diversify the company against that risk. But the fact that it chose the U.S. instead of a cheaper country like Mexico, or another Asian country like Japan, is encouraging. Unlike former President Donald Trump’s failed plan to put a Foxconn Technology Group factory in Wisconsin, TSMC’s Arizona investment is for real.

Some of this is purchases of property or for natural resource extraction, but manufacturing has always been a substantial part of foreign investment in the U.S. The cars with the most American-made content tend to be Toyotas and Hondas, not Fords or Chevrolets. Making things in the U.S. has always been advantageous for companies who want to be close to their deep-pocketed American customers.
Investments like TSMC’s plant, however, do even more for the U.S. economy. They provide high-value-added exports, bringing more money into the country than a simple auto assembly plant. They also help the U.S. retain its commanding position in technology and promote the potential for locating whole supply chains within the country.
Supply-chain localization is one way plants like TSMC’s create jobs for normal Americans, even though mostly only engineers work at the actual facility. Another way is that the money the plant brings into its local community will be spread around via local service industries. So this investment isn’t just about U.S. GDP; it’s about jobs too.

Americans need to wake up to the opportunity offered by foreign investments like this. Instead of staying in a defensive crouch against foreign trade, the U.S.  needs to be bold and confident about its ability to compete and win in the global economy. This doesn’t mean embracing pure free trade, but it means being deliberate about attracting more investments like TSMC’s. States can improve local education and expand infrastructure like water and transportation, and the federal government can offer various incentives for global companies to relocate here.
This is a game that China played and won; now it’s time for the U.S. to play and win, instead.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.