The world’s largest chip maker is investing billions of dollars in the US even though it would cost much more to manufacture chips there. That’s why she decided to do it anyway.

• Taiwan-based TSMC, the world’s largest chipmaker, announced a $40 billion investment in Arizona last week.
• This is despite the fact that the founder of TSMC previously called the production of US chips “a costly operation in vain.”
• The investment could help bring about geographic diversification and support support from the United States.

Last week, Taiwan Semiconductor Manufacturing, the world’s largest chip maker, announced that it would make the largest foreign direct investment in US history. But in the past, the company’s leadership has been skeptical about making chips in the United States.

Last Tuesday, TSMC announced that it would open a second plant in Arizona, increasing the company’s investment in the state from $12 billion to $40 billion. However, Morris Chang, the founder of TSMC, argued that the investment is not wise for TSMC, nor for the United States.

In April, Zhang told the Brookings Institution that pushing the US to increase domestic chip production would be “wasteful and frivolous,” citing the US’ “lack of manufacturing talent” as well as his opinion that “chip manufacturing in the US is 50% more expensive than It is in Taiwan.”

The United States has taken steps to increase domestic chip production as it relies on TSMC’s factories in Taiwan to make products that include cars, personal computers, iPhones and washing machines. Should China – which claims the island as its own – invade the island and stop chip production, there could be billions of dollars in economic losses. Many experts say it is only a matter of time before an invasion occurs.

However, experts suspect the Arizona plants will significantly reduce US dependence on Taiwan when both are completed in 2026, and Zhang’s comments suggest the investment could face more fundamental challenges.

It may be in TSMC’s self-interest to invest in Arizona, despite the business challenges

Despite the business hurdles, there are a few reasons why TSMC has decided not only to build its first plant in Arizona, but to add a second.

First, the cost of producing chips in the US may not be “50% more expensive.”

“They’re 15 to 20% more expensive,” Dylan Patel, senior analyst at a semiconductor research and advisory firm, told Insider. “The United States will likely support this punishment far, so the cost difference actually won’t be much.”

The plants will be supported in part by the US government through the CHIPS and Science Act, a package passed in August that provided $52 billion to boost semiconductor chip production in the US.

And even if it’s more expensive to produce, Patel says, TSMC customers will be “happy to pay a little more” to ensure supply chain diversity, something many companies are focusing on given the supply chain challenges of the past few years.

This includes Apple, TSMC’s largest customer which accounted for 26% of its revenue last year. Apple CEO Tim Cook said the company will be the largest customer for factories once it goes online.

“TSMC’s leadership sees the benefit of having some geographic diversity in its operations,” especially when it’s being pushed hard by the governments of economies, Martin Rasser, a former CIA officer who is now a security and technology expert at the Center for a New American Security, told Insider leading in the world.”

As Raser hints, winning the endorsement of the US government could be another factor in the game.

Zhang told the Brookings Institution as much in April. While he said it was not his decision to build the first plant in Arizona, Zhang said he did so “at the behest of the United States government.”

And TSMC may have good reasons to make sure it is on good terms with the United States.

According to Ben Thompson of Stratechery, if Arizona’s investment “is the price of US support for Taiwan” in the event of a Chinese invasion, “this is the best insurance policy the company could buy for its really important operations, which are closely linked to Taiwan.”