Taiwan Semiconductor Manufacturing Company (TSMC) executives recently announced the start of construction on an advanced chip packaging plant in Arizona, set to open by 2029.

The move comes after January’s U.S.–Taiwan trade and investment agreement, which followed the White House’s Section 232 tariff pressure and created incentives for Taiwanese semiconductor producers to expand U.S. capacity instead. Under the deal, Taiwanese semiconductor and technology enterprises committed at least $250 billion in new direct investment in the United States, while Taiwan also pledged at least $250 billion in credit guarantees to support further expansion.

For many like TSMC, much of that is going towards states like Arizona, which is quickly becoming America’s chip hub. In fact, TSMC’s chip fabrication plant, Fab 21, in Arizona, is already producing Nvidia’s advanced Blackwell chip architecture, and TSMC is expected to expand its stateside operations to around 11 facilities.

In total, this will bring TSMC’s U.S. investment goal to at least $165 billion in Arizona alone, notably adding at least three fabs, two critical advanced packaging facilities, and a Research & Development center. This current and future buildout brings advanced chip manufacturing (smaller than seven nanometers [nm]) to sizable U.S. production. Fab 21 is already working on five nm and four nm production, with smaller and more efficient chip generations being built through the end of the decade.

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Policy Incentives Are Driving a Semiconductor Manufacturing Boom

In total, the Semiconductor Industry Association (SIA) estimates that semiconductor firms have announced more than $640 billion in investments since 2020. Some even project that total U.S. chip investments will surpass China, South Korea, and Taiwan starting in 2027.

Notably, this industrial buildout is driven by both the policy “stick” of Section 232 and other tariffs and the policy “carrots” of financing through the CHIPS Act. As of January 2026, SIA projects that the Department of Commerce has rolled out $33 billion in grants and $7 billion in loans going to 35 companies across 52 projects.

Ostensibly, this will create 70,000 facility jobs, 122,000 construction jobs, and support over 335,000 additional jobs throughout the U.S. economy (though policymakers should treat such industry numbers with caution). However, despite genuine concerns about the efficacy of the CHIPS Act and the nature of the negotiations, America is continuing the arduous ascent of building a domestic advanced semiconductor ecosystem.

Semiconductor Reshoring Is About Strategic Resilience

If the front-end semiconductor fabrication industry indeed grows at its projected 7 percent compound annual growth rate from 2024 to 2028, these investments will be critical. The SIA estimates that its investment could help the United States capture at least 28 percent of the global advanced semiconductor capacity.

However, it is worth putting current investments into context. TSMC’s Fab 21 in Phoenix is estimated to produce up to 24,000 wafers per month, notably using the older four nm process at a higher price than comparable Taiwan fabs. Even assuming 24,000 wafers per month, Fab 21 accounts only for an estimated 2.3 percent of the projected 2026 advanced wafer output. While the fab cluster in Arizona has time to bend the cost curve downward and increase production, the prospect of prices comparable to Taiwan’s is low, given the nascent nature of the labor pool and the vagaries of industrial buildout.

Many welcome such developments, considering that Taiwan accounts for more than 60 percent of global foundry revenue and more than 90 percent of leading-edge chip manufacturing. However, these reshoring industrial policies are not about making the United States more economically self-sufficient; it is about recalibrating industrial supply chains to reflect genuine geopolitical concerns. The Institute for Economics & Peace estimates that a Chinese blockade of Taiwan would cause a $2.7 trillion loss for the global economy, while Bloomberg Economics estimates a $10 trillion loss in an all-out war, largely tied to advanced and legacy chips.

Therefore, the case for reshoring advanced domestic production is narrow and prudent; a worst-case scenario that paralyzes industrial and military production should be mitigated by well-calibrated policy now. A well-executed policy would preserve the foundation of the global supply chain while ensuring additional domestic capacity to hedge against geopolitical and economic risks. However, other headwinds have threatened to derail the planned expansion.

Water Use Concerns Are Overstated

Some critics have raised concerns regarding water use in Arizona. The three TSMC fabs are estimated to collectively use six billion gallons annually, with a current reclamation rate of between 65 percent and 90 percent. But considering that Arizona uses 2.3 trillion gallons of water annually, the fabs would account for just 0.26 percent of statewide demand.

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Meanwhile, agriculture uses 1.6 trillion gallons, nearly 70 percent of the total, and reclaims less than 2 percent. For more context, Arizona golf course irrigation uses 44.5 billion gallons annually, with 28 percent reclaimed. Whatever one broadly thinks of industrial policy in Arizona, water use is not a particularly persuasive case against these projects.

Strategic Insurance for the U.S. Economy

By expanding semiconductor manufacturing and building the production equipment, the United States can mitigate a key strategic dependence. But policymakers should soberly understand that Arizona will not eliminate every foreign supply chain risk overnight, nor will it be particularly profitable in the short run.

Additionally, an artificial intelligence chip bust is a distinct possibility; however, prudence argues for rebuilding meaningful domestic capacity in one of the world’s most critical and innovative industries. As a result, these reshoring initiatives will enhance the United States’ capacity, resilience, and manufacturing foundation, thereby strengthening both economic and national security for the foreseeable future.

This piece originally appeared in The National Interest