A new hub can be built for Taiwanese semiconductor makers in southern Mexico with support from the United States and Mexican governments, according to electronic makers and analysts.

US President Joe Biden and Mexican President Andres Manuel López Obrador on Tuesday reportedly agreed to set up high-level teams to increase cooperation in the chip sector.

Some Taiwanese contract manufacturers said they had set up factories in Mexico as their American customers did not want to be affected by the US chip export ban imposed on China. They hoped their upstream suppliers such as chip makers would move there too.

Analysts said many Taiwanese router motherboard makers still had 50% to 70% of their production capabilities based in mainland China last year but they had been urged by US customers to move to Mexico and to some Southeast Asian countries such as Thailand and Vietnam.

Last August, Biden signed the CHIPS and Science Act, which will provide US$52.7 billion for American semiconductor research, development, manufacturing and workforce development. The US government will provide a 25% investment tax credit for capital expenses involved in setting up to manufacture semiconductors and related equipment. 

Last September, Gina Raimondo, US Secretary of Commerce, said in a visit to Mexico City that the US and Mexico should join hands to fight against China in the chip sector. She said the semiconductor industry’s annual revenue had reached US$60 billion in China and Taiwan but the size in North America was only about US$3 billion.

José Abugaber, the president of the Confederation of Chambers Industrial in Mexico, said last June that Taiwan was interested in making chips in Mexico for the North America market. 

In recent years, Taiwan has been promoting the establishment of a “democratic supply chain” by encouraging its chip and electronic makers to move their foundries from mainland China to other places. The construction of TSMC’s chip foundries in Arizona in the US is one of the biggest projects.

During the North American Leaders’ Summit on Tuesday, Biden unveiled an agreement with Mexico and Canada to coordinate investment in semiconductor manufacturing across North America.

Biden told López Obrador that the US needs Mexico’s help to boost its chip manufacturing, media reported. López Obrador said he hoped the US would help Mexico attract such investments.

The US, Canada and Mexico will coordinate semiconductor supply-chain mapping efforts to develop a collective understanding of unmet needs, according to a White House memo. 

In early this year, cabinet level officials and industry representatives will hold the first-ever trilateral semiconductor forum to discuss how to increase investment in semiconductor supply chains across the continent.
 
Currently, Taiwan’s chip makers have yet to land in Mexico but some downstream firms, including Kinpo Electronics Inc and Taiwan Surface Mounting Technology Corp, have moved or planned to set up factories there.

Andrew Chen, general manager of Kinpo, which produces IT and consumer electronic parts, said the company had set up factories in the US and Mexico some years ago. Chen said the company’s factory in Mexico received the most inquiries from new customers, compared with other countries.

Chen said Kinpo boosted its global production capacity by 20% in 2022 and would further expand it in 2023, mainly in Thailand and Mexico. He said the company would keep some production lines in mainland China.

Taiwan Surface Mounting Technology, which provides liquid crystal display surface-mount services, said it would boost the number of production lines from 220 to 230 by building new factories in Vietnam and Mexico in 2023.

The company said its factories in Vietnam and Mexico would commence production in the fourth quarter of this year and in the second half of 2024, respectively.

Gong Mingde, an analyst at Taiwan-based Digitimes Research, said Taiwanese router motherboard makers would add more production lines outside mainland China in 2023, such as in Mexico and some Southeast Asia countries, due to the US’s chip export ban imposed on China and the local policy risks in the mainland.

Gong said key players, including Inventec Corp, Wistron Group and Hon Hai Precision, had 50% to 70% of their capacities situated in mainland China in 2022 but the proportion would fall to about 50% this year. He said Quanta Computer, which had 60% of its products made in Taiwan, would expand production in Thailand to serve the North American market.

In September 2021, Mexico’s then-Economy Minister Tatiana Clouthier said Mexico could build chip production facilities in its southern states, where much-needed water is available.

She said Mexico could contribute to the assembly, packaging and making of the wafers while the Mexican states of Jalisco and Baja California had already started production.

In the same month, the Taiwanese government officially submitted an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In December 2021, President Tsai Ing-wen told Mexican senators that if Taiwan could join CPTPP, it would deepen cooperation in technology and trade with Mexico.  

Established in December 2018, the CPTPP is a trade agreement among 11 countries including Australia, Canada, Japan, Mexico and Vietnam.