For decades, Taiwan has occupied a peculiar position in global affairs — a self-governing island of 23 million people that most nations refuse to formally recognize as a sovereign state, yet one that holds the world’s most powerful economies hostage through its near-monopoly on advanced semiconductor manufacturing. That tension has never been more acute than it is now, as geopolitical friction between Washington and Beijing intensifies and the chips powering everything from artificial intelligence to guided missiles flow overwhelmingly from a single island in the western Pacific.
The concept of Taiwan’s “silicon shield” — the idea that its indispensability to the global chip supply chain provides a form of strategic protection against Chinese aggression — has become a central pillar of international security discussions. But as both the United States and China take aggressive steps to reshape semiconductor supply chains in their favor, the shield may be thinning at the very moment it is most needed.
TSMC’s Unmatched Position and the Pressure It Creates
Taiwan Semiconductor Manufacturing Company, better known as TSMC, fabricates roughly 90% of the world’s most advanced chips — those produced at process nodes of 7 nanometers and below. Apple, Nvidia, AMD, Qualcomm, and dozens of other technology giants depend on TSMC’s foundries in Hsinchu and Tainan to produce the processors that underpin their products. No other company on earth can match TSMC’s manufacturing precision at scale, a fact that gives Taiwan extraordinary economic and strategic weight far beyond what its geographic size or military strength would suggest.
This concentration of capability has alarmed policymakers in Washington, Brussels, and Tokyo alike. A Chinese blockade or invasion of Taiwan would not merely be a regional military crisis — it would trigger a global economic catastrophe, severing access to the chips that modern economies cannot function without. The Semiconductor Industry Association has estimated that a prolonged disruption to Taiwan’s chip output could cost the global economy more than $1 trillion. That vulnerability has driven an unprecedented wave of government spending aimed at building alternative manufacturing capacity on allied soil.
Washington’s Multibillion-Dollar Bet on Domestic Manufacturing
The CHIPS and Science Act, signed into law in August 2022, committed more than $52 billion in subsidies and incentives to rebuild American semiconductor manufacturing. TSMC itself has been a primary beneficiary, with the company investing more than $65 billion in a sprawling fabrication complex in Phoenix, Arizona. The first of those Arizona fabs began producing chips in 2025, and additional facilities are under construction, with plans to eventually produce chips at the most advanced 2-nanometer node.
Yet the Arizona expansion has not been without friction. TSMC initially encountered significant challenges in transplanting its manufacturing culture to American soil. Reports of clashes between Taiwanese engineers and American workers over expectations around overtime, work pace, and management style surfaced repeatedly during the construction phase. TSMC brought in thousands of experienced workers from Taiwan to help ramp up production, a move that drew criticism from U.S. labor groups but which the company deemed necessary to meet its exacting quality standards. Despite these growing pains, TSMC’s Arizona output has been ramping steadily, and the company has signaled that it views the U.S. as a long-term manufacturing base — not merely a political concession.
China’s Parallel Drive for Self-Sufficiency
Beijing has pursued its own aggressive path toward semiconductor independence, pouring tens of billions of dollars into domestic chipmakers through state-backed funds and subsidies. Semiconductor Manufacturing International Corporation (SMIC), China’s most advanced foundry, has made notable progress, reportedly producing chips at a 7-nanometer-equivalent process despite being cut off from the most advanced lithography equipment by U.S. export controls. However, industry analysts widely agree that SMIC remains years behind TSMC in both yield rates and the ability to manufacture at the most advanced nodes consistently and at scale.
The U.S. has tightened export restrictions multiple times, most recently expanding controls on advanced AI chips and the equipment used to manufacture them. The Netherlands and Japan, home to ASML and Tokyo Electron respectively — two of the most important suppliers of chipmaking equipment — have largely aligned with Washington’s restrictions, though not without internal debate. ASML’s extreme ultraviolet (EUV) lithography machines, which cost upward of $350 million each and are essential for producing the most advanced chips, remain firmly off-limits to Chinese buyers. Beijing has characterized these restrictions as technological containment and has responded with export controls of its own on critical minerals like gallium and germanium, which are essential inputs for semiconductor production.
The Strategic Calculus in Taipei
For Taiwan’s government, the semiconductor industry represents both its greatest source of international relevance and a potential vulnerability. There is an inherent tension in the island’s strategy: the more successfully the United States and its allies build alternative chip manufacturing capacity, the less indispensable Taiwan becomes — and the weaker the silicon shield grows. Conversely, if Taiwan hoards its most advanced technology and resists dispersing manufacturing know-how, it risks alienating the very allies it depends on for security.
Taiwanese officials have walked this line carefully. TSMC has expanded abroad — not only to Arizona but also to Kumamoto, Japan, where a new fab opened in 2024 with support from the Japanese government, and to Dresden, Germany, where a European fab is under development in partnership with Bosch, Infineon, and NXP Semiconductors. Yet TSMC has consistently kept its most advanced production lines on Taiwanese soil. The company’s 2-nanometer process, expected to enter mass production in 2025, will initially be manufactured exclusively in Taiwan. This ensures that the island retains its technological edge even as it shares older-generation capabilities with allies.
Military Dimensions and the Taiwan Strait
The military implications of Taiwan’s chip dominance are impossible to separate from the commercial ones. The Pentagon relies on advanced semiconductors for virtually every modern weapons system, from F-35 fighter jets to satellite communications networks. A 2024 report from the Center for Strategic and International Studies warned that the U.S. defense industrial base remains dangerously dependent on Taiwanese chip production, and that even with the CHIPS Act investments, it will take years before domestic capacity can meaningfully reduce that reliance.
China’s People’s Liberation Army has meanwhile intensified military exercises around Taiwan, with large-scale drills simulating blockade and invasion scenarios becoming a near-annual occurrence. In 2025, the PLA conducted its most extensive naval exercises in the Taiwan Strait to date, deploying aircraft carriers, amphibious assault ships, and advanced fighter aircraft in what analysts interpreted as both a political signal and a rehearsal for potential future operations. Taiwan’s Ministry of National Defense reported a record number of PLA aircraft entering its air defense identification zone over the past year, underscoring the persistent and growing military pressure the island faces.
Industry Voices and the View from Silicon Valley
Within the American technology industry, the Taiwan question generates a mixture of anxiety and pragmatism. Jensen Huang, the CEO of Nvidia — TSMC’s largest customer by revenue — has publicly acknowledged the geopolitical risks but has also expressed confidence in TSMC’s ability to manage them. “TSMC is the most important company in the world that most people have never heard of,” Huang said at a 2024 industry conference, a statement that has since become something of a rallying cry for those advocating greater awareness of semiconductor supply chain risks.
Tim Cook, Apple’s chief executive, has similarly acknowledged the company’s deep dependence on TSMC while noting that Apple has begun diversifying its supply chain more broadly across Southeast Asia. Apple’s newest M-series processors, which power its Mac computers and iPad tablets, are fabricated exclusively by TSMC, making the Cupertino giant acutely sensitive to any disruption in Taiwan. Other major TSMC customers, including AMD and MediaTek, have echoed similar concerns in earnings calls and investor presentations, though none have announced plans to shift production away from TSMC’s Taiwanese fabs for their most advanced products.
What Comes Next for the World’s Most Valuable Supply Chain
The semiconductor industry is entering a period defined by two competing forces: the relentless technical demand for more advanced chips driven by artificial intelligence, autonomous vehicles, and next-generation communications, and the geopolitical imperative to reduce concentration risk in Taiwan. These forces pull in opposite directions. Building state-of-the-art fabs outside Taiwan is extraordinarily expensive, time-consuming, and technically challenging. TSMC’s decades of accumulated expertise, its tightly integrated supply chain of chemical and equipment suppliers clustered around its Taiwanese facilities, and its deeply experienced workforce cannot be replicated overnight — or perhaps ever fully replicated at all.
The global effort to diversify chip manufacturing is real and accelerating, but it will not eliminate Taiwan’s centrality to the semiconductor supply chain within this decade. The silicon shield, while perhaps no longer as impenetrable as it once appeared, remains intact — and the world’s most powerful nations continue to organize their industrial and military strategies around that stubborn fact. For Taiwan, the challenge ahead is maintaining its technological lead while managing the expectations and demands of allies and adversaries alike, all under the shadow of a military threat that grows more tangible with each passing year.