Taiwan’s “silicon shield” could be weakening

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Will China invade?  Taiwanese politics increasingly revolves around that question. China’s ruling party has wanted to seize Taiwan for more than half a century. But in recent years, China’s leader, Xi Jinping, has placed greater emphasis on the idea of “taking back” the island (which the Chinese Communist Party, or CCP, has never controlled). As China’s economic and military might has grown, some analysts believe the country now has the capacity to quarantine Taiwan whenever it wants, making the decision a calculation of costs and benefits.

Many in Taiwan and elsewhere think one major deterrent has to do with the island’s critical role in semiconductor manufacturing. Taiwan produces the majority of the world’s semiconductors and more than 90% of the most advanced chips needed for AI applications. Bloomberg Economics estimates that a blockade would cost the global economy, including China, $5 trillion in the first year alone.

The island, which is approximately the size of Maryland, owes its remarkably disproportionate chip dominance to the inventiveness and prowess of one company: Taiwan Semiconductor Manufacturing Company, or TSMC. The chipmaker, which reached a market capitalization of $1 trillion in July, has contributed more than any other to Taiwan’s irreplaceable role in the global semiconductor supply chain. Its clients include Apple and the leading chip designer Nvidia. Its chips are in your iPhone, your laptop, and the data centers that run ChatGPT.   For a company that makes what amounts to an invisible product, TSMC holds a remarkably prominent role in Taiwanese society. 

The idea is that world leaders (particularly the United States)—aware of the island’s critical role in the semiconductor supply chain—would retaliate economically, and perhaps militarily, if China were to attack Taiwan. That, in turn, deters Beijing. “Because TSMC is now the most recognizable company of Taiwan, it has embedded itself in a notion of Taiwan’s sovereignty,” says Rupert Hammond-Chambers, president of the US-Taiwan Business Council. 

Now some Taiwan specialists and some of the island’s citi­zens are worried that this “silicon shield,” if it ever existed, is cracking. Facing pressure from Washington, TSMC is investing heavily in building out manufacturing capacity at its US hub in Arizona. It is also building facilities in Japan and Germany in addition to maintaining a factory in mainland China, where it has been producing less advanced legacy chips since 2016. 

In Taiwan, there is a worry that expansion abroad will dilute the company’s power at home, making the US and other countries less inclined to feel Taiwan is worthy of defense. TSMC’s investments in the US have come with no guarantees for Taiwan in return, and high-ranking members of Taiwan’s opposition party have accused the ruling Democratic Progressive Party (DPP) of gambling with the future of the island. It doesn’t help that TSMC’s expansion abroad coincides with what many see as a worrying attitude in the White House. On top of his overarching “America First” philosophy, Donald Trump has declined to comment on the specific question of whether the US would intervene if China attempted to take Taiwan by force. “I don’t want to ever put myself in that position,” he said in February. 

At the same time, Beijing’s interest in Taiwan has continued unabated. While China is making progress toward semiconductor self-­sufficiency, it’s currently in a transition period, with companies relying on foreign-made chips manufactured in Taiwan—some in compliance with export controls and some smuggled in. Meanwhile, the CCP persistently suggests that seizing the island would bring about a kind of family reunion. 

While China ramps up militarily, Taiwan is trying to make itself hard to ignore. The government is increasingly portraying the island as strategically essential to the global community, with semiconductors as its primary offering.   The next few years will likely determine whether TSMC’s chipmaking dominance is enough to convince the world Taiwan is worth protecting.

To Beijing, unequivocally, Taiwan does not equal TSMC. Instead, it represents the final, unfulfilled stage of the Communist Party’s revolutionary struggle. Framed that way, China’s resolve to take the island could very well be nonnegotiable. That would mean if Taiwan is going to maintain a shield that protects it from the full weight of China’s political orthodoxy, it may need to be made of something much stronger than silicon.

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