The competitive advantage of Taiwan’s semiconductor industry has increasingly been discernable among the global community, especially amid China’s bellicosity and heightened tensions across the Taiwan Strait.
In his book Chip War: The Fight for the World’s Most Critical Technology, historian Chris Miller writes that almost 90 percent of the world’s most advanced chips are produced in Taiwan.
Relying heavily on Taiwanese-made semiconductors could sensitize countries worldwide to the security of Taiwan and the risk of China’s deployment of forces to control the nation’s fabs.
Taiwan’s technological weapon has deterred China from annexing it. Semiconductors becoming strategically important to the US and its allies has heightened national security concerns for these countries amid threats from China, making support for Taiwan in times of crisis more plausible.
Additionally, a disruption of the global supply of semiconductors would cast a dangerous shadow on the world’s chip manufacturing and distribution.
The rationale behind the need to support Taiwan cannot be evaluated separately from its precarious geopolitics.
The semiconductor industry is undoubtedly a treasured possession for Taiwan, but advertising the strategic value of local chipmakers can backfire. The celebration of the nation’s “silicon shield” as a deterrent against China’s resolute commitment to unify with Taiwan could cause a sense of smugness, not only in Taipei, but also among other governments, about China’s likeliness to embrace self-restraint when it comes to its desire to launch a full-on invasion of Taiwan.
There have been at least two major threats to Taiwan’s chip prowess. First, the visibility of Taiwan as a technological giant has gradually become a matter of worry rather than one that could bolster Taiwan’s confidence. Chip shortages and rising tensions between Washington and Beijing have raised global fears over the excessive reliance on Taiwan’s semiconductor industry.
Taiwan accounts for 64 percent of the global semiconductor market, making vulnerabilities run deep if China were to blockade Taiwan.
Additionally, many companies, including the nation’s largest chip manufacturer, Taiwan Semiconductor Manufacturing Co (TSMC), count on the Chinese market “for their livelihoods.”
Second, the US-China competition has further thrown a monkey wrench in Taiwan’s semiconductor sector. After new US export controls that would limit the sale of certain chips to China, TSMC shares fell 7 percent. Worse, the company has cut its investment budget for this year by at least 10 percent. The US strategy to hobble China’s chip industry, with a series of measures to choke off its technological advances, has generated growing uncertainty about whether Taiwan could navigate this geopolitical terrain.
However, how have other countries responded to these threats? Short-term and long-term considerations are essential in understanding the strategic values of Taiwan’s semiconductor industry. Global awareness of Taiwan’s tenuous geopolitical situation has made other countries eager to reduce their reliance on Taiwan for semiconductors.
Nevertheless, most analysts say that “de-Taiwanization” is unfeasible in the near future. Some immediate solutions include increasing cooperation with Taiwanese firms (especially TSMC), limiting the impact of supply chain disruptions on global access to Taiwan’s semiconductors and protecting Taiwan against geopolitical instability.
As for long-term goals, Indo-Pacific countries — such as the US, Japan, India and Australia — have invested in technological research and innovation, as well as incentivizing the construction of manufacturing sites by international semiconductor producers.
TSMC has committed to new production facilities in the US, Japan and India. European countries have also shown interest in attracting TSMC investment. Competitors such as Intel have continued to build fabs, in the US and elsewhere, but Taiwanese firms have retained their dominance in the sector.
In short, TSMC has a strong chance of preserving its magnetic attraction, helping to reinforce its status as the most influential semiconductor company worldwide.
Taiwan’s continued advantage in semiconductor production has remained its strategic asset. Taiwanese analysts are optimistic about the nation’s chipmakers, as other countries in the region and companies worldwide remain dependent on Taiwan for advanced semiconductors. Although Taiwan’s wafer foundry production capacity might drop slightly in 2025, the nation would likely maintain competitive advantages in decisive areas, such as talent, geographical convenience and industrial enclaves.
Even if the trend of localization of semiconductors is on the rise, Taiwanese firms — holding the most advanced manufacturing processes — can still navigate the resurgence of global protectionism, especially in the US and Japan. Taiwan’s cutting-edge production could be further enhanced by a domestic focus on research and development (R&D), production expansion, diversification of suppliers of primary materials and international cooperation.
Industry leaders remain optimistic about the recovery of the semiconductor market. This perception is consolidated by TSMC having committed to developing advanced manufacturing processes in Taiwan, making “de-Taiwanization” more difficult.
Acer Inc founder Stan Shih (施振榮) said that local manufacturers would remain in Taiwan and thereby maintain its dynamic status.
Powerchip Semiconductor Manufacturing Corp chairman Frank Huang (黃崇仁) said primary advantages would ensure Taiwan’s continued dominance in the sector, including the quality of Taiwanese engineers, its decades of development and integration of specialized resources necessary for semiconductor production, and the presence of companies such as TMSC, which has been investing huge amounts of money in R&D of new technologies.
Yet, some have raised the specter of potential vulnerabilities for Taiwan’s chip industry.
National Development Council Minister Kung Ming-Hsin (龔明鑫) said that the vital role of Taiwan as a dominant manufacturing base relies on international collaboration with its allies and partners.
Chang Yan-Rong (張晏蓉), a researcher at the Brussels-based European Institute for Asian Studies think tank, said that a more sustainable supply chain is crucial for Taiwan, especially by expanding and diversifying its partnerships “to strengthen its connectivity in the semiconductor industry.”
However, constructing overseas fabs might lead to technology transfer and hence bolster global competitors.
For the moment, despite an international move toward localization in semiconductor manufacturing, Taiwan’s advantages make its technology indispensable.
However, its strategic significance to global chip supplies should not be amplified, as other countries in the region have drafted measures to diversify their suppliers while seeking to lessen their dependence on Taiwan for high-end semiconductors.
It is urgent for Taiwan to bolster its chipmaking know-how. The nation’s advantage in the industry, coupled with a commitment to ongoing advancement, could confer a form of security that helps expand Taiwan’s maneuverability amid the techno-geopolitical game over microchips. More constructive measures in innovation and R&D, talent cultivation, talent retention and intellectual property protection should be taken to maintain Taiwan’s advantage.
Moreover, building a web of dependencies between Taiwan and like-minded nations on global chip supply could bolster its international standing and enhance the need to support the nation in the event of uncertainties in the Taiwan Strait.
Huynh Tam Sang, an international relations lecturer at Ho Chi Minh City University of Social Sciences and Humanities, is a research fellow at the Taiwan NextGen Foundation and a nonresident WSD-Handa Fellow at the Pacific Forum.
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