As Chipmaking Shifts, Is Taiwan Losing Its Leverage?
For Donald Trump, everything has a price. He saw Ukraine’s value in its rare earth minerals, while Taiwan’s significance lies in its semiconductor industry. Setting politics, geopolitics, and strategic importance aside—for Trump, every deal is a business deal. Ukraine has held its ground, but Taiwan has either conceded or been forced to.
As China reaffirms its claim over Taiwan, most recently in its Two Sessions meetings, Taipei finds itself unable to push back against U.S. demands. More purchases, more contracts, and in return, more security—that defines the current U.S.-Taiwan relationship. Yet, the push to shift semiconductor production to the U.S. has unsettled Taiwan’s opposition. They fear that if chip manufacturing moves, Taiwan’s significance to Washington will fade. And will its “Silicon Shield,” which protects it from China, break if the U.S. no longer sees it as essential?
TSMC Deal
For decades, Taiwan’s chip industry has remained anchored on the island, with government regulations limiting companies from moving production overseas. Then came the Trump effect.
TSMC, Taiwan’s leading semiconductor manufacturer, is departing from tradition by relocating part of its production to the U.S. under American pressure, committing to a substantial investment. However, the deal still hinges on approval from the Taiwanese government—a barrier that has stalled similar efforts in the past. Yet, with Trump’s influence, there is optimism that this time will be different.
On Monday, TSMC’s chief executive, C.C. Wei, stood alongside Donald Trump at the White House, proudly announcing what he called the largest foreign direct investment on U.S. soil in history. The company, which manufactures the world’s most advanced semiconductors, plans to expand its existing $65 billion U.S. operations with an additional $100 billion investment.
For TSMC, the deal offers a way to bypass the heavy tariffs Trump has threatened on the global chip industry. For the U.S., it promises tens of thousands of construction jobs and ensures that crucial semiconductor technology is developed domestically—shielded from Chinese control should Beijing attempt to annex Taiwan.
Taiwanese law requires government approval for any foreign investment exceeding $1.5 billion—a mere fraction of this deal’s scale. President Lai Ching-te has stated that the government will review the agreement with Taiwan’s “national interests” in mind, though approval is expected to be a mere formality.
Loss of the Infinity Stone
For Taiwan, losing its semiconductor industry is akin to surrendering an Infinity Stone. Taiwan’s semiconductor industry—anchored by TSMC, its largest and most advanced firm—contributes up to 15% of the nation’s GDP. Often referred to as Taiwan’s “Silicon Shield,” it serves as a strategic asset, ensuring that global stakeholders remain invested in keeping both Taiwan and the world’s chip supply beyond China’s grasp. With Donald Trump signaling a waning personal commitment to Taiwan’s defense, this leverage has only become more critical.
Opposition figures from the Kuomintang (KMT) argue that shifting semiconductor production to the U.S. could weaken Taiwan’s geo political standing. They caution that as TSMC increases its U.S. operations, Taiwan’s importance to Washington may decline, reducing America’s incentive to support the island in the future.
What the Government Says
Lai’s office has assured that TSMC will keep its most advanced manufacturing processes in Taiwan. However, this statement appears to contradict remarks made by TSMC CEO C.C. Wei and Donald Trump at the White House. Wei stated that the deal would enable the production of the most advanced chips on U.S. soil, while Trump emphasized that the world’s most powerful AI chips would be manufactured in America.
Despite these concerns, the Ministry of Economic Affairs remains confident, highlighting Taiwan’s semiconductor workforce as its greatest strength. The ministry pointed to the country’s well-established STEM training-to-employment pipeline as a key factor in sustaining its chip industry’s success. According to officials, Taiwan’s semiconductor sector depends on its highly skilled workforce—an advantage that other nations would struggle to replicate.
However, public concerns over the potential weakening of Taiwan’s “Silicon Shield” continue to grow, putting pressure on the Lai administration to provide clearer answers. In response, President Lai and Wei held a press conference on Thursday. Reflecting on a tense few days of meetings with two presidents, Wei suggested that Lai had urged him to address the media, recognizing their responsibility to explain the situation to the public.
Will the Deal Strengthen Relations?
The TSMC-U.S. deal is a strategic move to strengthen Taiwan-U.S. relations. Lai hailed it as a historic milestone, while he and Wei reassured the public that the investment would not undermine TSMC’s domestic operations. Both leaders emphasized that the decision was driven by increasing U.S. customer demand rather than political pressure from Washington.
This shift can be seen as an effort to curb China’s influence in the global semiconductor supply chain by expanding Taiwan’s production, particularly in the U.S. However, without Taiwan’s highly skilled workforce, the U.S. may find it difficult to surpass China’s chip industry. Even if manufacturing relocates, Taiwan’s expertise will remain critical, making a complete transfer of semiconductor dominance to the U.S. unlikely. Taiwan will continue to be important to the U.S.
