Taiwans Silicon Shield

Lucas Leverström
Dec 1, 2024
4 min read

Updated: May 17

By Lucas Leverström

Taiwan is a keystone in the East Asian security architecture. Whoever controls or has influence over Taiwan has an enormous strategic advantage in projecting power in East Asia. The Taiwan Strait has been a source of geopolitical tension and instability between powerful nations throughout modern history, from the Qing dynasty and the early European powers to modern-day China and the United States. Taiwan is a self-governing island located east of China and north of the Philippines.

The relationship between China and Taiwan is complex, rooted in a history that dates back to the end of the Chinese Civil War in 1949. At that time, the Kuomintang-led government of the Republic of China (ROC) retreated to Taiwan after being defeated by the Communist Party of China (CPC), which established the People’s Republic of China (PRC) on the mainland. Both governments claimed to be the legitimate rulers of China, leading to decades of tension. The United States and its allies officially recognized the ROC as the legitimate China until, in 1971, under the Nixon administration, it officially switched its recognition to the PRC. This move was part of a broader Cold War strategy to counterbalance the Soviet Union by exploiting tensions between the two communist powers, thereby weakening their unity and strengthening U.S. influence on the global stage. While Taiwan operates with its own government and democratic system, China views it as a breakaway province that must eventually be reunified with the mainland.

TSMC Taiwans Silicon Shield

Taiwan has for the last few decades become dominant in the semiconductor manufacturing industry, being responsible for 55% of global production. It is home to the world’s largest and most advanced semiconductor company, TSMC. More critically, it supplies almost all of the most advanced chips, essential for everything from smartphones, electric vehicles (EVs) to artificial intelligence and military equipment. The recent explosive growth in artificial intelligence occurred in part thanks to TSMC. The recent explosive growth in artificial intelligence owes much to TSMC, which provides the highly sophisticated chips necessary to train neural networks – the most advanced AI algorithms.

In a world increasingly dependent on advanced technology, Taiwan’s semiconductor industry has become not just an economic engine, but also a geopolitical asset. This shift highlights the argument that semiconductors have now surpassed oil in importance to nations. As Pat Gelsinger, the former CEO of Intel has stated, the last five decades of geopolitics were shaped by oil, while the next five will be defined by semiconductors.

Taiwan’s unique position led journalist Craig Addison to coin the expression “silicon shield” in his 2001 book Silicon Shield: Taiwan’s Protection Against Chinese Attack, silicon being the material that the semiconductors are made of. Countries that rely on Taiwanese chips, especially the United States and other Western powers, have an interest in maintaining peace and stability in the region. President Biden has reinforced this commitment, stating that the United States would deploy American soldiers to defend Taiwan in the event of a conflict. The risk of triggering a global economic crisis, coupled with the logistical nightmare of replacing Taiwan’s chip manufacturing capabilities, makes the idea of a conflict over Taiwan untenable. For instance, modern fighter jets, missile systems, and other military applications rely on semiconductors sourced from Taiwan, meaning that a disruption in supply could even affect national security in the U.S. and other major powers. The silicon shield, it is argued, has therefore helped Taiwan to deter China from invading.

COVID-19 and the EU’s, China’s, and the US’s Chip Plans

The COVID-19 pandemic disrupted nearly every industry worldwide, and the semiconductor sector was no exception. Lockdowns, factory shutdowns, and shifts in consumer demand led to a shortage of semiconductor chips. As demand for electronic devices surged with the global move to remote work and digitalization and shift in consumer behavior, supply chain bottlenecks caused delays in the production of everything from smartphones and gaming consoles to cars and industrial equipment. This shortage was a wake up call for governments around the world as countries realized their reliance on a small number of chip producers, concentrated primarily in East Asia. The U.S., China, and the European Union increasingly viewed semiconductors not just as economic assets but as critical components of national security. This sparked a wave of initiatives aimed at building up domestic semiconductor manufacturing capabilities to reduce reliance on foreign powers.

In response to the vulnerabilities exposed by the pandemic, these powers have each launched major initiatives to build and expand their semiconductor industries. The United States has made semiconductor independence a top priority, passing the $65 billion CHIPS and Science Act in 2022 to fund domestic chip production.

This legislation supports new manufacturing facilities, including a new TSMC chip fabrication plant in Arizona. China has intensified its push for semiconductor self-sufficiency by launching a $47.5 billion state-backed investment fund. Established on May 24, 2024, the state backed fund underscores President Xi Jinping’s commitment to reducing reliance on foreign technology amid US export restrictions. The European Union also recognized the risks of its dependency on non-European chip suppliers and responded by introducing the €43-billion European Chips Act, with a goal of producing 20% of the world’s semiconductors by 20304.16

Taiwan Plans to Stay Relevant

The investments by the US, China, and the EU to develop their own semiconductor industries pose a threat to Taiwan’s silicon shield. If these nations achieve greater self-sufficiency in chip production, Taiwan’s silicon shield may disappear. To uphold the shield, the Taiwanese government has invested strategically in education to sustain its semiconductor leadership on the global stage. Collaborating with TSMC and other major chipmakers, the government has launched specialized ”chip schools” and graduate programs to train skilled engineers. The Taiwanese government has also decided to keep TSMC’s most advanced 2-nanometer chip production exclusively in Taiwan, a move that can be seen as a part of a broader strategy of upholding the silicon shield.

Taiwan’s chip industry has evolved from a technological marvel into a geopolitical asset, offering the island a means of deterrence. Yet, as global tensions rise and other nations strive to achieve semiconductor independence, Taiwan’s position is both powerful and precarious. The silicon shield may protect Taiwan for now, but it is not certain it will protect it in the future as competition increases.