Repeatedly, in words and actions, the U.S. This new aide prioritizes the semiconductor industry, in which Taiwan has taken a commanding lead in production globally. Taiwan produces over 90% of the world’s advanced semiconductors, with Taiwan Semiconductor Manufacturing Co. (TSMC) leading as the world’s largest and most advanced contract chipmaker. In this Choke Point, we’ll take a closer look at TSMC’s special role, producing all the chips for American giants like Nvidia and Apple.
Amid rising concerns about Taiwan’s critical position in global chip production and its geographic proximity to China, U.S. Commerce Secretary Howard Lutnick has proposed a “50-50” split in semiconductor production between the U.S. and Taiwan. This proposal would strengthen domestic manufacturing capacity and lessen the supply chain reliance on foreign entities.
For Lutnick, the need to boost semiconductor supply was more urgent than ever. He stated, “My objective, and this administration’s objective, is to get chip manufacturing significantly onshored — we need to make our own chips.” His goal is to get to around 40% domestic semiconductor production by the end of President Donald Trump’s current term. Fulfilling this new ambitious goal will take a whole lot of money, more than $500 billion worth.
The rationale for this shift is rooted in Taiwan’s strategic importance and the potential risks posed by its distance from the U.S. coupled with China’s aggressive military posture. Beijing considers democratic Taiwan to be a province of China and has made clear its intent to retake the island, by military force if need be. Lutnick made the case for the logistical challenges of relying on Taiwan for chips fabrication. He asked how the U.S. could defend its interests while entrusting an island that was under near-perpetual threat. “My argument to them was, well, if you have 95% [chip production], how am I going to get it to protect you? You’re going to put it on a plane? You’re going to put it on a boat?” he remarked.
Current trade negotiations between the U.S. and Taiwan will be important for reducing tariff obligations for Taiwanese companies. Both countries are stepping up efforts to deepen their economic cooperation. TSMC is taking the lead to meet these challenges head on. They’ve recently declared intentions to invest another $100 billion, upping their total planned investment to $165 billion. This strategic shift underscores TSMC’s ongoing strategy to solidify its leadership position in semiconductor manufacturing while assuring that it continues to meet global demand.
Over the past few years, the “Silicon Shield” theory has become popular. It further proposes that Taiwan’s centrality to the global semiconductor value chain might help keep China from using direct military options. The future remains uncertain. In addition, China has engaged in large-scale military exercises including regular rehearsals for a blockade of Taiwan, continuing to test its capabilities while increasing regional tensions.
Until now, the U.S. has long held the competitive edge in the global semiconductor market. It has lost significant market share due to industry shifts and the rise of Asian manufacturers like TSMC and Samsung. We saw that just recently from former President Trump—his obvious frustration by the dropping chip business. He further accused Taiwan of “stealing” American jobs and proposed that they pay in cash for their own defense.