As Europe prepares for an era of economic rebalancing, one seemingly distant island has become increasingly important to its future: Taiwan. Though small in size, Taiwan produces over 90% of the world’s most advanced semiconductors—the chips powering everything from AI and electric vehicles to telecoms and defence systems. With mounting geopolitical tensions and a shifting global order, this vital role is under strain, exposing a web of dependencies that reach far beyond East Asia. Just weeks after TSMC (Taiwan Semiconductor Manufacturing Company) confirmed a landmark $100 billion expansion in its U.S. operations[1], President Donald Trump announced a sweeping 32% tariff on Taiwanese semiconductors—sending shockwaves through global markets and raising fresh questions about the future of U.S.–Taiwan relations.[2]
The announcement has sparked both speculation and concern in Taipei, where policymakers and industry leaders are now recalibrating expectations in the face of what many view as a complex, high-stakes realignment. The semiconductor sector, long regarded as the island’s economic backbone and geopolitical insurance policy, suddenly appeared vulnerable. Was this new American push into chip manufacturing a protective partnership — or a disguised extraction? To many in Taiwan and across East Asia, the line between cooperation and coercion has grown increasingly blurred, fuelling scepticism about America’s long-term intentions in the region.
A Divine Mountain
TSMC, by most definitions of ‘’advanced semiconductors’’, manufactures roughly 90% of the world’s most advanced semiconductors for companies like Apple, Nvidia and Qualcomm, and is frequently hailed as Taiwan’s “silicon shield” or 護國神山 (“the divine guardian mountain”).[3] The idea is simple: as long as Taiwan remains irreplaceable in global tech supply chains, no country—especially not China—can afford to invade or destabilise it without catastrophic consequences. Yet this strategic asset has increasingly come to resemble a double-edged sword.
The history of TSMC is itself a story of deliberate state planning. In 1986, then-Minister of Economic Affairs Li Kwoh-ting, known as “the father of Taiwan’s economic miracle,” invited semiconductor pioneer Morris Chang to lead the nascent Industrial Technology Research Institute. With significant state capital and a bold vision, Chang established TSMC in partnership with the Dutch firm Philips, which provided $58 million and access to intellectual property in exchange for a 27.5% stake. By 2016, TSMC had surpassed IBM in market value, and in 2017, Intel followed.[4]
Yet the sheer scale of its success may now be turning into a trap. Taiwan’s economy has grown dangerously dependent on one industry: semiconductors now account for an estimated 18% of its GDP and 38% of its stock market value.[5] With the U.S. actively incentivising domestic chip production, and leveraging both subsidies and security fears, many Taiwanese fear the beginning of a slow but irreversible hollowing out of their industrial base. The term “forced technological transfer” once reserved for China’s practices, now echoes uncomfortably close to home.
Redrawing the Chip Map
The CHIPS and Science Act passed in 2022, has poured tens of billions of dollars into reviving the U.S. semiconductor manufacturing sector.[6] While officially aimed at reducing reliance on Chinese supply chains, the act has also led to a marked shift of advanced chip capabilities from allies like Taiwan and South Korea to American soil. The 2025 announcement of a further $100 billion investment by TSMC in the U.S. reinforces the scale of this movement.[7]
Yet the implications for Taiwan are stark. At home, critics worry that this “de-risking” strategy is coming at their expense. Some fear a looming threat of rapid deindustrialisation of the Taiwanese economy accompanied by the so-called “Dutch disease’’, where an overconcentration on high-value industries leads to negative consequences for other sectors of the economy, particularly manufacturing and exports. Tzu-Hsien Tung, the co-founder of ASUS warned of “asymmetric dependencies” and called for immediate diversification to counterbalance the semiconductor reliance.[8]
Moreover, even as the U.S. demands more defence spending from Taiwan and sells it billions in arms, it remains reluctant to commit to a clear policy on sovereignty. The Taiwan Relations Act of 1979 outlines a framework for U.S. support but falls short of any formal guarantee.[9] Strategic ambiguity, once seen as a deterrent to Chinese aggression, now fuels doubt and insecurity, especially in light of recent global crises such as the war in Ukraine and Washington’s chaotic withdrawal from Afghanistan.
Between Assurance and Ambiguity
This tension between military equipment support and strategic ambiguity is especially acute in Taiwan. On one hand, arms sales have surged—Washington approved over $15 billion in weapons transfers between 2023 and 2025, including HIMARS rocket systems and F-16 upgrades.[10] On the other hand, the reluctance to commit to Taiwan’s defence in unequivocal terms has left the public wary.
A 2024 opinion poll conducted by the Taiwanese Public Opinion Foundation found that while 67% of Taiwanese viewed the U.S. President's approval of a $567 million security assistance package to Taiwan positively, only 32% believed Washington would intervene militarily in the event of a Chinese invasion.[11] This discrepancy points to a growing crisis of trust, intensified by the suspicion that the U.S. might ultimately value chip fabs more than its credibility as an ally.
Trump’s Taiwan Calculus
Beneath the headlines and official statements, a more assertive recalibration of U.S.–Taiwan policy appears to be taking shape. Since last month, U.S. policy toward Taiwan has undergone quiet but significant changes. A revision of the State Department fact sheet removed opposition to Taiwanese independence and endorsed greater participation in international organisations “where applicable”—language that Beijing swiftly condemned. Economically, Trump announced a $100 billion investment from TSMC to expand chipmaking in the U.S., backed by CHIPS Act subsidies but coupled with the imposition of a 32% tariff on other Taiwanese products—raising concerns in Taiwan about hollowing out its “Silicon Shield.”
Simultaneously, the White House lists Taiwan as a country on the list of tariff targets, despite a lack of formal diplomatic ties. The revision coincided with a broader hardening of rhetoric that cast Taiwan as a pivotal strategic asset in the contest with Beijing. [12] These policy moves were mirrored by efforts to shift the security burden.
As of April 2025, Taiwan was reportedly negotiating an additional US$7–10 billion arms package, building on Washington’s US$15 billion weapons approval from October 2024, a shift from aid to sales that aligns with Trump’s transactional foreign policy.[13]
Meanwhile, the presence of U.S. naval forces in the Taiwan Strait and signals of increased military transfers reflect a subtle erosion of strategic ambiguity. Beijing has accused Washington of escalating tensions. Taipei, though cautious, appears to be adjusting to the new normal.
What emerges is a transactional, deterrence-heavy strategy, one that stops short of endorsing full independence, but unmistakably raises the stakes. Taipei welcomes the support; Beijing, predictably, sees escalation.
Holding Together, Barely
In March 2024, Taiwan's government implemented measures to ensure that significant overseas investments by Taiwanese companies, particularly in the semiconductor sector, receive proper approval. For instance, the Presidential Office emphasised that the most advanced chipmaking technology would remain in Taiwan, including companies like TSMC that invest abroad.[14] Meanwhile, in neighbouring South Korea, a parliamentary inquiry launched in early 2025 into the operations of Samsung’s Texas fab revealed that local subsidies had effectively underwritten the transfer of chipmaking knowledge to U.S. partners with no reciprocal technology-sharing agreement in place.[15]
Taiwan’s faith in the U.S. alliance is increasingly weakened by the reality of unequal bargaining power. While the island remains grateful for security cooperation, it is not blind to the shifting power dynamics. Whether this trend continues will depend in part on how Taipei chooses to navigate the fine line between dependence and diversification. Calls for legislature reform such as the Industrial Innovation Act (產業創新條例) point to a growing awareness of the risks.[16]
While TSMC continues to build fabs in the US, and the U.S. continues to “friend-shoring” supply chains, Taiwan must reckon with a sobering possibility: its greatest strength may also be its greatest vulnerability.
[1] Associated Press. “Taiwan Says Chipmaker’s Move to Invest $100 Billion in the US Wasn’t because of US Pressure.”AP News, 6 Mar. 2025
[2] Blanchard, B., “Taiwan says US tariffs unreasonable, partly blames Trump policies for trade surplus”, Reuters, April 3, 2025.
[3]瞿宛文, “護國神山的由來：當年的台積電，是如何在一片質疑中被催生出來？｜瞿宛文／獨評讀好書｜獨立評論” [The origin of the ‘Sacred Mountain’ of Taiwan: How TSMC was born despite scepticism], 獨立評-天下, 天下雜誌, March 15, 2023.
[4] Culpan, Tim. “Chipzilla Intel Toppled by Taiwan’s Supplier to the Stars.” Bloomberg.com, Bloomberg’’, March 22, 2017.
[5] 台灣經濟研究院. “台灣經濟研究院全球資訊網.”| "Taiwan Institute of Economic Research Global Information Network." Tier.org.tw, 2024.
[6] Wiseman, P., “Biden’s Big Semiconductor Law Will Ramp up US Chip Production -- but at a High Cost, Report Finds”, AP News, January 15, 2025.
[7] Associated Press. “Taiwan Says Chipmaker’s Move to Invest $100 Billion in the US Wasn’t because of US Pressure.”AP News, 6 Mar. 2025
[8]聯合新聞網, “「護國神山是奇怪觀念」 童子賢：不能幻想台積電再守護台灣20年” [“The Sacred Mountain is a strange concept” –Tzong Tse-shan: We can’t expect TSMC to guard Taiwan for another 20 years], 聯合新聞網, March 9, 2025.
[9] US Congress. “H.R.2479 - 96th Congress (1979-1980): Taiwan Relations Act.”
[10] CATO.org, “Taiwan Arms Backlog, November 2024 Update: HIMARS Delivery and a Second Trump Administration”, Cato.org, 2025.
[11] Taiwan Public Opinion Foundation, October 2024 Public Opinion Poll – English Excerpt, TPOF, October 2024.
[12]Al Jazeera. “US Drops Wording Saying It Does Not Support Taiwan Independence.”Al Jazeera, 17 Feb. 2025.
[13] Reuters. “Taiwan Considering Multi-Billion Dollar Arms Purchase, US Sources Say.”Reuters, 17 Feb. 2025.
[14]中華經濟研究院, “台版「晶片法案」過了！一文看懂重要性在哪！除了台積電還有幫助到誰？”| "Taiwan's version of the 'Chips Act' has passed! A quick read to understand its importance — who benefits besides TSMC?", 中華經濟研究院, January 7, 2023.
[15] Jo, H., “Samsung, SK Hynix on Edge as US Reconsiders Chips Act Awards”, The Korea Herald, February 14, 2025.
[16] 中華經濟研究院, “台版「晶片法案」過了！一文看懂重要性在哪！除了台積電還有幫助到誰？”| "Taiwan's version of the 'Chips Act' has passed! A quick read to understand its importance — who benefits besides TSMC?", 中華經濟研究院, January 7, 2023.
