U.S. Commerce Secretary Howard Lutnick despatched shock waves by way of Taipei when he declared in late September that Washington couldn’t assure that it will defend Taiwan until the island agreed to a 50-50 cut up of its semiconductor manufacturing with the US. The idea of a “silicon defend”—the concept that international dependence on Taiwan’s chips enhances its safety—has lengthy formed perceptions of Taiwan’s strategic worth to the world. Lutnick’s blunt assertion flipped that logic: Removed from being a defend, Taiwan’s dominance of semiconductor manufacturing was solid as a legal responsibility for the US.
Many U.S. suppose tank analysts and coverage consultants usually assess the menace to Taiwan’s silicon defend by way of an exterior lens, specializing in Beijing’s accelerating push for semiconductor self-reliance and the Taiwan Semiconductor Manufacturing Firm’s (TSMC) diversification into abroad markets equivalent to Arizona.
Nonetheless, the true fragility of the silicon defend lies not in Arizona or Beijing, however inside Taiwan’s personal borders: the shortage of institutionalized alignment between Taiwan’s authorities and TSMC, a personal agency. Formally, the Taiwanese authorities holds 7.69 p.c of TSMC shares, represented on the corporate’s 10-member board by way of the Nationwide Growth Fund. The place seems extra symbolic than impactful, providing the looks of presidency participation in key choices however little actual affect over TSMC’s enterprise course or alignment with authorities priorities.
The administration of President Lai Ching-te totally acknowledges TSMC’s central position in Taiwan’s survival, but it has continued to defer to the corporate’s enterprise choices. Taipei has repeatedly permitted unprecedented new abroad investments by TSMC and framed them solely after the actual fact as being helpful to Taiwan’s pursuits, fairly than steering them to align coherently with Taiwan’s nationwide safety agenda. Whereas compromises between enterprise pursuits and state pursuits are inevitable, the present stability tilts closely towards TSMC’s industrial logic.
In former President Tsai Ing-wen’s 2021 Overseas Affairs commentary, she framed semiconductors as a strategic asset for Taiwan to personal a defensive buffer in opposition to provide chain coercion in addition to an anchor of Taiwan’s irreplaceable position in international financial interdependency. Wu Jieh-min, a distinguished researcher at Taiwan’s Academia Sinica, reframed this as “silicon defend 2.0,” arguing that TSMC’s abroad diversification is embedding Taiwan in a codependent financial safety relationship with the democratic world.
Nonetheless, business leaders have remained largely ambivalent about these narratives. TSMC’s then-Chairman Mark Liu acknowledged explicitly in a 2023 New York Instances interview that semiconductors wouldn’t issue into China’s calculus on whether or not to invade Taiwan. His feedback mirrored TSMC’s dedication to maintain the agency above politics. Whereas the federal government has signed off on it after the actual fact, the corporate’s long-term technique of world growth ought to be understood as being aimed toward securing market entry, making certain sustainable provide chain resilience, and optimizing shareholder worth—not as a type of nationwide deterrence.
Earlier this yr, for example, TSMC grabbed international headlines when it introduced historic commitments to extend its complete funding in the US to $165 billion. The corporate framed the choice as a method to scale back provide chain danger, safe long-term contracts with main purchasers equivalent to Apple and Nvidia, and hedge in opposition to potential U.S. tariffs on Taiwan-made chips.
However simple industrial logic alone can’t justify TSMC’s preliminary growth to Arizona, introduced in 2020, or its subsequent funding bulletins. Regardless of far greater capital expenditures and working prices than Taiwan fabs, TSMC proceeded underneath U.S. stress to “choose a facet,” proving its dedication to the US’ push for a extra secured onshore provide chain.
Trump 2.0 has additional sharpened this dynamic. The administration has used unpredictable tariff threats to stress Taipei into nearer alignment with Washington, amid fears that Trump may recalibrate U.S. strategic ambiguity towards Taiwan as a part of a broader cope with China.
The push to convey TSMC’s manufacturing onshore seems to be pushed much less by financial logic than by U.S. considerations over long-term provide chain safety. America additionally doesn’t appear to have totally acknowledged the political sensitivities that such a transfer has stirred in Taipei. And at TSMC’s headquarters in Hsinchu, choices are seemingly coming in response extra to U.S. calls for than Taiwan’s personal pursuits.
This absence of alignment and inner consensus leaves no clear limits on how far TSMC’s choices would possibly drift from authorities course sooner or later—a vulnerability that undermines the very credibility of the silicon defend.
By regulation, the Ministry of Financial Affairs has authority to dam investments value greater than 1.5 billion new Taiwan {dollars} (about USD $50 million) if they’re deemed opposite to Taiwan’s nationwide curiosity. This covers each TSMC abroad funding, however the authorities has by no means invoked this energy.
The reasoning is obvious. Halting a U.S. fab building outright can be politically untenable. Blocking investments dangers instantly straining ties with the US, and Washington would seemingly interpret the transfer as deviating from its long-standing expectations for Taiwan to align intently with its improvement priorities. It may additionally create the notion of a rift between Taipei and TSMC—one which may alarm markets and buyers, triggering fears of direct political interference within the firm’s operations. The federal government’s tendency, subsequently, had been to approve TSMC’s requests and later body them as per Taiwan’s nationwide safety.
TSMC’s Arizona growth is a telling instance. Whereas the Democratic Progressive Get together (DPP) authorities has persistently framed the undertaking as bolstering Taiwan’s nationwide safety by dispersing danger and deepening financial interdependence, this narrative emerged solely after the deal was struck—an indication that Taipei was reacting to, fairly than shaping, the strategic phrases of TSMC’s abroad growth. This was seemingly aimed toward managing public skepticism and heading off political assaults from opposition events.
This misalignment has additionally intensified divisions in Taiwan’s home politics. The Kuomintang (KMT) get together has accused the Lai administration of letting TSMC set the agenda whereas stoking public fears that U.S. stress may erode Taiwan’s silicon defend and scale back its bargaining energy. Beijing has sought to capitalize on these tensions, framing U.S. stress on TSMC as proof that Washington will someday abandon Taiwan.
There’s actually a point of coordination between the federal government and TSMC. However Taipei has few bargaining chips to play in its negotiations, and the agenda is being set by TSMC’s enterprise wants, not Taiwan’s safety worries. The Arizona growth was a calculated enterprise determination primarily pushed by TSMC, formed by U.S. political stress and the corporate’s intrinsic dependence on U.S. digital design automation software program: a crucial element that permits TSMC’s prospects to design the chips that it customized makes for consumer wants. U.S. corporations Synopsys and Cadence, which collectively management greater than 80 p.c of the worldwide market, are indispensable companions. Whether or not the growth to Arizona served Taiwan’s geopolitical curiosity was by no means the corporate’s concern.
U.S. curiosity in TSMC funding predates Trumpian geopolitics. Again in 2016, the U.S. Worldwide Commerce Administration invited TSMC to contemplate constructing fabs in the US for risk-dispersion functions. TSMC responded positively and even scouted potential places, motivated partly by its reliance on the U.S. market, which then accounted for about 75 p.c of its income, in line with a supply who spoke on situation of anonymity. But the plan was deserted: Projected prices had been 40 p.c greater than Taiwan’s baseline in 2016, climbing to 70 p.c greater by 2018, with general expenditures anticipated to greater than double. On the time, strategic choices remained guided primarily by price effectivity and enterprise fundamentals, in a geopolitical local weather the place provide chain vulnerabilities weren’t securitized.
Prices as soon as stored TSMC anchored at house, however when geopolitics shifted, U.S. stress and dependence on American know-how compelled the corporate’s hand. Crucially, the Arizona complexes haven’t but crossed a nationwide safety purple line for Taiwan. However their approval, absent clear tips, is a reminder of how simply industrial logic and overseas stress can steer TSMC in instructions that will someday collide with Taiwan’s safety pursuits.
Taipei has, nonetheless, demonstrated its means to implement boundaries. Earlier this yr, the Legislative Yuan amended Article 22 of the Industrial Innovation Act to introduce the “N-1” rule, which limits abroad amenities of Taiwanese chipmakers to producing chips one technology behind their most superior course of in Taiwan fabs. In impact, although receiving discontent from the Trump administration, TSMC is now legally barred from producing its cutting-edge 2-nanometer chip in Arizona. The revision serves as an important precedent that hyperlinks possession of superior know-how as inseparable from nationwide safety.
The connection between TSMC and Taiwan is extra reciprocal than usually assumed: TSMC is determined by Taiwan as a lot as Taiwan is determined by TSMC. For all its international attain, TSMC nonetheless depends essentially on Taiwan for expertise, analysis and improvement, suppliers, and the infrastructure that sustains its main capability. Constructed on a long time of commercial coverage, it continues to attract power from Taiwan’s distinctive ecosystem—1000’s of specialised small-to-medium enterprises, an engineering tradition of velocity and precision, and a workforce educated to push processes towards perfection, which makes it extremely difficult to copy Hsinchu overseas.
Its most superior course of applied sciences stay concentrated at house underneath the N-1 rule, whereas abroad fabs lag about two to 3 years behind present advances and are restricted to older nodes. Replicating Taiwan’s ecosystem overseas requires not solely large capital but additionally engineers, suppliers, and years of yield refinement. For the foreseeable future, Hsinchu will stay the beating coronary heart of TSMC’s innovation—a actuality that provides Taipei way more leverage than it has thus far dared to train.
The top purpose of sustaining Taiwan’s dominance within the semiconductor provide chain and the power of the silicon defend is obvious: to increase Taiwan’s area to maneuver for its personal survival amid the intensifying U.S.-China rivalry. Subsequently, it’s essential that authorities and business align company choices with nationwide safety wants fairly than leaving them to diverge unchecked. On the identical time, as Washington seeks to onshore extra of the superior semiconductor provide chain for nationwide safety causes, it should additionally acknowledge that Taiwan’s dominance in international chipmaking is the linchpin of its geopolitical bargaining energy.
This isn’t a name for nationalization. TSMC shouldn’t and can’t be changed into a state enterprise. Nonetheless, the federal government should cease treating TSMC’s choices as untouchable. Nobody voted for TSMC, but its choices more and more form Taiwan’s future.
To take care of each home confidence and worldwide credibility, Taipei should enhance transparency in the way it interacts with TSMC and clarify clearly to the general public how company choices align with nationwide safety targets. With out such openness and a clearer position for the state, Taiwan dangers leaving its destiny too intently tied to company choices. By constructing transparency into its dealings with TSMC and asserting a firmer position in aligning enterprise with nationwide safety, Taiwan will strengthen each its democracy and its deterrence.
