Taiwan’s semiconductor edge to shore up security ties

WHAT’S HAPPENING? Taiwan has been pertinent to global high-tech supply chains for years, thanks to its primacy in semiconductor production.


Taiwan has been pertinent to global high-tech supply chains for years, thanks to its primacy in semiconductor production. Retaining this place on top may be of vital importance to Taiwan’s national security. 


– The global shortage of semiconductors continues into its third year

– Taiwan has established itself as the unrivaled center of global high-end chip production

– Taiwan will continue to defend its edge in advanced semiconductor production as semiconductors are vital components of its economy and national security.


Global supply chains have experienced disruptions and shortages since the pandemic-induced global economic shock in early 2020. One particular shortage of strategic significance to economies and governments everywhere is that of semiconductors, or microchips. The supply of electronic goods — including nearly everything that contains microchips — has lagged behind demand for the past two years. Initial cancellations of orders by companies who expected an economic downturn due to the outbreak of COVID-19, coupled with much greater demand for high-tech goods as a result of lockdowns left semiconductor manufacturers scrambling to catch up with production. Russia’s invasion into Ukraine further stretched already strained supply chains, not least because some of the raw material required for microchip production, such as neon, is produced in Ukraine. 

Much of semiconductor-related supply chain disruptions is down to a single bottleneck: the island of Taiwan, where most advanced microchips originate. Taiwan has greatly profited from the spike in semiconductor demand. While most major economies contracted during to the pandemic, Taiwan’s GDP grew by 3.1% in 2020, even outperforming China’s growth of 2.3% in the same year. It continues to be one of the best performing economies, having just grown by 6.5% in 2021. Despite Taiwan only having official diplomatic relations with a handful of minor economies, it remains a central part of the global economy. The relatively small island of 23 million has consistently punched above its weight in economic terms, mainly because Taiwan lies at the heart of global high-tech supply chains.


Taiwan’s role as a key player in high-tech industries is largely due to its semiconductor manufacturing sector, which accounts for 15% of Taiwan’s GDP and 40% of its exports. Taiwan is the global center for semiconductor production, as virtually all high-end chips originate from there. The shining star of Taiwan’s microchip industry is Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures around 90% of global high-end chips. TSMC is a contract manufacturer, commonly referred to as foundry. A foundry produces microchips for other tech companies, which then put them into their devices, including smartphones, laptops, cars, or refrigerators. TSMC is the world’s largest and most advanced foundry and all high-end smartphones use their chips. 

Modern semiconductors are the most complex product ever to be mass produced. Semiconductor factories are expensive and can take years to build. Microchips are made up of billions of tiny transistors, which keep getting smaller, thereby allowing for the production of increasingly powerful and energy-efficient chips. Their complexity tends to be expressed in the size of these transistors, which are currently measured in nanometers (nm). Human DNA is 2.5 nm wide, which is also around the size of transistors on the most high-end semiconductors developed at TSMC. Taiwan is far from the largest country of origin for microchips. The US, South Korea, Japan, and the EU all produce more, but none have the capability to produce the highest-end semiconductors. 

China has attempted to catch up with Taiwan’s production capability; however, it still lags far behind. The economies of Mainland China and Taiwan have become highly intertwined. Not only does Taiwan supply much of the processing power for electronic devices assembled in China, but some of China’s largest electronics manufacturers, including Foxconn and Pegatron, are Taiwanese companies. While electronic device manufacturing largely takes place in Mainland China, all of the high-end semiconductor production has occurred in Taiwan.

This is part of a deliberate strategy by the Taiwanese government, which sees the island’s advantage in semiconductor technology as its ace in geopolitics. Remaining number one may be crucial to its very survival as a nation. Prior to Russia’s invasion of Ukraine, Taiwan was widely seen as a likely flash point for global warfare. In recent years, China has been increasingly hostile toward Taiwan.

This can be seen in recent events where it has increasingly violated Taiwanese geographic boundaries with its navy and air force. Taiwan has counted an estimated one thousand incursions by Chinese fighter jets into its airspace in 2021 alone, a tripling of the previous record just a year prior. However, it is worth bearing in mind that these Chinese fighter jets rely on Taiwanese semiconductors. To Taiwan, the world’s reliance on its semiconductor manufacturing sector is more than just an economic necessity, it is also a matter of national security. Defending its technological edge will continue to be a strategic priority.


Supply chain disruptions have reinvigorated global discussions about the issue of dependency in strategic industries. The dependence on Taiwanese semiconductor exports means that the current semiconductor shortages may continue into 2023. The US has attempted to regain autonomy in semiconductor production through initiatives such as the CHIPS for America Act. Meanwhile, the EU is pushing ahead with the European Chips Act, a piece of legislation aiming to bolster semiconductor production within the EU while reducing dependency on Asian producers.

However, such initiatives will likely change little about the West’s dependence on East Asian manufacturing for high-end chips, even though they will increase the output of domestic semiconductor production. The EU’s Chips Act aims at doubling its share of global chip production to 20% by 2030, which is a plausible goal. This will not achieve autonomy, however,  since the current domestic production is entirely on the lower-end spectrum of semiconductor technology. To wean itself off Taiwanese high-end chips, the EU would need TSMC’s help in setting up cutting-edge foundries. This is highly unlikely to happen, given the importance of semiconductor technology for Taiwan’s national security.

There is no indication that competing manufacturers from the US, EU, Japan, or China are likely to catch up with Taiwan in the coming years. Even though Taiwanese semiconductor manufacturers fell victim to a massive Chinese hacking operation that stole large quantities of sensitive data, foreign manufacturers do not have the current capabilities to catch up. South Korea is currently the only country with the potential to overtake Taiwanese high-end chip dominance, with Samsung being the sole foreign competitor capable of producing sub-10 nm microchips. Samsung has been trying to catch up for years, and also has the support of the South Korean government, which invests billions in trying to overtake Taiwan. This could potentially happen within a few years, but is unlikely while TSMC continues to have the edge. And while there is growing political will globally to move away from Taiwan, companies such as Apple, Amazon, AMD, Google, and NVIDIA continue to rely almost exclusively on TSMC for semiconductor production. 

TSMC has agreed to build offshore chip factories, including in the US and Japan, which will produce semiconductors at the current cutting edge of 5 nm. However, by the time they open in 2024, these factories will already lag behind TSMC’s capabilities in Taiwan, which will have moved far beyond 5 nm chips. TSMC will likely continue collaboration with other countries in setting up semiconductor factories, which will ease some of the pressure on supply chains, but the highest-end chips will continue to come exclusively from Taiwan.

Taiwan will remain at the center of global high-tech supply chains. Cutting Taiwanese semiconductor foundries off from the rest of the world would send shockwaves throughout major economies and potentially set microchip production back by several years. This is more than just a hypothetical scenario, given that the Chinese government, which sees Taiwan as a breakaway Chinese province, has repeatedly emphasized the importance of reuniting Taiwan with the Mainland. Based on the firm opposition to reunification by the people of Taiwan, this could only plausibly happen by use of force. While this is highly unlikely to happen in the near term, Beijing may choose to ramp up nationalistic rhetoric and further increase its aggressive stance toward Taipei this year to distract from economic problems at home. 

Taipei will therefore work hard to not only foster closer security ties with US-aligned countries, but also to keep its technological edge. In the coming years, other major economies probably will not be able to become independent from Taiwanese semiconductor imports, but Western governments should consider whether this is actually a meaningful goal. Both Washington and Brussels have become increasingly vocal in their support for Taiwan in light of growing Chinese assertiveness. Focusing on closer economic and security ties with Taiwan may do more to protect their high-tech supply chains than trying to achieve semiconductor autonomy. However, increasing cooperation with Taiwan, in whichever form, will likely result in retaliatory measures from Beijing. Whatever the outcome, to Taiwan, retaining its semiconductor edge is essential.