The Semiconductor Industry: The Tripartite War between Washington, Beijing, and Taipei

The global competition and race for artificial intelligence leadership between China, Taiwan, and the United States have intensified, further fueling the escalating geopolitical tensions between Taipei and Beijing over the years. Taiwan has vowed to maintain its leading position in the semiconductor sector after the Taiwanese company TSMC announced a massive investment to build new factories in the United States.

A Monumental Step by the World’s Strongest Company

“Former U.S. President Donald Trump revealed that TSMC would invest $100 billion in America, and that the company’s total investments in the United States would reach at least $165 billion. He indicated that most of TSMC’s investments would be in the state of Arizona, where they plan to build five additional chip factories. The president described the investment as a ‘monumental step by the world’s strongest company.'”

While most cutting-edge semiconductor technology is developed in the United States, Taiwan and South Korea currently dominate chip manufacturing. On the other hand, China is the world’s largest market for these electronic components and is increasingly interested in increasing its domestic production of the chips it uses. This has drawn Washington’s attention to the sector as it seeks to restrict its Asian rival’s progress and address what it considers national security concerns.

The Trump administration aims to revitalize the semiconductor industry amidst growing global competition and rescue the American chipmaker Intel from years of stagnation following its failure to develop chips for smartphones and artificial intelligence. Trump threatened to impose a 25% tariff on imported chips to encourage domestic manufacturing and accused Taiwan of stealing the semiconductor industry from his country. He also accused the Taiwanese government of relying on American security support against Chinese threats without paying for it. U.S. Commerce Secretary Howard Lotnick stated that TSMC had exploited America for chip manufacturing, saying, “We are overly dependent on Taiwan, and we need this production to be in our country.”

Taiwanese Motives behind Overseas Investment

Taiwanese Prime Minister Cho Jung-tai’s commitment to maintaining Taiwan’s position in the global supply chain for semiconductor chips stems from the sector’s global importance and its significant role in the technology and global economy. This commitment is directly related to the competition between major powers for technological and artificial intelligence superiority, which has been described as a war between these powers, particularly the United States, China, and Taiwan. TSMC, a Taiwanese company, is one of the most important manufacturers of advanced chips and semiconductors used in artificial intelligence technologies.

Taiwan’s desire to invest in the United States is driven by several objectives and benefits, including economic and trade expansion, playing a leading role in international technology-related investments, and strengthening political and security relations with the United States. Taiwan also seeks a form of American protection in case it faces external threats, particularly from China. Trump previously spoke publicly about this, stating that Taiwan should pay the United States for its military defense.

Bonnie Glaser, the director of the Asia Program at the German Marshall Fund of the United States, said that Taipei hopes that the increasing investment commitment will help maintain the strength of the relationship between the United States and Taiwan. She added, “It is clear that Taiwan is moving in a way that supports President Trump’s priorities and advances them. The United States will greatly benefit from Taiwan’s company investment in chip manufacturing.”

The Majority of Semiconductors

Taiwan supplies the majority of the world’s most advanced semiconductors and maintains most of its production domestically under tight security, which analysts believe enhances global incentives to defend Taiwan against Chinese invasion. James Yifan Chen, an assistant professor in the Department of Diplomacy and International Relations at Tamkang University in Taiwan, said that “pulling the technology sector out of Taiwan would weaken Taiwan’s ‘Silicon Shield.'”

However, Taiwan has started studying the impact of TSMC’s investments in America on its position in the chip industry. A spokesperson for Taiwan’s Executive Yuan said that the government would consider the position of TSMC and Taiwan’s status in the global chip industry when reviewing plans for the chip factory investment in America. Michelle Li added that the Taiwanese government’s stance on foreign investments is based on support if they contribute to the globalization of the industrial sector and enhance the country’s overall competitiveness.

Semiconductor Supplies

There are growing concerns that any escalation in tensions between China and Taiwan could disrupt the supply of semiconductors to global markets, which could hinder industries that rely on these chips, including the artificial intelligence industry. Therefore, the United States’ efforts to expand its domestic chip production capabilities aim to protect itself against these risks and ensure the continued development of advanced technologies. It is not ruled out that Taiwanese companies may take some precautionary measures by transferring some of their investments outside the country.

However, there seems to be a different interpretation of the nature and objectives of these investments by both the Trump administration and Taiwan. In this context, a senior Taiwanese official told Bloomberg that his country rejects the monopolization of the chip industry, following statements made by President Trump criticizing Taipei’s control over the chip sector.

U.S. Objectives and Benefits

TSMC is a key player in the global semiconductor industry, especially for major U.S. technology companies such as Apple, Nvidia, and Qualcomm. The United States heavily relies on TSMC for the production of advanced chips, which are vital for both consumer electronics and national security, including defense technologies.

Geopolitically, TSMC’s role is increasingly important amid rising tensions between the United States and China, particularly concerning Taiwan’s status. The United States views TSMC as a strategic partner, vital for securing access to advanced chip technology. It also aims to reduce its dependence on foreign semiconductor supply chains, as TSMC plays a crucial role in enhancing U.S. resilience against potential disruptions. The relationship between TSMC and the United States is essential for maintaining global technological leadership.

Major Political Objectives

Trump has major political objectives in revealing technology investments worth billions of dollars, especially in data centers. Trump has a long history of describing these private sector investments as political victories and celebrating the announcements as evidence that he is fulfilling his campaign promises to create jobs and revive domestic manufacturing.

Senator Mark Kelly of Arizona, the lead negotiator on the CHIPS Act, described the Taiwanese company’s investment in advanced chip manufacturing as “big news for Arizona that officially solidifies our state’s status as a global hub for building the world’s most advanced chips.” He added that the expansion “will provide tens of thousands of Arizonans with good-paying jobs that do not require a four-year college degree.”

Chinese Concerns

These Taiwanese investments in the United States have quickly sparked Chinese anger, stemming from several reasons, the most prominent being the competition in the field of artificial intelligence. While China is a major player in the technology sector, Taiwan is the primary supplier of advanced chips that drive innovation in artificial intelligence. Therefore, securing the ability to manufacture these chips is vital for national security and technological superiority.

The company’s $100 billion investment in America is expected to boost U.S. domestic production and reduce its reliance on semiconductors manufactured in Asia, especially China.

Chinese concerns have also increased due to these investments enhancing cooperation between Washington and Taipei in a way that hinders any expected Chinese moves amid tensions and escalation with Taiwan. China said that Taiwan is seeking to relinquish the semiconductor industry on the island to the United States as a “souvenir” and exploit it to gain political support from Washington. Zhu Fenglian, the spokesperson for China’s Taiwan Affairs Office, said in a regular press conference in Beijing that people in Taiwan are concerned that TSMC might become an “American semiconductor manufacturing company.”

The Essential Element of the Digital Economy

According to Bloomberg, computer chips are the essential element of the digital economy, and their increasing capabilities support technologies such as generative artificial intelligence, which promises to change the landscape of many sectors. The vital role of chips became evident when the COVID-19 pandemic disrupted chip production in Asia, causing chaos in technology supply chains.

It is no wonder, then, that these devices have become the focus of fierce competition among the world’s major economic powers. The United States has imposed a series of restrictions aimed at hindering China’s ambitions in the semiconductor sector and ensuring American dominance in this vital field. It is expected that the focus on chips will continue during the new administration of President-elect Donald Trump, which seeks to support capabilities and manufacturing in the United States.