Introduction to the US-Taiwan Chip Deal

The recent US-Taiwan deal aims to expand chip production capacity in the US, but analysts believe it will not fully reduce Washington’s reliance on Taiwan’s advanced semiconductors anytime soon. Taiwan dominates global chip production, with the Taiwan Semiconductor Manufacturing Company (TSMC) producing most of the world’s advanced chips. Nearly one-third of global demand for new computing power is estimated to be fabricated in Taiwan.

The island’s central role in the global semiconductor supply chain has made preserving its de facto autonomy — and deterring any Chinese attack — a strategic priority for the US and its allies, an idea referred to as the “Silicon Shield.” Beijing claims territorial control over the democratically-governed island. As part of the trade deal, the Taiwanese government promised to guarantee $250 billion in credit to its chip and technology companies to expand their production capacity in the US.

Challenges in Shifting Chip Production

Shifting chip production away from Taiwan will be difficult, analysts said. Taiwan’s engineering talent pipeline and production capabilities in the semiconductor supply chain, especially in advanced fabrication, are “not replicable at scale anywhere else,” according to William Reinsch, a senior adviser at the Center for Strategic and International Studies. The lack of trained workers and higher production costs have led to delays in TSMC’s US plant openings, Reinsch said, adding that the new trade deal does little to address these constraints.

Taiwanese authorities restricted TSMC’s overseas fabrication plants from operating technologies at least two generations behind those developed domestically, known as the N-2 rule. While TSMC produces its most advanced chips using 2-nanometer technology, or nodes, at home, its Arizona plant has only recently begun producing advanced 4-nanometer chips for US customers, with plans to scale up to 2-nanometer and A16 nodes by 2030.

Expert Insights and Future Prospects

Experts doubt the plan would be easy, given Taipei’s hard line on keeping its most advanced technology at home. Sravan Kundojjala, an analyst at SemiAnalysis, said Taiwan’s “silicon shield” will remain strong through the end of the decade, with the world’s most critical advanced capacity concentrated on the island. Dennis Lu-Chung Weng, an associate professor of political science at Sam Houston State University, noted that “the semiconductor ecosystem cannot be relocated overnight, so the silicon shield may weaken but still exist in the near term.”

A Chinese invasion of Taiwan remains a low-possibility event, and the trade deal is unlikely to change Beijing’s calculus, said Ava Shen, a Taiwan and Chinese foreign policy expert at Eurasia Group. The mainland authorities would focus more on their military balance vis-à-vis the US and the level of American defense support for Taipei, Shen said. For more information, visit Here

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