More than a mercenary: why Taiwan’s semiconductor dominance is helping the US

Former President Donald Trump recently characterized Taiwan-US relations as: merely an “insurance policy” and claimed that Taiwan was “taking over 100 percent of our chip business.” Are commentaries embody a transactional view of international alliances.

However, such claims risk oversimplifying the complex realities of the global semiconductor industry and failing to understand the strategic depth of interdependence between Taiwan and the US in critical technologies. Rather than being a damaging, one-sided relationship, this partnership is highly beneficial to the United States because it has proven to be economically sensible, strategically beneficial, and geographically sound.

Taiwan’s dominance in chip manufacturing aligns with and supports U.S. interests, given their complementary strengths: Taiwan excels in the manufacturing sector, while U.S. companies lead in chip design. This synergy helps drive both efficiency and innovation, as illustrated in the collaboration between Nvidia, an American chip designer of high-end graphics processing units (GPUs), and Taiwan Semiconductor Manufacturing Company (TSMC), Taiwan’s leading semiconductor manufacturer.

If Jon Pedie research Recently reported, Nvidia held approximately 80 percent of the desktop discrete graphics processing unit (GPU) market in the third quarter of 2023 and continued to gain market share, reaching 88 percent in the first quarter of 2024. TSMC serves as the biggest, if not the only, manufacturing partner for Nvidia’s AI GPUs. And with Nvidia’s next-generation Blackwell AI GPU platform on the horizon, it is reported that the company is now increasing its investment in AI chips in TSMC by 25 percent, driven by rising market demand for AI technologies.

The success of the Taiwanese chip industry is therefore not just about ‘taking’ business from others. Taiwan’s manufacturing expertise has instead functioned as the spine ensuring US supremacy in critical technologies.

Contrary to a rivalry-oriented narrative like Trump’s, Taiwan’s leading role in advanced chip production is driven less by predatory competition than by increasing technological complexity and the need for economies of scale. These factors, as suggested by Project 2049 Institute and US-Taiwan Business Councilhave driven the semiconductor industry to evolve into a highly specialized global network, shaped by the need for massive capital expenditure and continuous innovation.

The symbiotic relationship between Taiwan and the US probably illustrates the best example of such specialization. The sheer complexity and size of the chip industry prevents any single entity – be it a company or even a nation – from controlling the entire life cycle of semiconductors. The industry itself is highly collaborative, embedded in an international ecosystem where different regions and companies contribute their unique strengths to the overall semiconductor manufacturing process.

In this model of global specialization, Taiwan’s competitive advantage lies in its control of semiconductor production. This success story is rooted in sustained dedication and incremental progress rather than sudden leaps – the culmination of a four-decade journey marked by both setbacks and breakthroughs.

At a conference in Seoul in JulyKonrad Young, former director of research and development at TSMC, attributed Taiwan’s success in semiconductors to several factors. Young highlighted the auspicious timing of TSMC’s founding in the 1980s, which coincided with the industry’s shift toward differentiation: Integrated Device Manufacturers (IDMs) began moving from producing their own chips to a specialized foundry model. TSMC pioneered the pure-play foundry approach, which aligned with Taiwan’s work culture and leveraged the country’s then-competitive labor costs.

Even more importantly, Young noted that Taiwan’s semiconductor dominance built on decades of ecosystem development – ​​a time-consuming process that cannot be easily replicated elsewhere.

Together, these factors may explain the challenges faced by companies trying to establish advanced semiconductor manufacturing capabilities outside Taiwan, particularly in the United States. During an earnings conference call in early 2023For example, TSMC executives revealed that setting up a factory in the US is at least four times more expensive than in Taiwan, citing higher labor costs, complex permitting processes, strict regulatory compliance and rising costs of living.

Rather than viewing Taiwan’s semiconductor industry as competition, it would be more accurate to view it as a crucial part of a global network that ultimately benefits U.S. technological leadership and economic interests.

The idea that Taiwan’s semiconductor industry operates in isolation from U.S. interests ignores the reality of global investment and shared benefits in this critical sector.

TSMC is again neither state-owned nor exclusively a Taiwanese company, but rather a product of international investment and cooperation. As shown by the 2023 shareholder structureTSMC is owned by a wide range of global investors. Its largest shareholder, at 20.50 percent, represents ADRs traded primarily on US markets, underscoring the company’s strong ties to the US financial ecosystem. By comparison, the National Development Fund, managed by Taiwan’s Executive Yuan (the country’s highest administrative body and de facto cabinet), owns only 6.38 percent as the second-largest shareholder, further illustrating the limited extent of direct government ownership .

But Taiwan’s contribution to U.S. interests goes far beyond purely financial considerations for global security. In the field of advanced semiconductors, Taiwan serves as a hub for the free democratic world, not only preserving but also actively promoting cutting-edge technology and manufacturing capabilities. This technological leadership serves as a bulwark against the invasion of non-democratic regimes into crucial industries. In this regard, Taiwan itself serves as a crucial guarantor of both US technological supremacy in emerging areas and global technological freedom more broadly.