How Can Taiwan use “Silicon Shield” for survival?

Mark O'Neill January 26, 2026 12:22

The government of Taiwan is entering a three-year valley of great danger.

Every U.S. President since Harry Truman in 1950 has promised to protect it against an attack by China. But Donald Trump may not, and he has three years more in office.

He has virtually abandoned Ukraine and wants to seize Greenland, over the wishes of the people of both countries. He has invited Vladimir Putin, an international war criminal responsible for tens of thousands of deaths, to join his new Board of Peace.

So how can Taiwan defend itself? One way is to increase defence spending and buy the weapons it needs from the U.S. – which Trump is happy to allow. It must convince the American military that the loss of Taiwan to China would be a strategic disaster for them.

The other is to use its “Silicon Shield” – its production of 90 per cent of the world’s most advanced semiconductors – as a reason to keep it in the Western camp and not let it fall into Chinese hands.

Trump is not content with that – he wants production of semi-conductors at home. To meet his demand, Taiwan Semiconductor Manufacturing Corporation (TSMC) announced in March last year that it would invest US$100 billion at its production site in Phoenix, Arizona, in addition to the US$65 billion pledged earlier. “The expansion includes plans for three new fabrication plants, two advanced packaging facilities and a major R&D team centre, solidifying this project as the largest single foreign direct investment in U.S. history,” the company said.

But that was not enough for Trump. He slapped tariffs of 20 per cent on imports of most goods from Taiwan. That forced the government and its companies back to the negotiating table.

On January 15, the two countries signed a trade agreement cutting the tariffs to 15 per cent – the same level paid by Japan, South Korea and the EU – and an additional US$250 billion of investment in the chip industry in the U.S.

Taiwan Vice Premier Cheng Li-chun, who led the negotiations with the U.S., said that the sides reach the investment figure based on plans companies had made in their global investment strategies. “We arrived at it by adding up the investment plans of companies throughout the supply chain collected in several rounds of discussions with companies during the negotiation process,” she said.

“The deal is not about moving the Taiwan chip industry out of the country,” she added.

U.S. Secretary of Commerce Howard Lutnick said that 40 percent of Taiwan’s supply chain could be reshored to the U.S. before Trump’s term ended in 2029. Industry analysts said that this was impossible because of the logistics and complexity of the industry.

They said the efficiency and sophistication of the industry in Taiwan could not be recreated in the U.S. due to higher production costs, especially of wages, shortages of qualified staff and the unwillingness of Americans to adapt to the Taiwan work culture of long hours and high pressure.

The success of the Taiwan model was reflected in fourth-quarter 2025 earnings by TSMC, reported on January 15. In U.S. dollars, fourth-quarter revenue rose 25.5 per cent year-on-year to US$33.73 billion, an increase of 1.9 per cent over the third quarter.

A Western diplomat in Taipei said that TSMC would keep production of its most high-tech chips in Hsinchu and those made in Phoenix would be less advanced.

“President Xi Jinping is more cautious than Putin,” he said. “Currently, he is conducting ‘grey zone’ war against Taiwan – everything short of opening fire. This means buying Taiwan officials, threats, intimidation, cyber warfare, cutting undersea cables and fake news.”

Last December 29 and 30, the PLA conducted military drills in waters surrounding Taiwan, closer than ever to the island’s coast and the largest-scale exercises in more than three years of exercises. It was a simulated blockade; with an order, it could become a real blockade. It aimed to deter U.S. intervention on Taiwan’s behalf.

The diplomat said Xi had ordered his military to be ready for an invasion by 2027. “Trump’s term of office runs until the end of 2028. His successor is likely to be a president with the orthodox U.S. view on the need to defend Taiwan. Does that leave 2028 as the year for Xi to seize the opportunity of an erratic president who sees the world as divided into areas controlled by major powers?”

In the U.S. decision in whether to defend Taiwan, control of the world’s most advanced semiconductor industry will be a major factor.

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.