What the U.S.-Taiwan deal means for the island’s ‘silicon shield’
HSINCHU, TAIWAN – APRIL 16: Entrance of the factory of Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwanese multinational semiconductor contract manufacturing and design company, in Hsinchu, Taiwan, on April 16, 2025.
Daniel Ceng | Anatolia | Getty Images
Several analysts told CNBC that the U.S.-Taiwan deal, which aims to boost chip manufacturing capacity in the U.S., is unlikely to wean Washington completely off the island’s most advanced semiconductors any time soon, leaving the so-called “silicon shield” largely intact for now.
Taiwan dominates global chip production, produced by the Taiwan Semiconductor Manufacturing Company. most of the world’s advanced chips. Almost a third of global demand for new computing power estimated It will be produced in Taiwan.
The island’s central role in the global semiconductor supply chain has made maintaining its de facto autonomy and deterring any Chinese attack a strategic priority for the United States and its allies; this idea is referred to as the “Silicon Shield”. Beijing claims territorial control over the democratically governed island.
As part of the trade deal signed on Thursday, the Taiwan government 250 billion dollars guarantee Taiwanese companies will also enjoy expanding their production capacity in the USA by providing loans to chip and technology companies higher quotas for tariff-free imports chips to the USA
In exchange, Washington will reduce duties on most goods from Taiwan from 20% to 15% and waive tariffs on generic drugs and ingredients, aircraft components and natural resources not found within the country.
The goal is to bring 40% of Taiwan’s entire semiconductor supply chain to the United States, Commerce Secretary Howard Lutnick told CNBC on Thursday. But experts doubt the plan will be easy, given Taipei’s strict stance on keeping its most advanced technology at home.
Sravan Kundojjala, an analyst at SemiAnalytics, said Taiwan’s “silicon shield” will remain strong until the end of the decade and the world’s most critical advanced capacity will be concentrated on the island.
Taiwanese authorities have restricted TSMC’s overseas manufacturing facilities from operating technologies that are at least two generations behind domestically developed technologies, known as the N-2 rule.
The semiconductor ecosystem cannot be replaced overnight, so the silicon shield may weaken but still exist in the near term.
Dennis Lu-Chung Weng
Associate professor of political science, Sam Houston State University
While TSMC manufactures its most advanced chips at home using 2-nanometer technology, or nodes, its Arizona facility only recently began producing advanced 4-nanometer chips for its U.S. customers. plans to scale up Transition to 2 nanometers and A16 nodes by 2030.
In semiconductor manufacturing, smaller nanometer sizes mean denser transistors; This increases processing speed and increases energy efficiency.
Kundojjala said this four to five-year delay enabled Taiwan to maintain its advantage, adding that “if Taiwan is invaded tomorrow, the global economy will face a depression-level event.”
A spokesperson for China’s foreign ministry said at a news conference on Friday that Beijing “absolutely opposes any agreement signed between Taiwan and countries that have diplomatic relations with China” and called on the US to adhere to the “one China principle”.
TSMC CFO Wendell Huang told CNBC on Thursday that the company will continue to develop its cutting-edge technologies in Taiwan due to the need for “very intense collaboration” between local research and development teams and manufacturing operations.
“We will send hundreds of engineers back and forth” [between] Different sites in Taiwan. Therefore, it will stay in Taiwan when we ramp [up] “It’s cutting-edge technology,” Huang said.
Still, the world’s largest contract chipmaker has pledged to invest $165 billion in chip manufacturing and processing facilities in the United States, as well as a research and development lab that serves customers like Nvidia and Apple.
Wu Cheng-wen, who oversees Taiwan’s National Science and Technology Council, said: Financial Times last year He said it was crucial for Taiwan to keep cutting-edge research and development at home and ensure domestic industry “does not sit idle.”
“It would be dangerous for us if we moved our R&D abroad,” Wu said in the interview.
Obstacles to US landing
Analysts said it would be difficult to shift chip production away from Taiwan.
William Reinsch, a senior advisor at the Center for Strategic and International Studies, said Taiwan’s engineering capabilities in the semiconductor supply chain and manufacturing capabilities, especially in advanced manufacturing, “cannot be replicated at the same scale anywhere else.”
A lack of trained workers and high production costs have led to delays in TSMC’s U.S. facility openings, Reinsch said, adding that the new trade agreement does little to address these constraints. It considers that the investment commitments made will take longer than expected to be fulfilled and is unlikely to reach the promised level.
“The semiconductor ecosystem cannot be replaced overnight, so the silicon shield may weaken but still exist in the near term,” said Dennis Lu-Chung Weng, an associate professor of political science at Sam Houston State University.
“The bigger question is what happens after Trump: If future U.S. administrations continue to push for large-scale relocation, Taiwan losing its special advantage will become less a matter of if but more of a matter of when,” Weng warned.
Taiwanese officials have emphasized the need to diversify its economic model, encourage more industries to grow and strengthen its defense capabilities against China’s military pressure.
Ava Shen, an expert on Taiwan and China foreign policy at Eurasia Group, said a Chinese invasion of Taiwan remains a low-probability event and the trade deal is unlikely to change Beijing’s calculus. Officials on the mainland will focus more on their military balance vis-à-vis the United States and the level of American defense support to Taipei, Shen said.
