Human Rights and
International Democratic Solidarity


The Sinic Analysis


The «Silicon Shield»: Geopolitical consequences of Taiwan’s crucial role in the semiconductor supply

While the companies are trying to maintain their profitable position on the global semiconductor market, for politicians the chip industry is something they can use in diplomatic negotiations, and more importantly, it is viewed as crucial for the maintaining of Taiwan’s de facto independence.
By Filip Jirouš

Despite its relatively small size, Taiwan plays a large role in the global economy, due to its top-tier semiconductor industry. This does not only build Taiwanese national wealth, but arguably also helps maintain its national defence. With tensions rising in the Taiwan Strait, this industry might hold opportunities for countries in the Americas, as well.

Already in 1970s, the US decided to transfer some its technology to Taiwan to outsource manufacturing. This covered a wide range of industries and was part of a larger trend, where American politicians and businesses decided to build up the economies in friendly countries in East Asia --- South Korea, Japan and Taiwan --- in order to tap into local talent and to generate capital revenue. The logic was both economic and geopolitical. The context --- Cold War --- gave logic to boost allies and their own industrial capacity in the conflict with the Soviet Union and its own partners in the region such as Vietnam and North Korea. The same logic would be applied beginning in the 1980s in the People's Republic of China.

The semiconductor sector became the most important one in Taiwan over the years, especially after the creation of Taiwan Semiconductor Manufacturing Company Limited in 1987. Together with another Taiwanese chipmaker United Microelectronics Corporation, the two companies are the world's largest contract chipmakers, producing chips mainly for Western companies. Overall, Taiwanese businesses produce around 90% of the world's advanced chip supply. Their role is crucial on a global scale not only in manufacturing, but also in R&D and distribution. It is often through Taiwanese companies that China obtains even US and European chips, putting the footprint of the island nation into the whole semiconductor production chain.

The fact that chip-makers are important even from the perspective of the government in Taipei is reflected by its various subsidy programs for the companies, as well as its direct or indirect shareholding in semiconductor enterprises. This is understood by politicians from both the governing Democratic Progressive Party (DPP) and the current opposition, meaning that the upcoming elections will not significantly affect the large industry sector. This is, again for both economic (the business is profitable) as political – the advanced business gives Taiwan political capital in Washington, and to some degree in Beijing. And Taiwan is a key battlefield in the currently cold war between US and the PRC.

China is trying to imitate the success of the Taiwanese chip industry, and overtook in total chip sales globally, it continues to lag behind in advanced  semiconductor technology. Since China claims Taiwan as its territory, there is an unease neutrality between the two countries. However, since Beijing continues to significantly ramp up its military actions targeted at the island country, this makes Taiwan to rely on the US support for its defence.

Thus, Taiwan has been more than compliant with US sanctions against the PRC semiconductor sector, even if it hurt its companies economically in short term. So, unlike many other Taiwanese businesses, there is only limited Chinese shareholding in these companies and cooperation between Taiwanese and Chinese enterprises is mostly limited to distribution and manufacturing outsourcing, often of older technology. This leads China to actively employ its intelligence agencies in attempts to steal Taiwanese semiconductor technology and research.

While China currently lags a few years behind Taiwan's semiconductor giants, not only has this gap been shrinking, but this trend might continue. Beijing has been greatly investing in its domestic advanced semiconductor R&D. While some of the breakthroughs recently announced by Beijing may not be as significant as presented by the state media, it is still making a lot of progress. The US sanctions certainly hampered China's access the most advanced US chip technology, it made indigenous R&D capacities an ever bigger priority for the CCP. However, while in some other sectors (such as aircraft and rocket engines) China is benefiting from the isolation of Russia, this is does not appear to be the case of semiconductors, where Russia is also almost completely dependent  on Western suppliers (currently getting into Russia through the PRC despite sanctions).

China thus must rely on its own R&D capacities and the capacities of its intelligence officers and agents to acquire Western and Taiwanese technology through illegal and unethical measures. While some say that US sanctions are failing as they make China less reliant on Western technology and less vulnerable to diplomatic pressure, both arguments might be invalid. It was China's long-term policy to become self-sufficient in technology, and in politically sensitive fields, China has not acted rationally and proved immune to diplomacy, as showcased by Hong Kong. Thus the sanctions implemented in the recent three years clearly slowed down China's technological advancement, but it is quite possible that in the long-term, China will catch up with Taiwan and the West. This might complicate Taiwan's own economic and political position in the world.

Taiwanese politicians and entrepreneurs understand and value this advantage. While the companies are trying to maintain their profitable position on the global semiconductor market, for politicians the chip industry is something they can use in diplomatic negotiations, and more importantly, it is viewed as crucial for the maintaining of Taiwan's de facto independence. This role of the chip-makers for Taiwan's national defence is often called the Sillicon Shield. The argument, used even by Taiwan's current president Tsai Ing-Wen in 2021, is that China will refrain from attacking Taiwan as it would disrupt the global semiconductor supply chains and risk the lives of its soldiers for dubious gains, actually risking great harm to its own economic and political stability. However, many agree that it would be foolish to apply this "conventional wisdom" to the CCP. In many cases it has shown that its politics and political security override any such rationality, meaning that the chip industry will not deter China from attacking Taiwan on its own.

However, the Sillicon Shield might still protect Taiwan in a different way --- it creates more incentive for the US, the West in general, and Japan to actively support Taiwan's defence, and makes a military intervention on behalf of the island democracy more likely. Which still might deter Beijing from launching the invasion it has clearly been preparing for. In a sense, it is more important for Taiwan and world's peace what people in Washington think about Taiwan than what the CCP thinks about Taiwan. However, this whole relationship is full of contradictions and recent US regulations may negatively affect not only Chinese chipmakers, but even the Taiwanese giants. The TSMC founder claims that the US policy is destroying semiconductor globalisation, as it favours officially designated “friendly countries”, a list that does not include Taiwan.

Taiwan has recently been trying to expand its cooperation in the semiconductor sector with new-found friendly countries in Europe – including Lithuania, the Czech Republic and Germany. This might yet again be driven by geopolitical needs as well as business plans, as many countries wish to gain access to the crown jewels of Taiwanese industry. This might create opportunity for Latinamerican countries with their own resources, too. Given the existing political will to (re)gain diplomatic allies, Taiwan might be much more willing to share its technology and business with countries that support its existence, something where China often only promises yet fails to deliver. Not only might this cooperation with Taiwan help American economies, but also help make Taiwan more important and in effect help deter China’s looming invasion of the democratic country.

Filip Jirouš
Filip Jirouš
Independent China researcher and freelance China political risk analyst. He has published on the cooperation of Czech universities with institutions linked to the People's Liberation Army, the propaganda activities of the United Front system of the Chinese Communist Party (CCP) in Europe, and other aspects of the party-state's influence work. His work has been cited in parliamentary debates, scholarly publications, and investigative journalism.. Contributor to «The Sinic Analysis» project at

More by Filip Jirouš
More about the project The Sinic Analysis
Latest videos