IHsinchu Science Park on Taiwan’s west coast is a lush, green place with perfectly planned and signposted streets. The buildings are modern and well-preserved; from the outside, most visitors wouldn’t even know that this is one of the world’s most important factories.
Hsinchu used to be famous for its street snacks of fish balls, but is now known as Taiwan’s Silicon Valley, a tech-focused microcosm that shuttles workers from school to university to the world-leading semiconductor industry that is crucial to global supply chains.
Chips, or semiconductors, are tiny technological components that power virtually everything, including computers, cellphones and cars. A single chip can carry tens of billions of transistors needed to make electronic products work, and the most advanced ones (mostly made in Taiwan) carry more.
Taiwan’s semiconductors were in the spotlight this week after Donald Trump repeated an old accusation that Taiwan had taken business away from the United States. He used the claim to question whether his country’s long-standing support for Taiwan would continue if he becomes president again in November.
“They took almost 100% of our chip industry,” he said in an interview with Bloomberg. “We should never have allowed that to happen.”
In some corners of Taiwan, Trump’s comments were likened to a mobster’s demand for protection money: The United States is Taiwan’s most important security partner in the face of China’s annexation threats.
There is little to support Trump’s suggestion that Taiwan has seized what belonged to the United States, but what is undeniable is that Taiwan dominates nearly 100% of the most advanced sector of the global chip industry.
Taiwan produces around 90% of the world’s most advanced semiconductors, mainly through Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest producer and a major supplier to Apple and Nvidia.
“Taiwan simply outperformed other countries,” says Raymond Kuo, a political scientist at the Rand Corporation.
Manufacturers like TSMC gained ground by focusing on research and development and intense efficiency, managing to cram more transistors onto ever-smaller chips than their competitors. Taiwanese workers are highly educated, and semiconductor jobs are highly paid in a society where wages are low relative to the cost of living but also extraordinarily demanding. Taiwan’s labor protection laws are much weaker than those in the United States and other nations. For a Taiwanese, working at TSMC or similar is considered a prestigious job with a bright future.
“Companies can have three shifts of masters or doctors running their manufacturing plants every day,” Kuo says. “There is also the ecosystem of secondary industries created to support chipmakers.”
On Thursday, Taiwan’s vice minister of science and technology said Taiwan had spent 30 to 40 years cultivating its industry, making it “impossible to simply replace it and difficult to copy.”
Other countries have tried to catch up, but reports suggest the gap is actually widening. Taiwan’s dominance over a component that literally feeds the world has raised some concerns about the fragility of global supply chains, particularly if China’s leaders one day ordered an invasion or attack.
“I imagine Beijing could use its control of these production facilities to force other countries to accept its conquest,” Kuo says. “Semiconductors would become another leverage point that Beijing could use to exert economic or political coercion over other countries.”
The world got a taste of how a supply chain crisis and chip shortage can affect global trade during the pandemic, when factory shutdowns turned into a global chip shortage that delayed manufacturing and sent prices for cars and other goods soaring.
In the wake of this crisis, other countries are trying to diversify their sources, mainly through Taiwanese companies establishing new manufacturing plants abroad, but they are not having much success.
Thanks to US incentives, some Taiwanese production has moved there. TSMC is spending billions of dollars building new factories overseas, including $65 billion on three in the US state of Arizona. But reports from Inside Arizona The installation has revealed challenges in replicating the Taiwan model, for reasons as diverse as different approaches to labor rights and worker demands.
Morris Chang, founder and former chairman of TSMC, had previously said the costs of the US project would be much higher, describing it as an “expensive, wasteful and futile exercise”.
For Taiwan, dominance is, from a national security perspective, a positive thing. Geopolitical observers frequently refer to Taiwan’s semiconductor industry as a “silicon shield” that acts as an incentive for the international community to keep Taiwan out of Beijing’s control.
In response to Trump’s comments, Taiwanese officials emphasized the strong U.S.-Taiwan relationship and extensive international cooperation in the chip sector (there are several foreign chip companies in Taiwan), but also indicated that they intended to keep their R&D on home soil and maintain industry supremacy.
“Diversification would mean that countries would have less reason to defend Taiwan,” Kuo says. “Why defend when it is easy to switch suppliers?”