If the meeting between US President Donald Trump and Chinese President Xi Jinping (習近平) this week is framed only in terms of clashes over tariffs and Taiwan’s place on the negotiating table, it would be a misunderstanding of the nature of great power exchanges.
What the US and China are vying for is not just a trade agreement, but the ability to define the next generation of AI in military capabilities and the industrial order — and without semiconductors, there is no AI. On the surface, AI competition is about models, data centers and computing power.
Underneath it is a battle for dominance in wafer manufacturing, advanced packaging, high-bandwidth memory and technology and equipment controls.
The war on Iran has sharpened this competition. Tehran has effectively sealed the Strait of Hormuz and Washington’s “Project Freedom” plan to escort stranded ships through the strait was put on hold just one day after it was announced.
China has called for the opening of the Strait and stepped-up diplomatic engagement with Iran.
Fuel shipping lanes, the power demands of AI data centers and semiconductor supply chains have all become embroiled in geopolitics.
In the lead-up to the Trump-Xi meeting, Beijing has listed Taiwan as a priority issue and the US has been ratcheting up efforts to slow China’s development of semiconductor manufacturing capacity. This includes export controls to restrict companies providing materials to China’s Hua Hong Semiconductors Ltd (華虹半導體), believed to manufacture China’s most advanced semiconductors.
This is a perilous and incredibly important moment for Taiwan. The Trump administration has called for a significant portion of Taiwan’s semiconductor manufacturing capacity to be relocated to the US and has floated proposals of as much as 50 percent.
China, meanwhile, has used military harassment, blockade simulations, gray-zone tactics and cognitive warfare to make Taiwan appear to the rest of the world as a source of danger.
The former sees Taiwan as a production ground that can be deployed elsewhere and the latter as an island ripe for extortion. The consequences of Taiwan remaining passive and caught in the middle can only be its hollowing out or encirclement.
In this context, the “silicon shield” needs an upgrade: A silicon network is in order. First, advanced manufacturing and packaging technologies, critical process parameters, AI model development and closed-loop data analytics must be prioritized in Taiwan. A level of overseas production could help spread war and energy security-related risks, but the bulk of manufacturing cannot be moved offshore.
Production fabs can be established in the US, Japan, or Europe, but research and development hubs, production management platforms, supply chain command and training frameworks for professional talent must remain in Taiwan.
Second, cooperation with the US cannot stay limited to concessions for protection. Taiwan should wield investment, purchases of US energy, cooperation on national security and AI data center distributions in its negotiations.
What should be requested in return is clear security commitments, freedom from dual tariffs, accelerated arms procurement deals and recognition of the indispensable role that Taiwan plays in the global supply chain for AI semiconductors. Taiwan is not an ATM for US industrial policy, and it is certainly not Trump’s bargaining chip.
Third, Taiwan must reduce its vulnerability to China and dispel illusions of friendly intent. If Beijing were to launch a blockade, it would target not just Taiwan’s ports and its energy grid, but the entire global AI supply chain. Taiwan must begin to consider energy resilience, port standbys, undersea cable protections, cyber defenses, critical materials inventories, manufacturing distribution and the civil defense system as matters of national security.
Semiconductor plants need to be able to withstand not just earthquakes, but blockades, blackouts, infiltration and cyberattacks.
Fourth, Taiwan should take the initiative to propose an AI semiconductor alliance.
The US has chip design and cloud infrastructure, Japan has materials and equipment, the Netherlands has lithography technology, South Korea has memory chips and Taiwan has advanced manufacturing and packaging capabilities.
Taiwan should position itself as the manufacturing core of a democratic supply chain, rather than relying solely on the miracle of Taiwan Semiconductor Manufacturing Co.
As China utilizes its excess capacity in mature-node chips, rare earths and market access as economic weapons, and the US applies pressure through tariffs and export controls, Taiwan must use institutionalized alliances to translate its irreplaceability in the supply chain into international commitments.
Taiwan is a strategic hub of the global AI era. Chips are the cornerstone of AI, and AI could shape the future of military and industrial power. Taiwan should not hide behind its silicon shield and wait for great powers to decide its fate.
Instead, it should focus on a political strategy of building up a silicon network, transforming production capacity into lasting institutions and crises into bargaining power amid the US and China’s ongoing rivalry.
Liao Ming-hui is an assistant researcher at the Chung-Hua Institution for Economic Research.
Translated by Gilda Knox Streader
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