Taiwan, explained.

Jensen Huang, co-founder and chief executive officer of Nvidia Corp, at the Computex conference in Taipei, Taiwan, in May (Annabelle Chih/Bloomberg via Getty Images)

Chips made Taiwan indispensable. AI can make it unstoppable.

Taipei’s semiconductor leadership creates opportunity for broader international influence through artificial intelligence infrastructure and governance.

Davide Campagnola

22 August 20255 min read

For decades, Taiwan’s “silicon shield” – its dominance in advanced semiconductor production – has been seen as a deterrent against Chinese aggression. The logic is simple: any attack on Taiwan would disrupt the global tech supply chain, hitting not just the United States but China itself. But as the race for Artificial Intelligence (AI) accelerates and becomes increasingly characterised by the power competition between Beijing and Washington, Taiwan has a chance to build a second line of deterrence – an “AI shield” – that could make it even more indispensable to its allies and harder to coerce.

Taiwan’s unique position as a leader in the semiconductor industry places it at the heart of the AI ecosystem. Indeed, AI’s capabilities rest on a crucial foundation: semiconductors. These small yet powerful components supply the processing strength and efficiency that enable AI to operate and expand.

Taipei should not hesitate to transform its technological dominance into lasting diplomatic capital by raising the costs of aggression.

In a world where AI is becoming a new measure of power, chips alone are not enough.

Taiwan Semiconductor Manufacturing Company (TSMC), which recorded a market share of more than 67 percent in the global semiconductor foundry market in 2025, is indispensable for powering AI development and represents a vital partner for every major industry player. Each breakthrough in chip manufacturing allows AI models to reach new levels of power and complexity. Moreover, TSMC dominates the global market for AI data center logic semiconductors, the critical components driving the infrastructure used to train, deploy, and sustain AI systems and services.

Taiwan is complementing this hardware advantage with targeted innovation policies, talent development programs, and industrial reorientation, notably through the “Ten Major AI Infrastructure Projects” initiative, aiming to create more than T$15 trillion ($510 billion) in economic value by 2040. AI data centres are central to this transformation, supported by government investment and Foxconn’s global expansion.

These efforts illustrate how Taiwan is moving beyond being a hardware provider to trying to become an AI power in its own right. The integration of AI into its economic, industrial, and security strategies sets the stage for a deeper transformation: the juncture where semiconductors and AI converge to reinforce Taipei’s international leverage.

President Lai Ching-te, centre, launching AI inititives in January (Liu Shu-fu/Office of the Taiwan President)

The two sectors are interdependent and mutually reinforcing. Taiwan, as the primary supplier of cutting-edge chips, is uniquely positioned to steer the AI landscape. Just as Taiwan’s semiconductor dominance created the “silicon shield”, an “AI shield” would be based on global dependence on Taiwan’s infrastructure and expertise.

The AI shield would rest on three pillars:

Infrastructure dependence: Taiwan’s semiconductor dominance and its investments in AI data centres make the island a central hub for start-ups and for the infrastructure required to train, deploy, and sustain advanced AI systems. Global AI development cannot proceed without access to these capabilities. Decoupling from Taiwan’s expertise is costly and complex, and its ecosystem is hard to replicate elsewhere.
Innovation dependence: Each new breakthrough in TSMC chip manufacturing unlocks greater AI power, complexity, and efficiency. As long as Taiwan leads at the hardware frontier, international AI progress will remain closely tied to its innovations. With TSMC’s dominance set to deepen, Taipei’s leverage in the global AI race will only expand.
International engagement: Active participation in AI forums, such as the Global Partnership on AI, would allow Taiwan to move beyond mainly bilateral and informal ties toward broader involvement in multilateral mechanisms. This would deepen its connections with democratic partners. The more Taiwan is tied into global rules and cooperation on AI, the more indispensable it becomes, and the stronger its AI shield will be.

By building on its role at this critical juncture, Taiwan can amplify its international standing, secure stronger partnerships, and establish itself as a central actor in shaping the future of AI aligned with democratic values. The essence of the AI shield lies in deterrence. Just as the “silicon shield” dissuades Beijing from military escalation by raising the global costs of conflict, the “AI shield” would amplify those costs.

Taiwan should capitalise on the polarisation in the AI and semiconductor races between Washington and Beijing.

Bloomberg Economics estimates a Taiwan war could cost $10 trillion – 10% of 2024 global GDP, far exceeding the economic toll of the war in Ukraine or the Covid-19 pandemic. If Taiwan were to become indispensable not only for semiconductors but also for AI infrastructure, innovation, and governance, these costs would almost certainly rise.

This makes coercion far riskier. Threatening Taiwan would mean threatening the very foundations of the international AI order, encouraging allies to act in its defence, given the stakes.

Yet shields are not impenetrable – they require constant reinforcement and careful management of vulnerabilities.

Taiwan should capitalise on the polarisation in the AI and semiconductor races between Washington and Beijing. This divide offers a rare opening to promote its unique capabilities. AI also offers Taiwan a new opportunity to position itself as a central actor in Washington’s broader Asia-Pacific approach, as a strategic partner in AI development and governance. This could reignite support and address the current fatigue and doubts in Washington.

Nonetheless, under the current Trump administration, semiconductor dominance could become a source of tension, backfiring into higher tariffs and straining the relationship. President Donald Trump’s reported proposal for the US government to invest in Intel makes clear that Washington does not want to rely solely on TSMC for advanced chip production.

For Taiwan, this is a warning sign: the very strength that underpins its global relevance can also be turned into leverage against it, leaving its industries vulnerable to political pressure, costly concessions, and risks to national security.

Diversifying its partnerships will be essential to ensure Taiwan’s semiconductor and AI autonomy and resilience. In a world where AI is becoming a new measure of power, chips alone are not enough. By building an AI shield, Taiwan can strengthen its defences, deepen partnerships, and secure its place at the centre of the democratic tech order.

About the author

Davide Campagnola

Davide Campagnola is a political researcher specialising in international security, East Asian geopolitics, and civil-military relations.

Topics

Taiwan Cyber & technology