There is only one place on Earth where the most advanced chips in existence can be made. Not the United States. Not China. Not South Korea, not Japan, not Germany. An island of thirty-six thousand square kilometres with twenty-three million inhabitants, a hundred miles off the Chinese coast, which China considers its own and whose de facto independence has been sustained, since 1949, by American willingness to defend it.
Taiwan produces roughly ninety-two per cent of the world's most advanced logic chips, those below five nanometres. A single Taiwanese company, TSMC, controls around seventy per cent of global semiconductor foundry revenue. In advanced chips, its share climbs closer to ninety. There is no second supplier that does what TSMC does, at that scale, at that quality. Samsung manufactures advanced chips with lower yields and a declining market share. Intel has spent a decade trying to catch up and just needed a capital injection from the American government to avoid disintegration.
This is not an economic statistic. It is a civilisational vulnerability. If tomorrow China blockades or invades Taiwan, the lights of the twenty-first century go out.
The Bottleneck
To understand the problem you have to understand what TSMC does and why no one else can do it.
TSMC does not design chips. It does not sell products to the end consumer. It manufactures the chips others design: Apple, Nvidia, AMD, Qualcomm, Broadcom, and dozens more. When Apple unveils a new iPhone with a faster processor, that processor was designed by Apple and manufactured by TSMC. When Nvidia sells the graphics cards that train the artificial intelligence models reshaping the global economy, those chips come from TSMC. When the Pentagon needs advanced semiconductors for its latest weapons systems, they come, directly or indirectly, from TSMC.
Advanced semiconductor manufacturing is probably the most complex industrial process humanity has ever developed. A modern three-nanometre chip holds billions of transistors arranged in structures whose dimensions are comparable to a handful of atoms. The process requires extreme ultraviolet lithography machines costing more than three hundred million dollars apiece and produced by a single firm in the world, the Dutch company ASML. It requires cleanrooms where the concentration of airborne particles is millions of times lower than in a normal room. It requires thousands of engineers carrying decades of accumulated process knowledge that cannot be learned from a book. It requires a supply chain of hundreds of ultra-pure materials and components arriving from all over the world.
TSMC mastered this process over thirty years of obsessive investment, talent accumulation, and incremental optimisation. Its founder, Morris Chang, an MIT- and Stanford-trained engineer who spent decades at Texas Instruments, created the company in 1987 with an idea that seemed modest at the time: rather than designing and manufacturing its own chips, TSMC would manufacture the chips others designed. The "pure-play foundry" model freed designers from having to own their own factories and enabled a specialisation that, thirty years on, nobody has replicated. Today the global semiconductor ecosystem splits in two: those who design and those who fabricate. And the one who fabricates, in the advanced category, is essentially one.
Why Reshoring Will Not Work in Time
The United States and Europe recognised the problem. The American CHIPS and Science Act mobilised incentives that catalysed more than four hundred and fifty billion dollars in private investment. TSMC is building factories in Arizona. Intel received massive federal support. Samsung is expanding in Texas. The European Union launched its own European Chips Act. Japan is subsidising the construction of TSMC factories in Kumamoto.
All of it is necessary. All of it is insufficient.
The fundamental problem is that advanced semiconductor manufacturing does not relocate the way a car assembly line does. It is not a question of putting up a building, installing machines, and hiring workers. It is a question of replicating an ecosystem that took three decades to develop, that depends on tacit knowledge sitting inside thousands of engineers, that requires a supply chain of overwhelming complexity, and that operates with error margins measured in atoms.
The TSMC factory in Arizona illustrates the difficulty. Announced in 2020, with production projected for 2024. It was delayed. Costs rose. TSMC had to bring in hundreds of Taiwanese engineers because it could not find local staff with the necessary experience, which generated friction with American unions. When the plant is fully operational, it will produce chips at four- and five-nanometre nodes, one generation behind what TSMC manufactures in Taiwan. Cutting-edge production, the three- and two-nanometre nodes entering mass production in 2025, stays on the island.
Even in the most optimistic scenario, where every planned factory in the United States, Europe, and Japan is built on schedule and reaches competitive yields, total capacity outside Taiwan will not amount to more than a fraction of global advanced capacity before 2030 or 2032. The window of vulnerability is open and will stay open for at least a decade.
There is also an invisible incentive. TSMC has little interest in transferring its most advanced technology off the island. From the Taiwanese point of view, the geographic concentration of cutting-edge production is an insurance policy. As long as the world depends on Taiwan for its chips, the world has an existential interest in Taiwan not being invaded. Analysts call it the "silicon shield": the idea that TSMC's importance to the global economy deters Chinese aggression because a war would destroy the semiconductor production China itself depends on.
The Real Deterrent: American Power
The silicon shield is an elegant concept, but it should be handled with care. Chip dependency does not stop China from invading Taiwan. American military power does.
China receives more than half of Taiwan's chip exports. A blockade or invasion of the island would indeed be an act of economic self-harm on a monumental scale for Beijing. But history is full of countries that made strategically irrational decisions for reasons of prestige, ideology, or simple miscalculation. Japan attacked Pearl Harbor knowing it could not win a prolonged war against the United States. Argentina invaded the Falklands knowing it could not sustain a war against the United Kingdom. Russia invaded Ukraine underestimating Ukrainian resistance and the Western response. Economic rationality is not insurance against military aggression. If it were, there would be no wars.
What deters military aggression is capability and will. In Taiwan's case, the deterring power is the United States. The Seventh Fleet operates in the Western Pacific. American bases in Japan, South Korea, and Guam surround the theatre of operations. American naval and air superiority in the region, though it has narrowed relative to Chinese military growth, is still real. And the signal matters more than the hardware: Washington's policy of "strategic ambiguity" on Taiwan has clarified over the years. Biden was the most explicit, stating publicly that the United States would defend Taiwan in the event of an invasion.
China knows this. The People's Liberation Army has been building amphibious capability, modernising its fleet, and developing anti-ship missiles designed to keep American carriers away from the strait. But an amphibious invasion across a hundred miles of open sea, against a mountainous island with a hostile population and a reasonably equipped military, under threat of intervention by the world's foremost military power, is an operation even a bold strategist would think twice about. Three times, really, because if the invasion fails, the Chinese Communist Party does not survive the humiliation.
The Pacific Lock
There is a second reason the United States cannot afford to lose Taiwan, and it has little to do with chips. Taiwan is the centrepiece of what during the Cold War was called the First Island Chain: an arc running from the Japanese archipelago down through the Ryukyus, across Taiwan, through the Philippines, and ending in Borneo. For seventy-five years, that arc has operated as a geographic lock on Chinese naval projection into the open Pacific.
The geography is merciless. China's eastern coast faces the Yellow Sea, the East China Sea, and the South China Sea, but all three are, in effect, inland waters. To reach the Pacific, Chinese warships must cross straits watched by American allies: the Miyako Strait, between Okinawa and the small Japanese islands of Miyako and Ishigaki; the Bashi Channel, between Taiwan and northern Luzon; a handful of lesser passages among the Ryukyus. Every one of these is under continuous surveillance. A Chinese submarine trying to reach the deep Pacific has to run a funnel of sensors, air patrols, and allied submarines.
Taiwan is the fulcrum that anchors the system. The island's western coast looks towards China. Its eastern coast looks straight out into the open Pacific, with deep water only a few kilometres from shore. If Taiwan falls under Chinese control, the People's Liberation Army Navy gains something it has never had in its modern history: deep-water ports with direct ocean access, no straits to cross, no allies to avoid. Chinese nuclear submarines, which today operate out of Hainan and must thread watched waters to vanish, could sortie from Taiwan's east coast into the deep ocean within hours. Tracking them becomes, suddenly, impossible.
The cascade is immediate. Yonaguni, Japan's westernmost inhabited island, sits a hundred and ten kilometres from the Taiwanese coast; Japan's southern flank is compromised the day after Taipei falls. The Philippines is flanked from the north. The South China Sea, where Washington still contests access, closes. And the American perimeter retreats, in practice, from the First Island Chain to the Second, anchored on Guam, nearly three thousand kilometres further back. American carrier groups, which today operate with relative freedom in the Western Pacific, would now operate under direct missile threat from what would have become, by then, the frontier of China.
Tokyo understood this before any European capital. Shinzo Abe put it in the sharpest words anyone dared: a Taiwan emergency is a Japan emergency. It was not rhetoric. It was a description, forty years late, of what had always been true. This is why Japan is rearming, why it is reinforcing its bases in the Ryukyus, why it allows American deployments to Yonaguni, and why it has pushed defence spending to levels that would have been unthinkable a decade ago.
The chip is the argument everyone understands. The lock is the older argument, and probably the more decisive. Taiwan concentrates the two reasons the United States will defend it: the industry the world depends on, and the geography without which American dominance of the Pacific does not hold.
The Chinese Dilemma
TSMC dependency shapes decision-making in every major power. The United States cannot afford to lose Taiwan not only for reasons of strategic credibility in the Indo-Pacific, but because losing access to TSMC would mean losing the technological edge that sustains its military supremacy. The chips American weapons systems depend on, the artificial intelligence feeding targeting platforms like Palantir, the processors running satellites and command-and-control networks, all come from Taiwan. A war in the strait would not be a regional conflict. It would be a systemic event capable of reshaping the global economy and the balance of power in ways no model can anticipate.
China faces the mirror of the problem. If Beijing invades Taiwan and destroys TSMC's factories in the process, it loses the chips its own economy depends on. If it captures them intact, something technically near-impossible given the extreme fragility of the facilities, it would need decades to run them without the Taiwanese engineers who would presumably flee or be evacuated. And if it blockades the island without invading, it triggers exactly the global economic crisis it wants to avoid, because every affected country would align with the United States. There is no scenario in which Chinese military force solves the semiconductor problem.
The parallel effort to develop domestic capability, through SMIC and massive state investment in semiconductors, has produced real but limited results. SMIC can fabricate chips at mature twenty-eight-nanometre processes and, according to some sources, has managed to produce seven-nanometre chips. The gap with TSMC at three- and two-nanometre nodes is enormous, and American export restrictions blocking Chinese access to ASML's EUV lithography machines make closing that gap extraordinarily difficult. China can make chips for its basic needs. It cannot make the chips it needs to compete in artificial intelligence, high-performance computing, and cutting-edge military systems. That dependency is Beijing's greatest strategic vulnerability, and there is no solution in sight.
Silicon as the Oil of the Twenty-First Century
An analogy circulates in strategic circles: semiconductors are the oil of the twenty-first century. Like oil in the twentieth century, chips are an essential resource on which all advanced economic and military activity depends. Like oil, their production is geographically concentrated in ways that create strategic vulnerabilities. Like oil, control of the sources of production is a first-order factor in geopolitical power.
There is a crucial difference. Oil is a natural resource pulled from the ground. Lose access to one source, you can look for another. Saudi oil can be substituted, at a cost, by American shale or Norwegian crude. Advanced semiconductors are not a natural resource. They are a product of technological complexity without precedent, manufactured by a single company with three decades of accumulated advantage, in one specific spot on the planet. There is no available substitute. There is no alternative well to drill.
That is the reality the world lives with today. The phone you are reading this on, the server processing this page, the artificial intelligence system assisting medical research, the processor guiding a precision missile, all depend on an island in the Western Pacific that an authoritarian government claims as its own and that a single company keeps running.
Morris Chang, who retired from TSMC in 2018, built what may be the most strategically important company in history. Not the largest, not the most profitable. The most important, in the sense that its absence would be irreplaceable within any relevant timeframe. If TSMC stopped working tomorrow, the artificial intelligence industry would halt, smartphone production would collapse, Western defence supply chains would enter crisis, and the global economy would suffer a shock it would take years to recover from. A single point of failure for the whole technological civilisation.
Reshoring is necessary. Diversification is urgent. But we should be honest: the window of vulnerability will last at least a decade. And during that decade, peace in the Taiwan Strait, and with it the stability of the global economy and the supply chain everything rests on, will depend on the same thing it has depended on since 1949: American carriers continuing to sail the Western Pacific, and Beijing believing that using them is not a bluff.
An entire technological civilisation propped up on a narrow ledge, with a single fleet holding the ledge in place.