US–Taiwan Chip Deal And The Silicon Shield

A sweeping agreement announced this week signals Washington’s strongest push yet to bring semiconductor production back home. But analysts say the deal is unlikely to break America’s reliance on Taiwan’s most advanced chips anytime soon, keeping the island’s strategic importance largely intact.

Will The US–Taiwan Deal Weaken Taiwan’s “Silicon Shield”?

Taiwan sits at the heart of the global semiconductor industry. The island produces the vast majority of the world’s most advanced chips, largely through Taiwan Semiconductor Manufacturing Company. Nearly one-third of global demand for new computing power is fabricated in Taiwan, making it critical not just for consumer electronics, but also for artificial intelligence, defence systems, and industrial technology.

This dominance has given rise to the idea of the “silicon shield” — the belief that Taiwan’s central role in chipmaking deters any military action from China, as disruption would severely damage the global economy. Despite the new deal, most experts believe this shield remains strong for now.

Experts believe that Taiwan will retain its edge through the end of the decade, as the world’s most advanced manufacturing capacity stays concentrated on the island. Taiwan’s government has also drawn clear red lines, restricting overseas plants from using its most cutting-edge chipmaking technologies.

How Much Chip Production Can Realistically Move To The US?

Under the agreement, Taiwan has promised to guarantee $250 billion in credit and encourage at least $250 billion in new direct investment by Taiwanese technology firms in the US These funds are aimed at expanding semiconductor, AI, and energy production, as well as building industrial clusters to support the entire chip supply chain.

The ambition is bold. US Commerce Secretary Howard Lutnick said the goal is to relocate about 40% of Taiwan’s semiconductor supply chain to American soil. In return, Washington will lower tariffs on most Taiwanese goods to 15% and waive duties on items like generic drugs, aircraft components, and certain natural resources.

Yet analysts remain sceptical. Taiwan’s most advanced chips are currently made using 2-nanometre technology. By comparison, TSMC’s Arizona plant has only recently begun producing 4-nanometre chips, with plans to reach more advanced nodes closer to 2030. That four- to five-year gap ensures Taiwan keeps a decisive technological lead.

Cost and talent are also major hurdles. Semiconductor manufacturing requires deep expertise built over decades. William Reinsch of the Center for Strategic and International Studies said Taiwan’s engineering ecosystem cannot be easily replicated at scale, while higher US costs and worker shortages have already delayed projects.

What Does This Mean For China And Future US Policy?

Beijing has reacted sharply, opposing any agreements between Taiwan and countries that recognise China diplomatically, and reiterating its support for the “one-China principle.” Still, analysts say the trade deal itself is unlikely to change China’s strategic calculations.

Ava Shen of Eurasia Group noted that Beijing is more focused on the military balance with the US and Washington’s willingness to defend Taiwan than on incremental shifts in chip production. A full invasion remains a low-probability event, she said.

The longer-term question may lie in Washington, not Beijing. Political scientist Dennis Lu-Chung Weng warned that if future US administrations continue pushing for large-scale relocation, Taiwan’s exclusive advantage could erode over time. For now, though, Taiwanese officials remain firm that their most advanced research and development will stay at home, fearing that moving it abroad could hollow out the domestic industry.

What Does This Deal Mean for India?

For India, the US–Taiwan semiconductor push is more an opportunity than a disruption. As Washington seeks to diversify supply chains without fully displacing Taiwan, India positions itself as a complementary manufacturing and design hub rather than a direct rival. New investments under India’s semiconductor incentive schemes could benefit from spillover demand, particularly in chip packaging, testing, and mature-node manufacturing. At the same time, Taiwan’s continued dominance in advanced chips limits any immediate strategic shift. India’s role in the global chip ecosystem is likely to grow steadily, but as part of a broader diversification strategy rather than a replacement for Taiwan’s silicon stronghold.

So while the deal marks a major step in US industrial policy, does it really redraw the semiconductor map today, or does Taiwan’s silicon shield still define the global chip race?

Sources:-

CNBC

US Dept of Commerce