What the U.S.-Taiwan deal means for the island’s ‘silicon shield’
HSINCHU, TAIWAN – APRIL 16: The entrance to a factory of the Taiwan Semiconductor Manufacturing Company (TSMC), which is a Taiwanese multinational semiconductor contract manufacturing and design company, in Hsinchu, Taiwan, on April 16, 2025.
Daniel Ceng | Anadolu | Getty Images
The U.S.-Taiwan deal aimed at expanding chip production capacity in the U.S. is unlikely to fully wean Washington off the island’s most advanced semiconductors anytime soon, several analysts told CNBC, leaving the so-called “silicon shield” largely intact for now.
Taiwan dominates global chip production, with the Taiwan Semiconductor Manufacturing Company producing most of the world’s advanced chips. Nearly one-third of global demand for new computing power is estimated to be fabricated in Taiwan.
The island’s central role in the global semiconductor supply chain has made preserving its de facto autonomy — and deterring any Chinese attack — a strategic priority for the U.S. and its allies, an idea referred to as the “Silicon Shield.” Beijing claims territorial control over the democratically-governed island.
As part of a trade deal struck Thursday, the Taiwanese government promised to guarantee $250 billion in credit to its chip and technology companies to expand their production capacity in the U.S. Taiwanese companies will also enjoy higher quotas for tariff-free imports of their chips into the U.S.
In return, Washington would lower its levies on most goods from Taiwan to 15% from 20%, and waive tariffs on generic drugs and ingredients, aircraft components and natural resources unavailable domestically.
The goal is to bring 40% of Taiwan’s entire semiconductor supply chain to the U.S., Commerce Secretary Howard Lutnick told CNBC on Thursday. But experts doubt the plan would be easy, given Taipei’s hard line on keeping its most advanced technology at home.
Taiwan’s “silicon shield” will remain strong through the end of the decade, with the world’s most critical advanced capacity concentrated on the island, said Sravan Kundojjala, an analyst at SemiAnalysis.
Taiwanese authorities restricted TSMC’s overseas fabrication plants from operating technologies at least two generations behind those developed domestically, known as the N-2 rule.
The semiconductor ecosystem cannot be relocated overnight, so the silicon shield may weaken but still exist in the near term.
Dennis Lu-Chung Weng
Associate professor of political science, Sam Houston State University
While TSMC produces its most advanced chips using 2-nanometer technology, or nodes, at home, its Arizona plant has only recently begun producing advanced 4-nanometer chips for U.S. customers, with plans to scale up to 2-nanometer and A16 nodes by 2030.
In semiconductor manufacturing, smaller nanometer sizes mean denser transistors, which boost processing speed and improve energy efficiency.
That four- to- five-year lag ensures Taiwan retains its advantage, said Kundojjala, adding that the global economy would face a…
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