The rapid development of artificial intelligence technologies is driving global demand for semiconductors, while the concentration of production capacity in specific regions lies at the heart of debates on economic security. Home to Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, Taiwan continues to serve as one of the principal hubs of global semiconductor supply chains. At the same time, efforts by actors such as the United States (US) and the European Union (EU) to diversify production capacity are making overseas investments by Taiwanese companies increasingly important. At SEMICON Taiwan, held on September 2–4, 2026, Foxconn Chairman Young Liu’s emphasis on “Made with Taiwan” rather than “Made in Taiwan” was one manifestation of this shift within the industry.[i] These developments raise the question of whether the globalization of semiconductor production will diminish Taiwan’s technological power or change how that power is used in international relations.
Taiwan’s position in the semiconductor industry has long been assessed through the “silicon shield” framework. At the core of this approach is the idea that the global economic dependence created by the concentration of advanced semiconductor manufacturing in Taiwan gives the island strategic importance. In recent years, however, the supply chain disruptions exposed by the COVID-19 pandemic, US–China technological competition, and the rapid growth of the artificial intelligence sector have also turned the geographical concentration of semiconductor production into an economic vulnerability. Thus, while Taiwan’s technological centrality provides it with a strategic advantage, its major economic partners also view this centrality as a supply chain risk that needs to be reduced.
This dilemma is most evident in Taiwan’s evolving semiconductor ties with the US. TSMC’s total planned investment in Arizona has reached $265 billion, while other Taiwanese technology companies are reported to be planning to invest approximately $20 billion more in the US.[ii] Washington’s policy of increasing domestic semiconductor production is linked to its goals of strengthening supply chain resilience and reducing dependence on foreign suppliers for advanced chips. For Taiwanese companies, establishing production capacity in the US offers an opportunity to be closer to growing demand in the artificial intelligence sector and to major customers. The expansion of production into the US can therefore be understood not as a one-way process in which Taiwan transfers its technological capacity to another country, but as an area where American industrial policy intersects with the commercial interests of Taiwanese companies.
A similar trend is emerging in relations with Europe. At the second EU–Taiwan Semiconductor Industry Dialogue, held on August 31, 2026, the proposed European Chips Act 2.0, growing demand for artificial intelligence chips, and data center infrastructure were among the key topics of industrial cooperation between the two sides.[iii] TSMC’s investment in Germany is one of the significant examples of the expansion of the Taiwan-centered semiconductor ecosystem into Europe. Taiwan’s leader, Lai Ching-te, has also called for progress on investment and double taxation avoidance agreements to strengthen technology partnerships with European countries.[iv] Semiconductor investments are thus moving beyond corporate production decisions to become one of the instruments for developing broader economic and technological relations.
In this context, the “Made with Taiwan” approach is important for understanding the shift in Taiwanese technology companies’ globalization strategies. Foxconn defines this approach in terms of deeper integration with global technology ecosystems, rather than developing Taiwan’s production capacity solely within its own borders. Strategic value can be generated when Taiwanese companies’ capital, technology, manufacturing expertise, and supply chain connections occupy central positions in production networks established across different countries. Taiwan’s semiconductor capacity is therefore increasingly emerging as an instrument of chip diplomacy used to deepen relations with economic partners.
This transformation does not, however, entirely eliminate the importance of the silicon shield. Rather, the central challenge for Taiwan is to strike a balance between expanding global production networks and preserving its technological centrality. TSMC’s growing investments, particularly in the US, have also raised concerns in Taiwan that advanced semiconductor capacity could shift overseas and erode the island’s technological superiority.[v] In response to these concerns, Taiwan’s government is supporting companies’ global expansion while seeking to keep the most advanced technological capabilities and the comprehensive semiconductor ecosystem anchored on the island. Current developments therefore point to the expansion of a Taiwan-centered technological ecosystem into different regions, rather than a complete shift of the center of semiconductor production away from Taiwan.
This process also reveals the limits of chip diplomacy. Taiwanese companies’ overseas investments are not shaped solely by political or diplomatic objectives; market conditions, customer demand, production costs, government incentives, and industrial policies continue to play decisive roles in corporate decision-making. For the US and Europe, attracting Taiwanese investment serves the goals of economic security and the diversification of production capacity. For Taiwan, the same process creates new opportunities to use its technological capacity to strengthen economic partnerships. Chip diplomacy thus emerges as a reciprocal relationship in which states’ economic security objectives intersect with companies’ commercial interests, rather than as a unilateral instrument of influence.
In conclusion, the globalization of semiconductor production may diversify the role of Taiwan’s technological importance in international relations rather than eliminate that importance. Under the silicon shield framework, strategic value stems largely from the concentration of production in Taiwan, whereas the “Made with Taiwan” model also enables technological capacity to generate value through investment and production networks established in partner countries. The silicon shield and chip diplomacy can therefore be regarded as two complementary dimensions of Taiwan’s semiconductor strategy rather than alternatives to one another. The sustainability of this model will depend on the extent to which Taiwanese companies can preserve their central positions in advanced manufacturing, research and development, and technological expertise while expanding their global production networks.
[i] “Hon Hai Technology Group (Foxconn) Shares View On AI Strength And ‘Made With Taiwan’ At Semiconductor Tech Fests”, Hon Hai Technology Group (Foxconn), https://www.foxconn.com/en-us/press-center/press-releases/latest-news/2101, (Accessed: September 7, 2026).
[ii] “Taiwan flexes chip diplomacy muscles as it faces pressure to share AI wealth with allies”, Reuters, https://www.reuters.com/world/china/taiwan-flexes-chip-diplomacy-muscles-it-faces-pressure-share-ai-wealth-with-2026-09-07/, (Accessed: September 7, 2026).
[iii] “Second EU-Taiwan Semiconductor Industry Dialogue”, European Commission, https://digital-strategy.ec.europa.eu/en/news/second-eu-taiwan-semiconductor-industry-dialogue, (Accessed: September 7, 2026).
[iv] “Taiwan’s chip prowess is built on democracy and rule of law, president says”, Reuters, https://www.reuters.com/world/asia-pacific/taiwans-chip-prowess-is-built-democracy-rule-law-president-says-2026-09-01/, (Accessed: September 7, 2026).
[v] “TSMC’s most advanced technology to remain in Taiwan: Cabinet”, Focus Taiwan, https://focustaiwan.tw/politics/202607170006, (Accessed: September 7, 2026).
