Taiwan Leans on Semiconductor Influence Amid Pressure to Spread AI Gains

Taiwan is increasingly turning its semiconductor industry into a diplomatic tool as it comes under growing pressure from international partners to share the economic benefits of the artificial intelligence boom. At a major semiconductor trade exhibition last week, the island presented itself as a dependable and democratic technology partner capable of supporting the global expansion of AI, while also signaling that its technological strengths could create opportunities for countries with similar values.

Taiwan is home to some of the world's most important semiconductor companies, including Taiwan Semiconductor Manufacturing Co., or TSMC, whose advanced chips are widely used in artificial intelligence systems. With Taiwan facing diplomatic isolation and limited formal recognition around the world, its dominance in chip manufacturing has become an increasingly important part of its efforts to build stronger international relationships. Beijing continues to oppose such efforts, maintaining that Taiwan is part of China.

At the same time, Taipei is facing increasing demands from Washington to expand semiconductor manufacturing in the United States. The US remains Taiwan's most important international supporter and a major supplier of military equipment. TSMC has already committed about $265 billion toward factories and related operations in Arizona, highlighting the scale of Taiwan's overseas semiconductor expansion.

Taiwanese President Lai Ching-te made an unusual appearance at two separate events on the same day during the SEMICON Taiwan trade show. Speaking at the events, Lai said Taiwanese companies were expanding internationally so that greater supply-chain resilience could translate into shared economic prosperity. He also stressed that Taiwan's semiconductor success was closely connected to its democratic system, rule of law and broader institutional stability.

Taiwan's Economy Minister Kung Ming-hsin, speaking at the opening of the US pavilion at the exhibition, said Taiwanese companies were preparing to make another $20 billion in investments in the United States. The announcement comes as Washington continues to encourage foreign semiconductor producers to increase domestic manufacturing. Trade policy has added another layer of uncertainty. Taiwan reached an agreement with the United States earlier this year under which it would increase investment in America in exchange for lower export tariffs. However, concerns remain over possible future duties on semiconductors. US Commerce Secretary Howard Lutnick recently indicated that companies that do not manufacture chips in the United States could face tariffs.

Despite the uncertainty, US Commerce Department official Bill Frauenhofer, who oversees the tariff agreement with Taiwan, described the relationship between the two sides in positive terms during the trade show. He argued that both Washington and Taipei have strong economic interests in making their semiconductor partnership successful.

Taiwanese technology executives have also acknowledged that semiconductor production can no longer remain concentrated entirely on the island. Foxconn Chairman Young Liu, whose company is one of Nvidia's largest AI server manufacturing partners, said businesses increasingly need to think about producing products alongside Taiwan rather than limiting manufacturing to Taiwan itself. He suggested that Taiwanese companies should build production capabilities in countries where their customers and markets are located.

Tien Wu, chief operating officer of ASE, one of the world's largest semiconductor packaging and testing companies, expressed a similar view during the discussion. He said expanding manufacturing internationally was politically sensible and, from a business perspective, increasingly difficult to avoid. Europe is also looking to attract more investment from Taiwan's technology sector. The European Union sent European Commission official Kilian Gross to SEMICON Taiwan to promote the bloc's proposed Chips Act 2.0 and encourage Taiwanese semiconductor companies to consider expanding their operations in Europe.

For Taiwan, stronger ties with Europe offer both economic and strategic advantages. Taipei and several European countries share concerns about China's growing influence, while many European governments and Taiwan have also supported Ukraine following Russia's invasion. Taiwan is therefore seeking to build relationships based not only on trade but also on shared political and strategic interests. Taiwanese Deputy Foreign Minister Francois Wu highlighted those common values while speaking at the opening of the French pavilion. He pointed to democracy, freedom and support for a rules-based international order as areas where Taiwan and France share common ground.

Taiwan's semiconductor industry has consequently become much more than an economic success story. Its advanced chip manufacturing capabilities have given the island an important role in the global AI supply chain and created new opportunities for diplomatic engagement. Yet Taipei must carefully balance competing demands from the United States, Europe and other partners seeking Taiwanese investment while ensuring that the expansion of production overseas does not weaken Taiwan's own semiconductor ecosystem.

As global demand for AI chips continues to rise, Taiwan's ability to manage these economic and diplomatic relationships could prove as important as its technological leadership. The island's semiconductor strength is now not only a foundation of its economy but also one of its most powerful tools for building international partnerships.

Disclaimer: This image is taken from Reuters.