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Picture: SUPPLIED
Picture: SUPPLIED

Taiwan’s semiconductor industry has become a crucial tool in its diplomatic arsenal, serving as a “silicon shield” against mounting geopolitical pressures.

This strategy has gained increased significance as Taiwan faces a multitude of issues, including recent diplomatic disputes, security concerns and internal demographic challenges. 

Externally, Taiwan has faced diplomatic setbacks, such as the recent dispute over relocating its representative office in SA and the loss of Nauru as an ally in 2024, leaving it with only 12 official diplomatic partners.

Security concerns have also escalated, exemplified by incidents such as the damage to undersea communications cables off Taiwan’s northern coast earlier this month, which raised suspicions about potential “grey zone” activities by foreign vessels.

Internally, Taiwan confronts demographic challenges, with a rapidly ageing population and dwindling birth rates threatening its economic future. Despite these hurdles Taiwan’s dominance in the global semiconductor market, particularly through industry leader TSMC, has positioned the island as an indispensable player in the global technology supply chain. 

The silicon shield 

Taiwan’s semiconductor industry accounts for a significant portion of the global market share in chip production. Recent projections indicate that TSMC alone is expected to command a 66% share of the global pure-play foundry market in 2025, up from 64% in 2024. This dominance has created a strategic advantage for Taiwan, often referred to as its “silicon shield”.

The concept of the silicon shield remains twofold: 

  • Economic importance. Taiwan’s critical role in the global tech supply chain makes it too valuable for the international community to ignore.
  • Strategic deterrence. The potential disruption to the global economy in case of conflict serves as a deterrent against aggressive actions towards Taiwan.

Taiwan’s semiconductor diplomacy has become increasingly important in its efforts to maintain international support and resist pressure from China. The island has strategically used its technological edge to strengthen ties with key allies and assert its importance on the global stage. 

TSMC’s recent investments in advanced chip manufacturing facilities in the US, Japan and Germany have not only expanded its global footprint but also deepened Taiwan’s strategic partnerships with these nations.

For instance, TSMC’s first fab in Arizona, featuring the N4 process, is anticipated to start mass production in the first half of this year. Additionally, Taiwan has signed co-operation deals with Canada and France, and plans to establish an office in Prague to support Czech chip design engineers, further solidifying its global semiconductor network. 

The semiconductor industry has become a critical component of global geopolitics, often compared to oil in terms of its strategic importance. Taiwan’s position as a leading semiconductor manufacturer has elevated its global standing and provided it with significant diplomatic leverage. 

The global semiconductor market is projected to grow by 15% in 2025, driven by strong demand for artificial intelligence applications and high-performance computing.

While this growth underscores the increasing importance of Taiwan's semiconductor industry in the global supply chain, it also highlights mounting pressure from China and increasing competition from other countries seeking to bolster their own semiconductor capabilities.

Taiwan’s foreign minister has unveiled a comprehensive diplomatic strategy to address these challenges, focusing on leveraging economic strengths for diplomatic gains. 

Economic outlook 

Taiwan’s semiconductor industry shipments are projected to reach about $175bn in 2025, highlighting its economic significance.

TSMC’s recent sales beat estimates, reinforcing expectations of continued strong demand for AI hardware into 2025. This growth is driven by substantial investments from major tech companies, particularly the “Magnificent 7,” into AI infrastructure.

Microsoft plans to invest $80bn in data centres this fiscal year to support AI development, while Alphabet (Google) continues to rapidly invest in data centres to accelerate AI advancements. Nvidia, as a major TSMC customer, has seen its AI chips in high demand, contributing significantly to TSMC’s growth.   

While Taiwan’s semiconductor industry is poised for growth, it faces challenges, including potential US tariffs and increased competition from other countries investing heavily in semiconductor production.

However, opportunities abound with the advent of new technologies. TSMC is set to begin mass production of chips made on the advanced 2-nanometer process in 2025, maintaining its technological edge.

The Taiwanese government is also taking steps to fortify the resilience of its industrial supply chains, recognising the need for targeted policies to enhance supply chain resilience in the face of geopolitical uncertainties. 

The implications of Taiwan’s semiconductor diplomacy for SA are both nuanced and intractable. As a developing economy with a growing tech sector, SA may face challenges in accessing advanced semiconductor technologies, potentially affecting its burgeoning industries.

For instance, SA’s automotive manufacturing centres, such as those in Gauteng and the Eastern Cape, rely heavily on semiconductor chips for modern vehicle production. Any disruption in the global semiconductor supply chain could significantly affect this crucial sector of the SA economy. 

Moreover, SA’s expanding digital infrastructure, exemplified by Amazon’s recent investment in data centres in Cape Town, could be vulnerable to semiconductor shortages or geopolitical tensions surrounding chip production.

Telecom giants such as Vodacom and MTN, which are pivotal in driving SA’s digital transformation, depend on a steady supply of semiconductor components for their network equipment and consumer devices.

As these companies continue to roll out 5G networks and expand their services, their reliance on Taiwan's semiconductor industry becomes increasingly apparent. 

Taiwan’s semiconductor diplomacy presents both challenges and opportunities for countries like SA. As the global technological landscape continues to evolve SA will need to carefully balance its economic interests, technological needs and diplomatic relationships in this new era of semiconductor-driven geopolitics.

The country’s ability to navigate these complexities will be crucial for the continued growth and competitiveness of its automotive, telecommunications and emerging tech sectors in the global market.

The symbiotic relationship between Taiwan and its allies, particularly the US, in the semiconductor industry serves as a model for potential future collaborations, highlighting the importance of strategic partnerships in this critical sector. 

Kajee is a lecturer and adjunct faculty member at Ling Tung University in Taiwan, focusing on internationalisation and intercultural communication.

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