Taiwan’s semiconductor industry –the pillar of Modern Life and global stability

Taiwan has emerged as a pivotal player in the global Information and Communication Technology (ICT) and semiconductor industries, serving as a linchpin in the intricate web of global supply chains. Its significance extends beyond geographical size, as it is home to leading semiconductor manufacturers, most notably the Taiwan Semiconductor Manufacturing Company (TSMC). The global reliance on Taiwan's semiconductor industry has intensified, particularly due to supply chain disruptions caused by the COVID-19 pandemic. The semiconductor shortage has highlighted the vulnerabilities in the supply chain and the essential role Taiwan plays in various industries worldwide. As technology advance, the demand for semiconductors is expected to grow, further solidifying Taiwan's position as a key player in the global economy.

The journey of making Taiwan a leader in chip industry

The journey of Taiwan becoming a leader in chip manufacturing began in the late 1970s at the Industrial Technology Research Institute (ITRI), a government-formed research laboratory that reshaped the nation’s economy. Taiwan’s unique foundry model provides specialized services to global clients, supported by a high-quality supply chain encompassing cutting-edge technology, materials and robust research and talent cultivation systems. This has created strong international competitiveness. 

Taiwan is responsible for a substantial portion of the world's semiconductor production, accounting for over 69%, 78%, and 95% of the global market for processes below 10nmm 7nm, and 3nm, respectively, that drive contemporary human life. According to ITRI’s latest statistics, Taiwan's semiconductor industry output exceeded 153 billion euros for the first time in 2024, with a year-on-year growth rate of 22.4%. The output value for 2025 is projected to grow by another 16.2%, reaching 177 billion euros. 

TSMC is located in Hsinchu City – Taiwan’s version of Silicon Valley, which has become a global hub for the electronics industry. TSMC is the ninth largest company in the world by market capitalization, with six of the top ten companies, including Microsoft, Apple, and NVIDIA, as its customers. This dominance in semiconductor manufacturing is critical for sectors such as consumer electronics, automotive, and telecommunications. It can mass-produce 11,895 products for 528 international customers using 288 different processes, demonstrating its absolute competitive advantage in the wafer foundry sector. 

Its competitive advantages include a unique industry position, advancements in advanced process technology blueprints, progress in advanced packaging technology, domestic and international capacity expansion and order management, and strategic alliance with international firms. These advantages are not easily replicable by other competitors. 

Factors behind Taiwan’s succes

Taiwan's success in the semiconductor industry is difficult to replicate, but several underlying factors contribute to it. 

First, Taiwan boasts a robust education system emphasizing science, technology, engineering, and mathematics (STEM) fields. This framework, incorporating leading universities, research institutions and relevant industries, has created a “triple helix” model to foster a skilled workforce adept in semiconductor technology. Programs tailored to semiconductor engineering have produced a steady stream of qualified professionals, crucial for maintaining Taiwan's competitive edge.

Second, the Taiwanese government has nurtured the semiconductor industry through supportive policies and funding initiatives. Over the past five decades, the government has invested heavily in research and development and established various science and software parks, encouraging innovation and attracting foreign investment.

Third, Taiwan's semiconductor industry benefits from a well-established ecosystem that includes suppliers, manufacturers, and research institutions. The concentration of companies in close proximity fosters collaboration and innovation, creating a vibrant industry cluster and enabling rapid prototyping, efficient supply chain management, and knowledge sharing. 

Another key factor is Taiwan’s emphasis on specialization and collaboration. Unlike other countries that have attempted to build vertically integrated semiconductor industries, Taiwan’s model prioritizes specialization. Companies like TSMC focus exclusively on manufacturing, enabling them to refine their processes and achieve unmatched efficiency and quality. This specialization is further enhanced by a collaborative ecosystem in which companies work closely with suppliers, customers, and research institutions to drive innovation and meet market demands. innovation and meet market demands. 

Taiwan reallocates investments from China and boosts its semiconductor investments in Germany, Japan, and the U.S

In recent years, Taiwan has actively shifted its investments away from China to Southeast Asian countries and India, particularly in key industries such as ICT. The proportion of Taiwanese investments in China have decreased from 83.8% in 2010 to below 10% in 2024. Taiwan is also committed to enhancing national defense and upgrading its economic structure by developing five key trusted sectors: semiconductor, AI, military, surveillance, and communications. 

Additionally, Taiwan has increased its investments in the semiconductor industry in Germany, Japan, and the United States to strengthen its position in the global supply chain. Collaborations in chip research and ecosystem development with Central and Eastern European countries like the Czech Republic and Lithuania further expand Taiwan’s international cooperation network. 

Taiwan’s landmark investments in the three nations are part of its efforts to reduce dependence on the Chinese market while strengthening the global strategic framework of key industries. This move aims to diversify production capabilities and foster local ecosystems and industry clusters, with significant implications for technological advancement, industrial partnerships, and geopolitical security.

In early March, alongside U.S. President Donald Trump in the Oval Office, TSMC Chairman Che-chia Wei announced a plan to invest an additional US$100 billion over the next four years in the U.S., on top of the original US$65 billion investment. This expanded investment includes the construction of three new wafer fabs, two advanced packaging facilities, and an R&D center, expected to create hundreds of billions of dollars in semiconductor value for AI and other applications. This project is also anticipated to support approximately 40,000 construction jobs and generate tens of thousands of high-paying, high-tech jobs.

TSMC announced in 2021 that it would establish two wafer fabs in Kumamoto, Japan, with a total investment of up to US$20 billion, including subsidies from the Japanese government. The first fab primarily produces mature process logic chips in the 12 to 28 nanometer range and began production in February. The second fab is expected to start operations by the end of 2027 producing advanced 6-nanometer process chips, with a projected monthly capacity of over 100,000 wafers for both fabs combined.

In response to the European Chips Act, TSMC in investing 10 billion euros to build its first wafer fab – the European Semiconductor Manufacturing Company (ESMC) – in Dresden, Germany, marking a record for Taiwanese companies investing in Europe. This facility is expected to begin mass production in 2027, introducing a 12-nanometer process, making it the most advanced logic chip manufacturing process in Europe. 

TSMC’s investment in Dresden holds historical significance as it marks a pivotal expansion of Taiwan’s chips industry into Europe, reinforcing global supply chains amid rising geopolitical tensions. This project serves as a counterbalance to the threats posed by authoritarian regimes, particularly in the context of technology control and economic coercion. By establishing a presence in Germany, Taiwan strengths strategic ties in key industry with European Union and contributes to the resilience of democratic economies against potential disruptions.  

Strategic significance of Taiwan’s investment

The COVID-19 pandemic exposed vulnerabilities in the supply chain, leading to significant shortages. Taiwan’s proactive approach in expanding its global footprint is vital for maintaining stability and fostering innovation. TSMC's investments in Germany, Japan, and the U.S., carry multiple strategic implications, facilitating closer collaboration with local technology firms, research institutions, and universities.

Taiwan’s investments will create tens of thousands of jobs in the host countries, contributing to local economies. The direct employment opportunities, along with those generated in the supply chain, will stimulate economic growth, particularly in regions where high-tech jobs are in demand. TSMC's investment projects also carry geopolitical implications, aligning with countries that prioritize democratic values and technological leadership. 

However, looming military threats from China pose significant risks to Taiwan’s semiconductor industry. The potential for conflict raises concerns about the stability of the global supply chain and the economic repercussions that would follow. Any escalation in military tensions could disrupt production and logistics, severely impacting Taiwan’s economy and the technological capabilities of countries reliant on its semiconductors. The international community must pay close attention to these developments, as safeguarding Taiwan's semiconductor industry is essential for ensuring the continued growth and stability of the global economy. (E)