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Taiwan produces roughly eight out of every ten of the world's most advanced semiconductors, the chips that power everything from smartphones and fighter jets to the latest artificial intelligence (AI) models. A single company, the Taiwan Semiconductor Manufacturing Company (TSMC), sits at the centre of this dominance, accounting for around 72% of global chip revenue.

That concentration of capability on an island less than 200km from the Chinese mainland, and claimed by Beijing as part of China, has made Taiwan one of the world's most strategically important pieces of territory.

Should China attempt to seize Taiwan by force or by other means, the consequences would threaten the Western supply of the advanced semiconductors that underpin the global economy, military technology, and the accelerating race to develop more powerful AI systems.

The semiconductor industry has therefore become one of the central battlegrounds in the broader technological competition between China and the West.

China has steadily narrowed the gap between it and Western firms across a range of high-technology industries, including consumer electronics, electric vehicles, drones, telecommunications equipment, and many forms of AI. In many of these sectors Chinese manufacturers have combined improving quality with significantly lower costs, allowing them to capture growing shares of global markets.

One area, however, remains beyond China's reach.

The production of the world's most advanced semiconductors continues to depend overwhelmingly on Taiwan.

That is why Taiwan has become such a central strategic concern for both Washington and Beijing. Western governments and technology companies are investing hundreds of billions of dollars to diversify semiconductor production before any future conflict in the Taiwan Strait can disrupt global supplies.

What Are Semiconductors?

A semiconductor is a special material that can either conduct electricity or block it, depending on how it is designed. Silicon is the most common semiconductor. A chip is a tiny piece of silicon that has been engineered with billions of microscopic switches, known as transistors, which are etched onto each chip, allowing modern electronic devices to perform calculations, store information, and process data.

They fall into four broad categories.

Logic chips, including central processing units (CPUs) and graphics processing units (GPUs), perform the calculations that power computers, smartphones, and AI systems. These are by far the most technologically advanced and difficult chips to manufacture.

Memory chips store and retrieve information used by computers, smartphones, and AI systems.

Analog and power chips regulate voltage and electrical power across products ranging from industrial machinery to electric vehicles.

Mature node chips carry out everyday tasks such as controlling vehicle braking systems, running washing machines and refrigerators, operating factory equipment, managing mobile networks, and regulating power distribution. 

Among these categories, advanced logic chips are the most strategically important because they sit at the heart of AI development and high-performance computing.

Taiwan's Unique Position

Manufacturing these advanced chips requires one of the most complex industrial processes ever developed.

Only one company in the world, Dutch firm ASML, manufactures the extreme ultraviolet (EUV) lithography machines needed to produce cutting-edge semiconductors. These machines are subject to strict export controls and cannot legally be sold to China.

Although South Korea and China have expanded production of less advanced chips, neither has been able to replicate Taiwan's dominance at this technological frontier.

Nvidia, the world's leading designer of AI processors, relies on TSMC to manufacture effectively all of its most advanced chips. Nvidia, in turn, supplies up to 90% of the chips used to train and operate modern AI models, including systems such as ChatGPT.

The Strategic Risk

Should China successfully take control of Taiwan later this decade, whether before or around 2030, as some Western defence planners have warned is possible, the consequences for Western semiconductor supply would be profound.

Even if the production facilities survived military action, much of the world's advanced chip manufacturing capacity would either disappear or fall under Chinese control, fundamentally reshaping the balance of power in the global AI race.

That outcome, however, is not guaranteed.

Capturing TSMC's factories would not necessarily allow China simply to continue production.

The manufacturing process depends on continuous support for ASML's EUV lithography systems. Because ASML is prohibited from supplying China, the company could withdraw technical support, disable software, and effectively render much of the advanced manufacturing equipment unusable.

The race is therefore no longer simply about whether China can take Taiwan.

It is whether the United States and its allies can build enough semiconductor capacity outside Taiwan before that possibility ever becomes reality.