Years of rising military tension between China and Taiwan have accelerated a global push to reduce the semiconductor industry’s dependence on a single island. With Kuomintang Chairwoman Cheng Li-wun departing for Beijing, a bipartisan U.S. Senate delegation having just visited Taipei and a Trump-Xi summit scheduled for next month in Beijing, governments and corporations are moving to build chip fabrication capacity beyond the Taiwan Strait.
Chip fabrication refers to the highly specialized process of manufacturing semiconductor chips, where circuits are etched onto silicon wafers through advanced techniques such as photolithography, deposition and etching in ultra-clean facilities known as fabs. These chips power a wide range of modern technologies, including smartphones, artificial intelligence systems, data centers, automobiles and advanced defense equipment.
Taiwan accounts for more than 60 percent of global foundry revenue and over 90 percent of leading-edge chip manufacturing, according to the International Trade Administration. Taiwan Semiconductor Manufacturing Company (TSMC) produces most of the world’s advanced processors for firms including Apple, Nvidia and AMD.
Mary E. Lovely, the Anthony M. Solomon Senior Fellow at the Peterson Institute for International Economics and a former Carnegie Chair in U.S.-China Relations with the Kluge Center at the Library of Congress, said cross-strait relations are defined by uncertainty about medium-term stability.
“With President Xi Jinping replacing many top military leaders while upgrading Chinese operations and hardware, few see a Chinese invasion or blockade of Taiwan as imminent,” Lovely said. “Nevertheless, the continued building of military-related infrastructure in the South China Sea suggests that a more aggressive stance could come before 2030.”
For companies and countries that see a semiconductor supply chain at risk, any sign of weakening support for an independent Taiwan confirms the case for moving fabrication capacity away from the island, according to Lovely.
“This migration will happen through new capacity, not movement of existing operations away from Taiwan,” she said.
One country, Lovely noted, has moved further than any other to address that concentration risk.
“Obviously, the U.S. has done more than any other country to pull the semiconductor fabrication ecosystem to its shores,” she said. “Reducing reliance on Taiwan is a long-term project, but there is reason for optimism since advanced chips are already being made on American soil.”
Taiwan Semiconductor Manufacturing Company’s Arizona facility began mass production of four-nanometer chips in early 2025, and Apple announced in February 2026 that it would purchase more than 100 million chips manufactured at the site this year. TSMC has committed $165 billion to expand its Arizona operations into a cluster of six fabrication plants, two advanced packaging facilities and a research and development center.
In January 2026, the U.S. and Taiwan signed a trade agreement that includes $250 billion in direct investments from Taiwanese semiconductor and technology enterprises and an additional $250 billion in credit guarantees to build and expand chip production capacity in the United States.
Commerce Secretary Howard Lutnick, in an interview with CNBC, said the goal is to bring 40 percent of Taiwan’s semiconductor supply chain to the United States.
The CHIPS and Science Act of 2022 provided the Department of Commerce with $50 billion to strengthen U.S. semiconductor research, development and manufacturing. Companies in the semiconductor ecosystem have announced more than $640 billion in investments across 30 states as of January 2026, according to the Semiconductor Industry Association.
Lovely described the legislation as effective so far, noting that chipmakers are continuing to build capacity in the United States.
“The legislation was well crafted in that it covered both upstream and downstream activities surrounding fabrication,” she said.
However, she also noted that the main weakness of the legislation was “its failure to realize the impact on U.S. allies and friends,” some of whom have “important pieces” of the chip supply chain “within their borders.”
South Korea has also taken meaningful steps to reduce its reliance on Taiwan while building up its domestic advanced memory chip capability, according to Lovely. Beyond the major players, TSMC has expanded into Japan, where it opened a fabrication plant in Kumamoto in partnership with Sony and Denso, and is considering a facility in Europe.
The Trump administration has moved to accelerate the reshoring push through trade policy. On Jan. 14, President Trump issued a Section 232 proclamation imposing a 25 percent tariff on certain advanced computing chips, including Nvidia’s H200 and AMD’s MI325X, that are not destined for the U.S. supply chain.
On Jan. 14 the White House on said the United States manufactures only 10 percent of the chips it requires and that reliance on foreign manufacturers poses a “significant economic and national security risk.”
The proclamation directed the Commerce Department and the U.S. Trade Representative to negotiate agreements with foreign governments to strengthen the domestic semiconductor industry, and noted that broader tariffs at higher rates could follow. The same week, the administration signed the trade agreement with Taiwan that ties reduced tariff rates to expanded Taiwanese investment in U.S. chip production.
The diversification effort has not been without friction. TSMC’s Arizona project faced repeated construction delays tied to skilled labor shortages and regulatory permitting timelines, and the cost of building and operating U.S. fabs runs at least 50 percent higher than equivalent facilities in Taiwan.
TSMC maintains a policy of keeping its most advanced manufacturing technology at least two generations ahead of what it produces overseas. Analysts have questioned whether Taiwan’s engineering talent and production ecosystem can be replicated at scale in any single country.
India has emerged as another contender in the diversification push. The India Semiconductor Mission has approved 10 semiconductor projects as of March 2026, including two fabrication plants and eight assembly and testing facilities, attracting roughly $17.3 billion in investment commitments. Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corporation are building a $10.9 billion fabrication plant in Dholera, Gujarat.
Prime Minister Narendra Modi inaugurated the Kaynes Semicon chip assembly plant in Sanand, Gujarat on March 31 and Micron Technology’s assembly and test facility at the same location in February 2026.
The government announced India Semiconductor Mission 2.0 in the Union Budget 2026-27, with a focus on producing semiconductor equipment and materials domestically and strengthening global supply chains.
The scale of government investment required to shift chip supply chains should not be underestimated, Lovely cautioned, pointing to lessons from the CHIPS Act’s early implementation.
“A key takeaway is that it takes a very large government investment to move chip supply chains,” she said. “Not only are the direct subsidies large, but the U.S. may have to use tariffs and/or quotas to maintain high domestic prices to support its homegrown chip sector, at least until the industry achieves scale inside the U.S. market.”
When asked what she would recommend to a multinational board assessing Taiwan Strait risk, Lovely offered a pragmatic approach.
“My advice would be to buy what you need today from the most effective and efficient producer but seek to build relationships with suppliers with new fabs inside the U.S.,” she said.
Copy edited by Kennedi Bryant