Strategic planners in the Indo-Pacific region will likely face an unsettling week after the latest reports. The Trump administration is making its way through negotiations for yet another trade deal with Taiwan. However, this trade deal is going to be different, as officials will start to demand more than just factories. In exchange for a temporary pause from Trump’s outrageous 20 percent tariff, the White House will demand Taiwan’s semiconductor industry, namely TSMC, train the employees and transfer the knowledge to the AEB ‘science park’ that sustains Taiwan’s economy.
On the surface, it appears that the US is winning the race for American self-sufficiency, and it closes the most critical gap in Washington’s strategy. However, for the rest of the Indo-Pacific, and most importantly, for Australia, this is a dangerous repositioning. Washington is no longer attempting to buy chips from Taiwan. Instead, Washington is attempting to buy the entirety of the services from Taiwan. In doing so, it is risking the ‘Silicon Shield’ that has maintained peace across the Taiwan Strait for decades.
The Shift from Hardware to Human Capital
In the past three years’ discussions of the “de-risking” of chip supply chains, the focus has predominantly been on the hardware. The reasoning has been to build “mirror” fabrication plants (fabs) in Arizona or Japan so that, in the event of a Taiwan blockade, global economic collapse would not occur.
However, as TSMC’s struggles in Arizona have shown, the hardware is the easy part. The real secret sauce of Taiwan’s dominance is not the machinery but the tacit knowledge of its workforce and the tight integration of its industrial clusters. By requiring that Taiwan give up that secret sauce and ‘train’ themselves out, the US is no longer operating in a policy of redundancy but of replacement.
This does, of course, change the strategic calculus. The “Silicon Shield” theory is based on Taiwan’s indispensability: the US and the military will have to protect and defend Taiwan, as it is a non-nullifiable requirement. If Washington manages to succeed in not only the goals of reshoring production but also the control of the production itself (independently), Taiwan’s strategic value to the “America First” optics degrades significantly.
The Strategic Paradox
This presents a conundrum with regard to the nature of Western grand strategy. Militarily, the US and its allies are trying to harden Taiwan’s defenses to deter Beijing by increasing the costs of invasion. Industrially, however, US trade policy seeks to lower the cost of the loss of Taiwan.
This gives Beijing a highly dangerous opportunity. Assuming Chinese planners think the US is, in fact, successfully insulating itself from a Taiwan contingency and that by 2028 or 2030, America might be “chip secure,” they may conclude that the best time to move on the island is before that insulation, or more so, that the US will not intervene once that insulation is complete.
Moreover, the “hollowing out” narrative is damaging to Taiwan’s morale. If the Taiwanese public perceives that their security guarantor is treating their crown-jewel industry as a mere extractive resource, the political will to withstand the coercion (the foundational component of the island’s defense) may very well collapse.
Toward ‘Distributed Deterrence’
The United States cannot abandon its quest for supply chain resilience. What the United States must do is rethink the geography of that resilience.
Rather than a “hub-and-spoke” model that drains talent and IP into the continental United States, Washington should advocate for a “distributed deterrence” strategy in the First Island Chain where Taiwan, Japan, and South Korea, the core members of the “Chip 4” alliance, are economically integrated.
Japan’s recent semiconductor renaissance provides a model. Missed deadlines at the TSMC plant in Kumamoto were a concern, but not for long, as its growth integrated with, rather than replaced, Taiwan’s capacity. If Japan and South Korea were not only the United States, the alliance could construct a regional interdependence through “friend-shoring” of advanced packaging and design for the semiconductor supply chain.
This keeps the economic weight—and the strategic necessity of defense—anchored in East Asia. It signals to Beijing that disrupting Taiwan would still crash the economies of key U.S. allies in the region, ensuring a collective response.
One of the smarter domestic economic policies of the Trump administration is the deal on workforce training. There is an actual economic disparity in the American labor market. However, strategy design is not just about how the ends are achieved but how that is in accordance with the overall goals. The ultimate aim is an unencumbered and free Indo-Pacific. However, the approach cannot include the economic cannibalization of the weakest democracy in the region. An economically hollowed-out Taiwan is a weakened and defenseless Taiwan. No geopolitical catastrophe regarding the fall of Taiwan will be salvaged by the production of more chips in Arizona.