One of the biggest questions surrounding China’s growing military threats to Taiwan in recent years is what a cross-Strait conflict could mean for Taiwan’s semiconductor industry and the broader global supply chain.

Taiwan is home to the world’s leading producer of chips, Taiwan Semiconductor Manufacturing Company (TSMC), and any disruption to its operations, even if only temporary, would reverberate throughout the global economy and slow the development of AI.

But that vulnerability is quietly becoming less of one. TSMC is rapidly expanding production overseas, while Taiwan’s semiconductor industry is stockpiling critical supplies, moving suppliers closer to home, and developing contingency plans to keep businesses operating during a crisis. The net result is that TSMC’s operations on its home soil are likely to continue uninterrupted for several weeks or months even in the event of a Chinese naval blockade.

A direct attack on TSMC facilities or a full-scale invasion of the island would obviously be much harder to survive.

Under prevailing conditions, TSMC’s newfound presence abroad is likely to continue relatively unimpacted, as the company pursues enhanced resilience for its semiconductor supply chain and its place in the global economy.

Diversifying production overseas, anchoring operations at home

TSMC’s heightened vulnerability due to its concentration of advanced semiconductor production in Taiwan was among the concerns that prompted Washington to rethink the security of global semiconductor supply chains. During the Biden administration, Congress passed and President Joe Biden signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022.¹ The legislation sought to address vulnerabilities in semiconductor manufacturing and distribution exposed during the pandemic and reduce the risks posed by potential future disruptions in East Asia, including Chinese hostilities. The People's Republic of China views Taiwan as a renegade province that must be reunified with the mainland, by force if necessary, after Mao Zedong’s opponents in the Chinese Civil War retreated to the self-governed island after the Communists swept to power on the mainland in 1949.

While the US acknowledges Beijing’s claim under the “One China” principle, it maintains strong unofficial relations and defense support for Taiwan. An intensifying Chinese military buildup near Taiwan in recent years has reopened the island’s vulnerability as a major geopolitical flashpoint, made greater by TSMC’s critical role in the crucial tech sector of modern industry.

The US law offered billions of dollars in federal incentives to TSMC and other semiconductor manufacturers, including South Korea’s Samsung, to expand advanced chip production in the United States by opening new fabrication plants, thereby diversifying the geographic concentration of semiconductor manufacturing.

TSMC benefited significantly from CHIPS funding and opened new advanced fabs in Arizona as a result. Washington continues to be highly supportive of TSMC building out its presence and operations there. The scale of the company’s investment is enormous: in July 2026, TSMC raised its total US commitment from US$165 billion to US$265 billion, encompassing at least 12 leading-edge semiconductor manufacturing and packaging facilities.² In April 2026, TSMC Chairman and Chief Executive Officer Che-Chia Wei attributed the expansion in the US to “multiyear demand from our leading-edge US customers,” primarily from the development of AI.³

To be sure, TSMC is expanding its presence Stateside under political pressure from the US, but even so, it is mostly driven by business logic, according to a former senior executive with the company.⁴ He argued that, for decades, TSMC has been exploring numerous overseas acquisitions and investments, including what became a major joint venture fab in Japan. TSMC has commercial reasons for expanding, including that Apple is a major customer, Arizona and California offer skilled workers, and Arizona has comparatively favorable resource costs, a Taiwan government official said.⁵ Taiwan increasingly lacks sufficient land and electricity for additional fabs, a problem that becomes even more significant when semiconductor manufacturing competes with data centers for power and space, he said.⁶

Beyond the United States, Taiwan has explored exporting to the US the “Hsinchu Science Park development model,” a state-led collaboration between industry and academia.⁷ Taiwan has also discussed semiconductor-linked partnerships with the Philippines and Vietnam. The Luzon Economic Corridor could accommodate Taiwanese supply chain activities, including passive components that don’t require external power sources to operate. More strikingly, Taiwan, on behalf of TSMC, approached Vietnam about providing more advanced technology in return for a more supportive Vietnamese position toward Taiwan, but the effort failed, according to an informed expert on semiconductors and Taiwan strategy.⁸ For now, the success or failure of Tata Electronics’ semiconductor effort will serve as an important test of whether India can become a viable manufacturing location for TSMC.

South Korea is not a preferred overseas destination for new fabs because of TSMC rival Samsung and Taiwan’s concerns about protecting its semiconductor workforce from Korean poaching. And Japan is investing “in a massive way” in semiconductor manufacturing, leading a former TSMC senior executive to comment, “I have more concerns about Japan than I do China, quite honestly… They’re going to eat our lunch if we’re not careful.”⁹

There is one more hedge: TSMC will continue evaluating China based principally on customers, talent, and operating costs, the former TSMC executive said. China still possesses highly capable semiconductor workers, while US manufacturing is substantially more expensive. In the end, TSMC is concerned about the cost differential, according to the former executive.

TSMC’s Taiwan-based operations have simultaneously become more centralized as well. In January 2026, Wei suggested that though expansion in Arizona was accelerating, it should not be viewed as a replacement for Taiwan.¹⁰ Taiwanese semiconductor experts cited above argued that TSMC’s Taiwan presence is unlikely to get hollowed out because AI is generating enough new demand that the company can expand abroad while retaining the bulk of its capacity at home.¹¹ Another Taiwanese chip specialist argued that TSMC continues to invest more heavily in Taiwan than overseas, meaning that production remains highly concentrated there, even if the concentration of manufacturing is declining in a purely quantitative sense.¹²

Chinese hostilities are now more survivable for TSMC, but challenges persist

Because of the enormous financial stakes involved, TSMC and other Taiwanese firms are “thinking ahead of the government” when it comes to contingency planning for a Chinese attack on or blockade of Taiwan.¹³ TSMC has commissioned studies on the potential impacts of each scenario on its bottom line and considered secondary headquarters locations in Bangkok and Singapore so that corporate operations could continue during a crisis.

Thinking strictly about operations on the Taiwanese mainland, a Chinese naval blockade, for example, would certainly hurt semiconductor production, but it would not instantly shut TSMC down. The greatest immediate vulnerability would be energy because Taiwan depends heavily on imported liquefied natural gas (LNG). But TSMC has considerable energy resilience, including its own power generation capacity, increased inventories of specialty chemicals and gases, and suppliers locating production near Taiwanese fabs. Finished chips largely leave Taiwan by air, meaning a maritime quarantine alone would not necessarily stop exports.

In the first days of such scenarios, the most intense pressure might be psychological rather than physical. Shipping insurance rates soar, airlines reroute services, customers scramble to secure inventories, financial markets plunge, and TSMC activates its contingency plans. Assuming China has not degraded Taiwan’s chipmaking infrastructure, the fabs would probably keep running. Beijing might deliberately allow commercial aviation and some shipping to continue precisely because it wants coercive leverage without immediately triggering a global economic catastrophe.

But after several weeks, the scenario gets much murkier. Semiconductor fabs are extraordinarily complex systems. It’s not simply whether TSMC has electricity. It needs uninterrupted supplies of specialty gases, chemicals, wafers, replacement parts, equipment servicing, water, transportation, and thousands of employees. Some things can be stockpiled but cannot realistically be stockpiled indefinitely. In this sense, energy is probably the critical resource. Even if TSMC can protect itself better than any other ordinary industrial consumer of electricity, its private generators exist within Taiwan’s larger electricity system. If LNG imports are severely constrained for a prolonged period, Taipei eventually has to ration energy. TSMC would almost certainly receive extremely high priority, but keeping the fabs powered while the rest of Taiwan experiences shortages creates its own economic and political problems.

China could further make its blockade restrictions deliberately porous by randomly choosing to inspect some ships, declaring exclusion zones, conducting customs or coast guard operations, interfering with particular ports, cutting data and/or power cables, conducting cyberattacks, and periodically tightening or loosening enforcement. The general uncertainty could be too much for Taiwan or TSMC to handle.

Regardless, the situation changes dramatically if China starts physically striking Taiwan. Advanced semiconductor manufacturing depends on stable electricity, water, communications, logistics, personnel, and equipment. A major missile campaign against Taiwan’s power grid, ports, communications, airfields, and transportation infrastructure could halt sustained production.

Whither Taiwan’s silicon shield?

TSMC’s expanding operations abroad should cushion some of the consequences of a Chinese attack. Its fabs in Arizona and elsewhere would presumably remain beyond the reach of China’s military and retain access to the energy, materials, equipment, and personnel necessary to continue production. They would not replace Taiwan’s enormous semiconductor ecosystem, but they would ensure that neither TSMC nor advanced semiconductor production would disappear entirely if operations on the island were severely disrupted.

This development raises a larger question about Taiwan’s so-called “silicon shield” — the idea that the island’s indispensable role in global semiconductor production raises the economic costs of Chinese military action while giving the United States and other countries an additional reason to come to Taiwan’s defense.

TSMC’s overseas expansion might appear to be pushing the United States in precisely that direction. Arizona is becoming an increasingly important component of TSMC’s global production network, though it is designed to get nowhere close to replacing Taiwan. TSMC continues to invest heavily at home, and the extraordinary concentration of fabs, suppliers, engineers, research institutions, and supporting infrastructure that Taiwan has accumulated over decades cannot simply be replicated abroad.

Geographic diversification may gradually reduce the world’s absolute dependence on chips manufactured in Taiwan. Even a successful occupation of the island would not deliver control over TSMC’s growing overseas manufacturing base, and war itself could severely damage the people, infrastructure, supply relationships, and foreign technological support that make Taiwan’s fabs valuable.

Taiwan’s semiconductor strategy is therefore becoming less about ensuring that the world cannot afford to lose Taiwan and more about ensuring that China cannot profit from taking it. The silicon shield may be getting thinner, but TSMC is building something alongside it: an insurance policy.