Taiwan’s Chip Dominance Is Under Threat — and the West Has No Plan B

There is a single building in Hsinchu Science Park, Taiwan, where the physical substrate of modern AI is manufactured. TSMC’s 3nm and 2nm fabs produce the chips that power every major AI model inference at scale.

What the CHIPS Act Actually Bought

The US CHIPS and Science Act committed $52 billion to domestic semiconductor manufacturing. Three years into implementation, the results are modest relative to the ambition. Intel’s Ohio fabs are delayed. TSMC’s Arizona facility is producing chips, but at lower yields than its Taiwan operations and at substantially higher cost.

The knowledge problem is the one nobody wants to say plainly: TSMC’s fabs in Taiwan perform better than its fabs in Arizona in part because its Taiwanese workforce has been doing this for longer, at higher volumes, with more institutional continuity. You cannot import that with a government subsidy.

The Actual Risk Scenario

The threat most commonly discussed — a military invasion of Taiwan — is also the least likely near-term scenario. The more likely risks are subtler: export control escalation, a talent crisis as the workforce ages, and natural disasters that cause rolling production disruptions rather than a single catastrophic event.