The United States and China are locked in a global competition to determine who will dominate artificial intelligence and whether it will be democracies or autocracies that set the standards and values of the new digital age. The United States leads the world in the sophistication and power of its artificial intelligence models, and its innovation base and investment in research and development remain unparalleled.
But AI competition is much broader than modeling alone. It encompasses a technology ecosystem that includes power generation, servers, and deployment in real-world applications. Jensen Huang, co-founder and CEO of Nvidia, has described the AI industry as a five-layer cake with energy at its base and chips, infrastructure, models, and applications above it. To win the AI race with Chinathe United States needs to maintain or establish an advantage in each of these layers. And to do that, the United States needs Taiwan.
Taiwan produces more than 90 percent of the world’s most cutting-edge semiconductors, making it indispensable to the United States’ AI industry. Taiwanese companies also assemble roughly 90 percent of the servers that power the global AI economy. With complementary strengths in manufacturing and design, respectively, Taiwan and the United States have built a mutually reinforcing partnership in AI that has underpinned U.S. leadership in the sector. Alongside democratic countries around the world that don’t want to rely on China for their technology needs, the U.S.-Taiwanese partnership has also made a secure AI supply chain possible.
Some policymakers in the United States have blamed Taiwan for the offshoring of U.S. semiconductor manufacturing. Although it is true that the United States no longer manufactures as large a share of the world’s chips as it did in the mid-twentieth century, this narrative obscures the larger story. Taiwan did not weaken the U.S. semiconductor industry. Instead, Taiwan has been crucial to maintaining the United States’ technological superiority. By carving out a niche in advanced manufacturing and supply chain management, Taiwan can help the United States maintain its advantage in innovation and R & D. As the stakes of the AI race grow, Taipei and Washington—and the rest of the democratic world—will need to work together to prevail.
FOUNDING FOUNDRIES
First and foremost, AI relies on access to advanced semiconductors. For much of the 1950s through the 1970s, the United States dominated the entire chip industry, from design to manufacturing. As the Center for Strategic and International Studies notes, “The United States created the modern-day semiconductor industry and has historically led in the technology’s development.” But as chips became increasingly complex and expensive to produce, the industry became more specialized. Although Silicon Valley held on to its strong lead in chip design, it began to outsource manufacturing capacity to East Asia. Today, as Washington tries to revive manufacturing, understanding the sources of this shift are essential for determining how to most effectively rebuild U.S. capacity.
In fact, Taiwan’s semiconductor industry was born out of U.S.-Taiwanese cooperation. With the onset of globalization and expansion of free trade starting in the 1970s, U.S. companies accelerated their efforts to outsource chip manufacturing to overseas partners. Taiwan’s government, seeking to move up the global value chain, established the Industrial Technology Research Institute, an organization for nurturing new technology ventures and channeling R & D to industries; bought technology licenses from the United States; and built Hsinchu Science Park in northwestern Taiwan. Taiwan also invested heavily in education and training for engineers. As the semiconductor industry developed, large Taiwanese technology firms such as TSMC expanded their operations and countless small and medium-size enterprises contributed to supply chains, creating a virtuous cycle that encouraged entrepreneurship, strengthened regulations and standards, and promoted international cooperation.
The result was an industrial ecosystem that was specialized, collaborative, and difficult to replicate. This ecosystem freed up the United States to do what it does best: design incredibly complex chips. Taiwan’s investment in manufacturing not only lowered the cost of U.S. technology; it also meant that whatever Silicon Valley dreamed up, Taiwan was soon capable of building.
Taiwan has been crucial to maintaining U.S. technological superiority.
Taiwan’s success as a semiconductor powerhouse has therefore never been at the expense of the United States. Rather, it has been based on decades of collaboration, a division of labor, and mutual trust between Washington and Taipei. Today, the United States continues to lead the world in semiconductor innovation, design, and research and development, whereas Taiwan is at the forefront of advanced manufacturing, packaging, and supply chain integration. U.S. tech firms such as Nvidia, Apple, and Qualcomm need Taiwan’s manufacturing sector to turn their creative ideas into usable products. Rather than replace the United States, Taiwan enables American innovation to reach global markets.
Still, Taiwan understands Washington’s determination to strengthen domestic semiconductor production and is willing to support that effort. TSMC has committed to investing $265 billion in semiconductor fabrication plants in Arizona. More than 20 other Taiwanese companies have also invested billions of dollars in the U.S. semiconductor ecosystem, creating jobs and expanding manufacturing capacity in the United States.
For Taiwan, these investments strengthen the existing supply chain partnership with the United States. They will become even more important as the U.S. semiconductor ecosystem grows, because the United States will need to rely on Taiwan’s knowledge and network of suppliers and engineers, built up over decades, to sustainably develop its own industry. There is no contradiction between what’s good for the United States and what’s good for Taiwan: with demand for chips continuing to rise, both sides benefit from deeper partnership and the sharing of expertise and supply chain security.
HARDWARE POWER
The U.S.-Taiwanese partnership extends beyond chips. The United States boasts world-leading AI platforms and cloud service providers; Taiwan is the world’s leading manufacturer of the AI servers on which they run. Taiwanese companies such as Foxconn, which accounts for approximately 40 percent of the world’s AI server market, and Quanta Computer, which builds high-density AI servers and infrastructure for cloud service providers, manufacture the essential products and components underpinning the operations of major U.S. technology companies, including Alphabet, Amazon, and Meta.
The United States can expand its AI-related manufacturing capacity, but it would take many years for it to match the scale, supplier networks, engineering expertise, and manufacturing capabilities of Taiwan’s existing industry. It is far easier and cheaper for Taiwan to manufacture the infrastructure that enables U.S.-designed AI chips and platforms to be deployed rapidly and at scale. Even if the United States were to drastically expand its domestic manufacturing capacity, it would only be able to produce a fraction of what is needed to keep pace with AI demand.
The next phase of AI competition will be over how to apply the technology in the real world. The United States and China are going to be in a race to fuse AI with robots, drones, and other defense systems, as well as to integrate it into manufacturing, health care, and transportation. Indeed, this process is already well underway: robotic taxis, for instance, are now operating in cities such as San Francisco and Shenzhen, and companies in China and the United States are jockeying for leadership in the sector.
In the application of AI technology, Taiwan’s strengths also complement those of the United States. The island’s semiconductor, communications equipment, and precision machinery industries are precisely those that will be needed to build the physical systems that can use American AI models. Taiwanese companies such as Thunder Tiger are already developing AI-driven defense drones, demonstrating the growing potential for integrating artificial intelligence, precision engineering, and advanced electronics into civilian and military applications. As AI evolves from a purely digital technology to an essential component of factories, robots, and vehicles, Taiwan’s advanced hardware production base will be even more valuable to the United States.
ON THE SAME TEAM
As the AI race intensifies, it will also become a contest over values, data management, and trust. If the United States and its democratic allies and partners want to stay ahead in technology, they must work together to create secure and trustworthy AI ecosystems that reflect their principles.
Supply chain collaboration will be crucial because no single place can dominate every aspect of the AI ecosystem. The United States excels in innovation and is home to major platforms; Japan is a leader in specialized refining, recycling, and research into deep-sea resources, as well as in precision semiconductor manufacturing equipment; the Netherlands supplies advanced lithography machines needed to produce the most advanced chips; and Taiwan specializes in wafer fabrication and packaging. Only through coordination can these countries build efficient and secure AI supply chains while reducing their reliance on China for essential components.
International disruptions have reinforced the necessity of supply chain cooperation among democratic countries. The COVID-19 pandemic, for instance, exposed the weaknesses of the world’s global supply chain networks, a lesson reinforced by disruptions to trade flows in the wake of Russia’s invasion of Ukraine and rising energy prices amid instability in the Middle East. In 2025, Taiwan proposed a global semiconductor democratic supply chain partnership initiative to jointly construct reliable systems that can withstand international disruptions. In this initiative, Taiwan seeks to harness cooperation among democratic countries to usher in a new era of growth in industries connected to high-end chips.
Taiwan is a force multiplier for the United States in artificial intelligence.
Taiwan and the United States have already made strides in technology cooperation. The U.S.-Taiwan Economic Prosperity Partnership Dialogue, a bilateral platform inaugurated in November 2020, has hosted high-level discussions on AI supply chain security, digital infrastructure, critical minerals, drone supply chains, and high-tech talent. These exchanges have helped U.S.-Taiwanese cooperation evolve beyond traditional trade and economic relations and paved the way for establishing a technological ecosystem that can bring together democratic partners and allies.
Taiwan also stands ready to ensure the safe and ethical usage of AI. Safety depends not only on the makeup of the AI model itself but also on the security and reliability of the hardware on which it operates—an area in which Taiwan can bring its expertise to bear. Taiwan and the United States can work together to increase cybersecurity, establish testing standards, and build reliable manufacturing systems to ensure that AI develops safely and can be trusted by the United States and its allies.
When it comes to the technology underpinning AI, Taiwan is not an adversary of the United States but its most trustworthy partner. In every layer of the AI “cake,” Taiwan and the United States have developed—and can continue to expand—a productive and mutually beneficial partnership. Taiwan is a force multiplier for the United States in artificial intelligence: it has the capability, reliability, and values necessary to support the United States’ technological ambitions. If Washington wants to compete effectively in AI, Taiwan is indispensable.
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Source: www.foreignaffairs.com
