If the island nation’s chip production were to be interrupted, the global economy would stop in its tracks. That’s real leverage.
If the island nation’s chip production were to be interrupted, the global economy would stop in its tracks. That’s real leverage.
A t the recent summit between President Donald Trump and Xi Jinping in Beijing, the topic of Taiwan seemed to carry some mystique: Was it a core discussion area, or was it not? Certainly it came up, because Xi publicly cautioned that mishandling the issue could lead to conflict between the U.S. and China. That’s not exactly the breaking news story the traveling press corps tried to make it. But the U.S. Embassy readout of the private meeting does not mention Taiwan.
Overall, it almost seems as if both sides — the U.S. for sure — went out of the way to avoid detailed discussion about Taiwan in favor of soybeans and Boeing airplanes. It is understandable. While the leaders seem to recognize they are in some ways dependent upon each other, neither seems eager to acknowledge they’re equally dependent on Taiwan for economic growth and prosperity. Taiwan is, actually, the third superpower that wasn’t at the meeting.
President Trump likes to refer to himself and Xi as the “G2,” meaning the two superpowers whose relationship is the most important in the world. However flattering that may be to Xi, it is possible that the leaders of the two largest economic powers avoided extended engagement about Taiwan because they are wary about the island nation’s own growing profile. Aside from the U.S. and the PRC, Taiwan is the other nation that could stop the world in its tracks without firing a shot. While Taiwan lacks the traditional markers of a superpower such as large landmass or population, it has global leverage few countries in history have had.
Taiwan’s status as the smallest superpower is anchored by several conditions under the rubric of what some call “The Silicon Shield.” Taiwan’s dominance in semiconductor innovation and fabrication has been nurtured by successive governments over many years, not just as a critical business sector, but as a foundation of its national security strategy. The strategy has several components, including:
- Global dependency on chip manufacturer TSMC, which controls almost three-quarters of the global foundry (production) market and more than 90 percent of the most advanced chips.
- Deterrence, because the global economy, including the military and critical infrastructure of the U.S., China, and Europe, would collapse without these chips. Allies and rivals have equally vested interest in the island’s stability. Taiwan is too important to fail, including through military attack.
- Economic relevance, as Taiwan’s technology dominance has led to its stock market surpassing Canada’s in April this year to become the sixth-largest in the world by market cap. GDP growth is another driver; the Taiwan economy grew by nearly 14 percent in the first quarter of 2026 compared with the same period in 2025, outperforming the major economies including the most sophisticated advanced economies.
- Its position as a global AI hub, which has led to Google, Microsoft, and Amazon establishing their largest hardware engineering centers outside the U.S. in Taiwan. They are there because of the talent building the most complex systems in the world.
There is no other small-nation advanced economy about which we might bandy the term “superpower.” Ireland, Switzerland, Sweden, Belgium, and the Netherlands are all efficient, productive economies, but they have nothing like the asymmetric global leverage that Taiwan maintains. Those countries are wealthy, integrated hubs of finance and pharmaceuticals, and even important in chip production. But there is a difference between that and being an irreplaceable global choke point.
An interruption to Taiwan’s chip production would be a catastrophic and immediate shock to the global economy. The Netherlands is an important center for the sophisticated toolmaking machinery that manufactures the world’s advanced chips. That is a core technology, but the Netherlands does not match Taiwan in the breadth and depth of the essential role the island plays in multiple sectors and as an integrated ecosystem. There is no Plan B for the world’s dominant manufacture of the 3nm and 2nm chips and the range of horizontal and vertical integration capabilities on which the global technology backbone now depends.
Despite the PRC’s systematic attempts to get the world to turn its back on Taiwan through diplomatic isolation, the economic powers — the U.S., Japan, the European Union, and China itself — recognize that their economic and military strategies depend upon what Taiwan delivers. The defense budgets and strategies of China and the U.S. are predicated on the capabilities that right now only emanate from Taiwan technology.
What is a superpower if not a country whose capabilities other powers must factor into their own strategic planning?
Taiwan, in short, holds a monopoly on the future of global prosperity. It is a single point of failure for the current technology on which humankind is hoping to advance progress. Other important countries are vital network nodes. If a node is lost or interrupted, the network slows down or reroutes. If you lose the Silicon Shield, the network collapses.
Taiwan’s importance extends beyond its foundries, or the ability to make frontier advancing chips themselves. It also is a “one-stop shop” for the physical infrastructure of the digital age.
Critical sectors that Taiwan dominates include AI-assisted medical diagnostics, where Taiwan is a leader in AI-powered medical imaging; AI server assembly, with Taiwan-based companies including Foxconn, Quanta, and Wistron assembling 90 percent of the world’s AI servers (Nvidia reportedly has booked the entire capacity of several Taiwanese plants through 2027 to meet AI demand); printed circuit boards, producing high-quality output at a scale that exceeds that of other locations including Japan or South Korea (China makes more, but not of the high-end versions produced in Taiwan); and the space supply chain. Taiwan has quietly become a linchpin for the low Earth orbit satellite industry, and its firms produce a significant portion of home satellite dishes and ground receivers used for satellite internet.
As impressive as it is that Taiwan has global dominance in these core capabilities, processes, and industries, what makes this achievement even more formidable is when they are taken together. The broad range of leading technologies form an integrated system of talent, investment, logistics support, education, and other factors that create the world’s most complete advanced technology ecosystem. In a presentation in Taiwan last year, no less an authority than Jensen Huang, CEO of Nvidia, summed it up this way: “Nvidia won’t be possible without Taiwan. There’s magic in this island.”
To be sure, there are vulnerabilities. Not least of these is Taiwan’s diplomatic isolation from the rest of the world. This is the result of the PRC’s patient strategy over many years, which the U.S. unfortunately is disinclined to thwart.
Taiwan also is dependent on the rest of the world for nearly all of its energy. There are many supplier countries for coal, gas, and crude oil, but despite this diversity of sources, the U.S. is responsible for more than half of Taiwan’s crude oil imports. The country’s high energy dependence is a critical soft spot for the economic and technology miracle that is Taiwan.
It also true that the island nation needs more robust defense capabilities and should be investing much more than it is, at less than 3 percent of GDP. It should be double that, at least. The U.S. has a role to play, and for many decades successive U.S. governments have made arms sales to Taiwan independent of PRC protestations.
This does not guarantee Taiwan’s security. Xi was not wrong in noting that if the issue is mishandled it could lead to conflict, and that conflict probably would not be just between Trump’s G2. PRC adventurism with Taiwan would impact the entire Indo-Pacific. Japanese Prime Minister Sanae Takaichi has said a challenge to Taiwan by the PRC would be a challenge to Japan. U.S. failure to show resolve would create the conditions for China hegemony in the region, which certainly would impact the rest of the world given trade flows in and through it.
While Taiwan may not have been a primary interest item for the U.S. during the Beijing summit, it is a primary interest item for the U.S. just the same. President Trump’s prevaricating about U.S. arms sales to the island following his departure from China is dangerous and subject to misinterpretation in Beijing. But Taiwan’s status as the small superpower provides a check on the behavior of both larger countries. The U.S. should continue to support Taiwan with its defense needs, insist that Taipei expand its military spending well above current levels, and sustain the diplomatic framework holding that, while the U.S. does not support Taiwan independence, it also does not support a unilateral change to the status quo. (A case could be made for a new diplomatic framework, but the U.S. should at least maintain the current one.)
Some would question whether superpower status requires a combination of military and economic prowess at unmatched levels. By that definition, we all know there really is only one superpower, the U.S. For its part, China thinks of itself, and is treated, as a rising superpower because of its size, military might, and influence in global supply chains. But Taiwan’s essential role in the development, production, and integration of technologies the world depends upon is unassailable. Taiwan is the indispensable nation through which the plans of nations, economies, and industries flow. It is a global technology sovereign with unmatched influence and authority. The G2 superpowers mishandle their relationships with Taiwan at their own — and the world’s — peril.