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A war-like situation has developed between Taiwan and China. China has surrounded Taiwan from five sides and launched military exercises. In response, Taiwan has put its three armed forces on high alert. Chinese activities are being monitored. Both sides have presented their arguments. China considers Taiwan its biggest enemy and claims superiority over Taiwan in every aspect, but there is one sector where China still lags behind.
In the last two decades, the semiconductor or chip industry has become the world’s most important strategic industry. Smartphones, laptops, cars, missile systems, 5G networks, artificial intelligence – all depend on chips. In this race for microchip power, Taiwan has surpassed powerful countries like China. The question is, how did China, which is ahead in every other sector, fall behind Taiwan in chip manufacturing? What are the five main reasons for this?
1. Advanced High-Tech Technology
Taiwan’s greatest strength is its flagship company, Taiwan Semiconductor Manufacturing Company (TSMC). It is the world’s largest foundry, which does not manufacture its own branded products, but instead manufactures chips for giants like Apple, Qualcomm, Nvidia, and AMD. The main reasons for Taiwan’s technological advantage are as follows:
Leading in the Nanometer Race: TSMC was the first and most reliable producer of cutting-edge process nodes on a large scale in the world. China’s major company, Semiconductor Manufacturing International Corporation (SMIC), is still behind the Taiwanese company.
Chip Production
High Quality and Production: Not only in small nanometer technology, but the productivity of chips, i.e., the percentage of good chips, is also very high at TSMC. This reliability attracts customers to Taiwan, while China is still struggling with challenges in this area.
Deep Tech Ecosystem: Taiwan has consistently invested in research and development (R&D) for decades, supported engineering talent, and fostered deep collaboration between universities, research institutions, and industry. This has allowed it to continuously develop new generations of chip technology, while it is still difficult for China to close this gap.
2- Specialized Industrial Structure
A large part of Taiwan’s economy is linked to high-tech manufacturing, with semiconductors as a central pillar. In contrast, China’s economy is vast and diversified, ranging from steel to textiles, e-commerce to infrastructure. Taiwan focuses on the foundry model, meaning they only manufacture chips, not design them. This allows them to work with every design company (fabless firms) in the world and achieve maximum scale.
In Taiwan, chip packaging, testing, material suppliers, and machine maintenance are all strongly established locally. This ecosystem advantage is still considered more mature than in China. The Taiwanese government designed tax incentives, cheap credit, land, and infrastructure facilities specifically for the semiconductor industry from the early stages. China also invested heavily, but it was scattered across many sectors. Taiwan invested in a relatively limited but focused manner.
In Taiwan, chip packaging, testing, material suppliers, and machine maintenance are all strongly established locally.
3- Global Trust, Transparency, and Intellectual Property Protection
In the chip industry, not only technology but also trust and transparency play a major role. The US, Japan, European countries, South Korea, and others have all considered Taiwan a trustworthy partner. There are several reasons behind this trust. Taiwan has a relatively strong system for protecting intellectual property (IP). Foreign companies feel that their chip designs are less likely to be stolen or copied.
China has frequently been accused of intellectual property infringement, copying, or forced technology transfer, which is why many Western companies are cautious about sharing sensitive technology with China. Taiwan is a democratic society with a relatively high level of corporate governance, media scrutiny, and legal transparency.
In China, the large role of the state and the perception of government intervention lead some companies to believe that the business risks are higher, especially when it comes to such a sensitive industry. Brands like Apple, Nvidia, AMD, and Qualcomm have relied on TSMC and other Taiwanese suppliers for decades. These long-term contracts and stable relationships make it difficult for China to replace them quickly.
4. US and Western Policies
In recent years, the US and its allies have imposed strict restrictions on China regarding semiconductor technology. This has directly and significantly benefited Taiwan. The US has imposed strict restrictions on the sale of advanced chip manufacturing equipment, especially EUV (Extreme Ultraviolet) lithography machines, to China. Meanwhile, TSMC and Taiwan have continued to receive such technology and equipment regularly, further widening their technological gap.
The US believes that if China becomes completely self-reliant in chip technology, it could gain a significant advantage on both military and economic fronts. Therefore, it views Taiwan as a partner that is technologically powerful but politically weak and dependent on the US for security. Taiwanese companies have more opportunities to collaborate on research, form joint ventures, and invest with the US, Japan, the Netherlands, South Korea, etc. Due to the restrictions and political suspicion surrounding China, it is limited in its access to many top-tier technology networks.
5. Why This Advantage Has Become a Battleground
Taiwan’s lead in chip manufacturing is now causing a security crisis in the Asia-Pacific region. China considers Taiwan its territory, while Taiwan sees itself as a separate democratic entity. The main reasons behind the escalating tensions are as follows: Just as control over oil was a symbol of political power in the 20th century, control over chips is becoming the key to strategic power in the 21st century. Taiwan manufactures a large portion of the world’s most advanced logic chips. If China gains control of Taiwan, it could also gain this chip power. This deeply concerns the United States and its allies.
In recent years, China has significantly increased large-scale military exercises around Taiwan. Fighter jets and warships are coming dangerously close to Taiwan’s air defense identification zone and maritime boundaries. The message is clear: an attempt to politically pressure Taiwan into submission, and a warning to the world, including the US. This has led to widespread discussions of a potential war in the media and among analysts.
Current War-like Situation Between China and Taiwan
BREAKING: China’s military has announced the “Justice Mission 2025” joint military exercise around Taiwan.
Below is our visualization of the declared exercise zones, per Chinese state media: pic.twitter.com/YOyfl7i7kx
— Taiwan Security Monitor (@TaiwanMonitor) December 29, 2025
If war breaks out, industries worldwide will be in crisis.
If a war breaks out in the Taiwan Strait or if shipping routes are disrupted by severe tensions, the world’s chip supply will be severely affected. This would have a major impact on everything from automobiles and smartphones to cloud servers and the defense industry. Many countries are therefore now trying to reduce their over-reliance on Taiwan and China.
China has set an ambitious goal of achieving self-reliance in chips under plans like Made in China 2025. Despite billions of dollars in subsidies and funding, achieving the kind of technological lead that Taiwan possesses has not been easy. This has also led to strategic impatience – either move ahead rapidly on your own, or bring the entity you depend on into your political sphere of influence.
Taiwan didn’t wave a magic wand.
Taiwan did not use any magical shortcut to surpass China in chip manufacturing. Its success is the result of decades of consistent policy, a deep focus on technology, high-quality manufacturing, global trust, and American and Western support. On the other hand, achieving large-scale self-reliance in the semiconductor sector is still a difficult and lengthy process for China, especially given the layers of export controls, technology restrictions, and political mistrust it faces. It is this imbalance that has made tiny Taiwan the nerve center of the world’s most advanced chip supply.
This is giving rise to new geopolitical conflicts in the Asia-Pacific region. Discussions about war-like scenarios are linked to the fear that if this balance is ever disrupted by war or military conflict, the impact will not be limited to Taiwan or China, but will shake the entire global economy and technological future.
Therefore, today, countries around the world are both dependent on Taiwan’s technological prowess and appealing for stability between China and Taiwan. Because this chip war is, in reality, a battle for the global balance of power in the coming decades.
