The chips: one island, most of the advanced capacity
Modern electronics run on logic chips, and the most capable of them come from a remarkably small set of factories. Taiwan is home to the large majority of the world's leading edge semiconductor manufacturing capacity, the kind used in phones, AI accelerators and modern cars, and the company at the center of it is TSMC, the Taiwan Semiconductor Manufacturing Company. TSMC held 72.5% of the global contract chipmaking, or foundry, market in the second quarter of 2026, on TrendForce's quarterly ranking, with revenue of about US$40.2 billion in the quarter. Its lead is sharpest at the frontier: advanced nodes, which TSMC defines as 7 nanometer and below, made up 77% of its wafer revenue in that quarter, per the company's own quarterly filing. At the level of the island rather than the company, the Semiconductor Industry Association and Boston Consulting Group put Taiwan at 69% of world capacity for logic chips below 10 nanometers in 2022, projected to fall to about 47% by 2032 as fabs open elsewhere. No other single country comes close to matching that concentration today, which is why a disruption on the island would ripple through nearly every electronics supply chain on earth within months.
That is also why the United States, the European Union and Japan are all now subsidizing new fabs of their own, and why TSMC itself is building outside Taiwan. Its US commitment reached a total of US$265 billion in July 2026, according to the US Department of Commerce, covering twelve leading edge manufacturing and packaging plants in Arizona. Diversifying away from a single island still takes years of construction and qualification, so for the foreseeable future the newest chips route through Taiwan first.
The map: the first island chain
Taiwan sits at the midpoint of what US and Japanese strategists call the first island chain, the line of archipelagos running from the Kuril Islands and the Japanese home islands through the Ryukyus, Taiwan, the northern Philippines and on to Borneo. Whoever controls Taiwan effectively controls a section of that line, and with it a chokepoint between the shallow, easily monitored waters of the East and South China Seas and the open Pacific. That is why the island is sometimes described, from a US defense planning view, as an unsinkable aircraft carrier: it lets whichever side holds it detect and, if needed, contest naval movement in and out of the region.
The Taiwan Strait itself, the roughly 180 kilometer wide channel between Taiwan and mainland China, is one of the busiest and most closely watched waterways anywhere. On a Bloomberg analysis of vessel tracking data, close to half the world's container fleet, and 88% of the largest container ships by tonnage, passed through the strait during 2022. A blockade or conflict there would not stay confined to Taiwan. It would disrupt shipping lanes that Japan, South Korea, mainland China and Southeast Asia all depend on for trade with the rest of the world.
The law: the Taiwan Relations Act and strategic ambiguity
When the United States switched diplomatic recognition from Taipei to Beijing in 1979, Congress passed the Taiwan Relations Act the same year to keep a substantive, if unofficial, relationship in place. The act commits the US to making available the defense articles Taiwan needs to maintain a sufficient self defense capability, and it states that any non peaceful effort to determine Taiwan's future would be treated as a matter of grave concern to the United States. It does not, however, promise that the US would intervene militarily if China attacked. That deliberate gap is what is usually called strategic ambiguity: Washington leaves both Taipei and Beijing uncertain of exactly what it would do, on the theory that certainty in either direction would make conflict more likely, not less.
Trade reinforces the same relationship. Taiwan is the fifth largest goods trading partner the United States has. Two way goods trade came to about US$256 billion in 2025 on the US Trade Representative's figures, and Taiwanese firms, TSMC most visibly, have become major direct investors in new US chip plants. None of that requires a formal defense treaty, since the US and Taiwan have not had one since 1979, but it does mean the economic and legal ties run deep enough that a crisis over Taiwan would not stay a regional story.
Quick facts
- TSMC held 72.5% of the global contract chipmaking market in the second quarter of 2026, and advanced nodes of 7 nanometer and below were 77% of its wafer revenue.
- Taiwan held 69% of world capacity for sub 10 nanometer logic chips in 2022, on SIA and BCG figures, a share projected to fall to about 47% by 2032.
- Taiwan sits at the center of the first island chain, between Japan's Ryukyu Islands and the northern Philippines.
- The Taiwan Relations Act of 1979 commits the US to supplying Taiwan's self defense needs without promising direct military intervention, a policy known as strategic ambiguity.
- Close to half the world's container fleet, and 88% of the largest container ships by tonnage, transited the Taiwan Strait during 2022.
- US goods trade with Taiwan was about US$256 billion in 2025; TSMC's committed US investment reached US$265 billion in July 2026.