Caught in the Crossfire: Taiwan's Role in the U.S.-China Trade and Tech War

As tensions rise between the United States and China over trade, technology, and influence in the Indo-Pacific, Taiwan is caught in a confrontation it didn't choose. But also can't avoid.

From Tariffs to Tech: The Escalation of U.S.-China Trade Tensions

President Trump initiated the U.S.-China trade war during his first presidential term in 2018 by imposing tariffs on Chinese goods under Section 301 of the Trade Act, citing unfair trade practices, including intellectual property theft and forced technology transfers. What began as a 25% tariff on $34 billion worth of Chinese imports quickly escalated, with multiple rounds of retaliatory tariffs from both sides. 

China initially reacted by targeting American exports like soybeans, coal, and liquefied natural gas. As tensions grew, the dispute evolved beyond trade imbalances into a broader strategic rivalry, including critical industries like semiconductors and technology supply chains.

Pressure Increases on Taiwan

Both the U.S. and China view access to semiconductors as a top national security priority, and it's no surprise that Taiwan, which is home to the world's leading chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), has been drawn into their rivalry. While semiconductors were largely exempt from the Trump administration's tariffs, Taiwan still felt the U.S. pressure to localize chip production, as the Trump administration sought to coax companies like TSMC into building fabrication plants in the U.S., a strategy rooted in reshoring critical supply chains.

China, by contrast, has attempted to circumvent U.S. restrictions by exploiting loopholes and rerouting chip imports through intermediary countries. Complicating matters further, most semiconductors produced in Taiwan don't ship directly to the U.S.; they often pass through other countries for testing or are embedded in final products elsewhere before reaching American markets.

Moving the Assembly Line

The Trump administration's efforts to onshore parts of Taiwanese chip production were politically risky, especially given the current geopolitical climate. Taiwan has long relied on the United States for security assurances, even as Washington continues to uphold a policy of strategic ambiguity regarding whether it would come to Taiwan's defense in the event of a Chinese invasion. Applying economic pressure around sensitive industries like semiconductors could be perceived by Taiwan (and global financial markets) as erratic and poorly timed, risking to undermine trust and potentially leading Taiwan to question the reliability of U.S. support.

Meanwhile, in the broader region, there are signs that China is stepping into perceived gaps in U.S. leadership. For instance, China, Japan, and South Korea recently held their first trilateral trade talks in five years—discussions that some analysts interpreted as an effort to hedge against U.S. protectionist policies. Meetings like these signal that even traditionally close U.S. partners may reevaluate their positions amid growing regional uncertainty.

Supply Chain Shifts

U.S. tech giant Apple has already diversified its supply chain, shifting parts of its iPhone production to India in a move to reduce dependency on Chinese manufacturing. Apple's key manufacturing partner Foxconn has similarly begun expanding its global manufacturing footprint. After years of operating primarily in China, Foxconn is opening new factories in Vietnam and India. However, this type of supply chain realignment is expensive, disruptive, and time-consuming. The shift of key manufacturing sectors to India is especially sensitive for China, considering the longstanding geopolitical tensions and border disputes between the two nations. Vietnam, too, presents a complex case due to its historical conflicts with both the U.S. and China. 

Meanwhile, U.S. efforts to onshore manufacturing have so far yielded limited results. Nonetheless, the Trump administration has renewed its push to bring advanced manufacturing to American soil, with particular pressure on TSMC to build fabrication facilities in the U.S. Like any major industrial project, these initiatives require significant time and capital to materialize.

Taiwan is Asset and Leverage in the U.S.-China Rivalry

Dominating global chip manufacturing turned Taiwan into a valuable asset. And at the same time into a pressure point in the U.S.-China rivalry. As both powers engage in a political and economic stand-off, Taiwan's ability to navigate this sensitive geopolitical terrain will determine both its economic future and its security.