A chip company and a shield
Published 8 October 2026
In 1987, a company was founded to make other people's chips. Morris Chang, a US-trained engineer who had spent decades at Texas Instruments, devised what became known as the "pure-play foundry model": manufacture customers' designs without competing against them with chips of its own. TSMC's account calls it the world's first dedicated semiconductor foundry. In its thirtieth-anniversary timeline, the company dates its founding to February 1987, with paid-in capital of NT$1.3775 billion, and records leasing its first six-inch fab from the Ministry of Economic Affairs and the Industrial Technology Research Institute. The arrangement joined a commercial idea to public industrial infrastructure. Its later scale should not erase those state-backed beginnings.
Nobody in 1987 planned for the company to become a security question. By 2026 it is hard to find a security question it is not part of. On July 16, 2026, TSMC reported second-quarter revenue of NT$1.27 trillion, about US$39.45 billion, up 36% from a year earlier, and net income of NT$706.56 billion, up 77.4%. High-performance computing accounted for 66% of its 2026 revenue by platform. Chips at 3 nanometers made up 30% of quarterly revenue and 5 nanometers another 33%. "AI related demand continues to be extremely robust," Chairman C.C. Wei said. The company told investors in July that it would spend between $60 billion and $64 billion in 2026.
One company produces, by one academic's count, more than 90% of the world's most advanced semiconductors. The sentence is cited everywhere and worth reading slowly. It is a secondary source's figure, not a measured statistic, and different analysts count differently. Even so, the direction is not in doubt. The island that Beijing claims makes the processors inside the training clusters of every large American AI company. For years this fact was called the "silicon shield": the idea that an attack on Taiwan would devastate the global economy so thoroughly that nobody, including China, could afford it. The argument had its critics from the start. In recent years, the same source notes, the shield itself has come under threat, as US export controls since 2020 pushed Beijing to build chip capacity of its own.
The Trump administration has turned the shield into a negotiation. On January 15, 2026, a Thursday, the United States and Taiwan announced a trade deal. Tariffs on most Taiwanese exports fell from 20% to 15%. Taiwanese chipmakers that build in the United States would pay lower tariffs on chips they import and could bring some in duty-free. In return, Taiwanese companies committed to invest $250 billion in the United States in semiconductors, energy and artificial intelligence, a figure that includes the $100 billion TSMC had already pledged in 2025. Taipei would add $250 billion in credit guarantees. Commerce Secretary Howard Lutnick said the goal was to bring 40% of Taiwan's chip supply chain and production to the United States, and that firms that did not build there faced a tariff that could reach 100%.
The 40% figure hit Taipei like a dropped plate. In February, Vice Premier Cheng Li-chiun said it was "impossible," and added that she had "told the US side very clearly". On September 2, Lutnick said the opposite in a CNBC interview. "If you build here, you don't pay, but if you don't build here, expect to pay to enter the greatest market in the world," he said. He added that the United States had secured $1.2 trillion of investment in domestic chip production, that the US share of global chip output was "heading toward 40 percent," and that TSMC's Arizona commitment had reached $265 billion. The total reported in July 2026 was $265 billion because, at its July earnings, TSMC announced a further $100 billion for Arizona to build several more fabs for its 2-nanometer process and advanced packaging.
The TSMC side of the story is less dramatic than the politics. After the July results, Chief Financial Officer Wendell Huang said the company was "very happy" with its Arizona progress, which is why it raised that commitment to $265 billion. The first Arizona fab is operating with yields "as good as" the flagship fab in Taiwan. The second is about to move in equipment, a third is under construction and preparatory work has begun on a fourth fab and the site's first advanced packaging plant. All told the Arizona footprint would reach 12 fabrication and advanced packaging facilities plus an R&D center. He also named limits: "there are physical constraints - the number of construction workers available, the infrastructures available". And he drew a line about where the newest work happens. "Land is a scarce resource in Taiwan," Huang said, and the most advanced technologies go wherever land exists. "It has to be in Taiwan. And after it stabilizes, then we can consider transferring overseas". At home TSMC is building 13 leading-edge and advanced packaging fabs over the next several years. Reuters also noted that Trump has said that by the time he leaves office the United States will have 50% of the world's semiconductor manufacturing capacity, a higher figure than the 40% Lutnick uses.
The written trade agreement is less muscular than the speeches. The US Trade Representative's fact sheet says the United States will apply "the higher of either the U.S. Most Favored Nation (MFN) tariff rate or a tariff rate of 15 percent" to Taiwan's goods. Taiwan will "eliminate or reduce 99 percent of tariff barriers" and plans purchases from 2025 through 2029 of $44.4 billion of liquefied natural gas and crude oil, $15.2 billion of civil aircraft and engines and $25.2 billion of power equipment and related goods. Two-way trade in goods and services topped $185 billion in 2024. An investment memorandum signed January 15 by the American Institute in Taiwan and Taipei's representative office commits Taiwan to work on industrial parks and clusters in the United States. The fact sheet does not contain the 40% figure. The agreement also goes to Taiwan's legislature for review before it enters into force, which hands the Kuomintang and People's Party majority another veto on the island's side.
Taiwanese officials hear a worry inside the numbers. If the world's most important chip company builds its most advanced capacity abroad, the island's value as a place worth defending might shrink. The Americans say that is not the intent, and the official Taiwanese line is that the island's mother fabs will stay ahead. But the debate, in the fall of 2026, is about much more than tariffs. It concerns whether the thing that makes Taiwan indispensable can be moved.
Two numbers get blurred in most coverage, and they measure different things. TrendForce reported on September 9, 2026 that the top ten foundries' revenue rose 11.5% quarter on quarter in the second quarter to nearly $53.49 billion. TSMC's revenue was nearly $40.2 billion, up 12.1%, for a 72.5% share. Samsung was second at $3.26 billion, or 5.9%, SMIC third at over $3 billion, 5.4%, then UMC at 3.9% and GlobalFoundries at 3.2%. TSMC's 2-nanometer process contributed revenue for the first time in the quarter. Those are shares of the foundry market. They are not shares of advanced chips.
The advanced-chip figure comes from Rhodium Group, in a December 2022 study. It put Taiwan's production at 92% of the world's most advanced logic chips, those under 10 nanometers, and a third to a half of less-advanced output. It estimated global economic activity at risk in a blockade at "well over two trillion dollars," which it described as a floor, and about $565 billion of Taiwanese value-added trade at high risk. Taiwan imported and exported $922 billion of goods and services in 2021. The 92% figure is 2022 vintage and an estimate, so it should be read as Rhodium's 2022 number, not a fresh estimate.
The RAND Corporation ran a tabletop exercise and reported on March 13, 2023 that it found "generally no good short-term options" for responding if China tried to unify with Taiwan. It urged reducing the concentration of production in Taiwan.
The other side of the shield is Washington's attempt to slow China's access to the same technology. On Friday, October 7, 2022 the Bureau of Industry and Security issued two rules. They added advanced computing chips to the Commerce Control List, added license requirements for supercomputer and chip development or production end uses in the People's Republic, extended the Export Administration Regulations to certain foreign-produced items, extended foreign-produced-item license requirements to 28 Chinese entities on the Entity List, and added certain chipmaking equipment to the control list. The Netherlands followed. ASML said on Friday, June 30, 2023 that Dutch regulations from September 1, 2023 would require licenses for its most advanced immersion DUV systems, the TWINSCAN NXT:2000i and later, and that "sales of ASML's EUV systems have already been restricted."
The restrictions reach TSMC's own China operations. The company confirmed that the United States revoked Validated End-User status for its Nanjing plant, effective December 31, 2025. That status had allowed blanket authorization to import restricted equipment. Its removal replaced the blanket with a need for individual export licenses, rather than ordering the fab to disappear. Taiwan's economics ministry said the change would not undermine the island's semiconductor competitiveness, while acknowledging that separate licensing could make operations less predictable. That is the ministry's reassurance, not proof that every future equipment shipment will be approved. The distinction matters: export controls can slow replacement, upgrades and planning without stopping all production on the day a waiver expires.
Washington's tariff tool is Section 232. Proclamation 11002 of Wednesday, January 14, 2026 relies on a Commerce finding that the United States "currently fully manufactures only approximately 10 percent of the chips it requires" and consumes about a quarter of world supply. It imposes a 25% tariff on a narrow set of advanced computing chips and told Commerce and the Trade Representative to report within 90 days on negotiations. It also says the president may consider "significant tariffs" later. The narrow tariff exempts imports that support American supply-chain buildout.
The island's trade pattern changed in 2025. Taiwan's Finance Ministry's annual report puts exports to the United States at US$198.3 billion, above US$170.5 billion to mainland China and Hong Kong combined. The United States took 30.9% of exports, mainland China plus Hong Kong 26.6% and ASEAN 18.6%. Total exports reached US$640.7 billion and imports US$483.6 billion, both records, growing 34.9% and 22.6%. Information, communication and audio-video exports grew 89.5%. These are the ministry's rounded figures, not the slightly different numbers in secondary relays. Its report says the United States regained the top position for the first time in roughly 26 years. America becoming the larger customer does not make the mainland a small one. The trade relationship still crosses the same water over which the two militaries plan.