Why Taiwan Sits at the Center of the U.S.–China Relationship

A disruption in the Taiwan Strait would not stay in the Taiwan Strait. It could test the limits of U.S. policy, unsettle American allies, interrupt trade routes, and expose how much of the world’s advanced computing depends on production clustered on one island.

That is why Taiwan occupies a place in the U.S.–China relationship out of proportion to its size. The island is a self-governing democracy with a central role in semiconductor manufacturing. Beijing claims Taiwan as part of China and has not renounced the use of force to bring it under its control. Washington recognizes the People’s Republic of China (PRC) as the government of China, but maintains extensive unofficial relations with Taiwan under U.S. law. These are documented positions; what either side would do in a crisis is less certain. [1] [2]

A status that is deliberately unresolved

Since 1979, the United States has maintained formal diplomatic relations with Beijing and unofficial relations with Taiwan. U.S. policy is guided by the Taiwan Relations Act, three U.S.–China joint communiqués, and the Six Assurances. That is not the same thing as adopting Beijing’s “one China” principle. The United States acknowledges the Chinese position that there is one China and Taiwan is part of it; it does not itself endorse Beijing’s claim to sovereignty over Taiwan. [1]

The Taiwan Relations Act makes peace in the Western Pacific a U.S. political, security, and economic interest. It directs the United States to make defensive arms available to Taiwan and to maintain the capacity to resist force or coercion that would jeopardize the island’s security or social and economic system. The act does not promise that U.S. forces will automatically enter a war. That gap—between preparing to resist coercion and not specifying what Washington would do—is commonly called “strategic ambiguity.” [2] [1]

This structure leaves hard questions open by design. It is meant to discourage Beijing from using force, while also discouraging Taipei from assuming that any unilateral change to the status quo would receive automatic U.S. backing. Washington says it opposes unilateral changes and expects cross-strait differences to be resolved peacefully. [1]

The ambiguity is a policy choice, not a prediction that a crisis will remain controllable. Chinese military pressure has increased, and Taiwan’s status remains disputed. The U.S. Defense Department’s 2025 report describes Beijing’s military exercises around Taiwan in 2024 as including simulated blockade operations. That is the Pentagon’s assessment of the exercises, not proof that a blockade has been ordered or that conflict is inevitable. [3]

The semiconductor concentration behind the headlines

Taiwan’s technology role gives the relationship global economic weight. The Congressional Research Service reported in March 2026 that Taiwan produces about 90 percent of global advanced chips. Those components power high-performance computing, smartphones, data centers, and other products. [6]

The manufacturing system is more than one company or one fabrication plant. Taiwan’s foundry model lets specialized chip designers outsource production to contract manufacturers rather than operate their own factories. A 2024 U.S. International Trade Commission briefing estimated that Taiwan captured nearly 70 percent of global foundry revenue in recent years, and that TSMC was the world’s largest foundry. The briefing also noted that Taiwan’s semiconductor industry is deeply connected to exports and the wider economy. Its estimates of capacity largely use 2021 data, so the newer CRS figure is a better snapshot for the advanced-chip share today. [4] [6]

TSMC’s 2025 annual report shows both the scale and the geographic imbalance. The company reported manufacturing 12,682 products for 534 customers that year, and said its annual capacity exceeded 17 million 12-inch-equivalent wafers. It manages facilities in Taiwan as well as in Japan, China, the United States, and elsewhere, but its annual report still lists its main production base in Taiwan. Its 3-nanometer technology represented 24 percent of wafer revenue in 2025. [5]

Those numbers describe a sophisticated, international network, not an island making every part of every chip. Designers, equipment makers, materials suppliers, packaging firms, customers, and shipping routes are spread across borders. Still, the most advanced manufacturing capacity is unusually concentrated. If production stopped abruptly, other sites could not simply reproduce all of it overnight. The speed and scale of replacement would depend on the technology, available capacity, equipment, skilled labor, and power and water.

The concentration is also changing, but gradually. TSMC said in March 2025 that it intended to expand its planned U.S. investment to $165 billion, including new fabs, advanced-packaging facilities, and a research center. That was a company announcement of intended investment, not evidence that all those facilities were already built or producing. TSMC’s 2025 annual report lists operations in Arizona and Japan, among other places. [8] [5]

Building capacity abroad can add resilience. It does not remove the short-run consequences of a Taiwan disruption, nor does it relocate Taiwan’s existing industrial ecosystem. It also introduces practical tradeoffs: chip factories require substantial capital, specialized workers, reliable infrastructure, and close coordination with suppliers and customers. The USITC briefing identifies energy and water reliability, natural disasters, and geopolitical tension among the industry’s vulnerabilities. [4]

A strategic location and a commercial artery

Geography matters independently of chips. Taiwan sits between the East and South China seas, along routes that connect China, Japan, South Korea, Southeast Asia, and the wider Pacific. A military crisis could affect access to the island, but even a coercive measure short of invasion—such as an attempted quarantine or shipping restrictions—could make commercial operators reassess whether vessels should pass nearby. These are plausible risks, not events that have occurred. [3] [7]

A 2024 CSIS analysis estimated that 30 percent of Japan’s imports and 25 percent of its exports, together worth nearly $413 billion, passed through the Taiwan Strait in 2024. It estimated that South Korea relied on the strait for 24 percent of imports and 20 percent of exports, worth about $300 billion. These figures are model-based estimates of trade passing through the waterway, not losses forecast for a particular crisis. [7]

The distinction matters. A disruption would not necessarily close the strait, and ships could sometimes reroute. But rerouting can mean longer voyages, higher insurance costs, missed port calls, delays, and altered access to fuel and components. The effects would vary by route and type of disruption. Japan and South Korea—both U.S. allies and advanced manufacturing economies—would be exposed alongside China and Taiwan. [7]

The United States is connected through trade and technology as well. CRS ranked Taiwan the United States’ fifth-largest merchandise trading partner in 2025, with $256.1 billion in goods trade. The same report noted strong growth in Taiwan’s exports to the U.S., reflecting demand for chips and electronics as well as shifts in production and trade. The economic relationship is substantial, though trade figures alone cannot show the precise cost of a conflict. [6]

Deterrence, alliances, and the limits of a “silicon shield”

Taiwan’s semiconductor importance is sometimes presented as a deterrent: because disruption would harm everyone, no one would risk it. The logic is incomplete. Mutual economic exposure can raise the cost of conflict, but it cannot guarantee that political leaders will place those costs above strategic aims. Nor would a crisis need to begin with an invasion. Cyber operations, exercises, economic pressure, or a maritime quarantine could create serious disruption while remaining below the threshold of a declared war. The Defense Department has described military, economic, and information pressure as parts of Beijing’s broader approach toward Taiwan. [3]

This is why the Taiwan issue reaches beyond a bilateral dispute. For Washington, it involves the credibility and practical meaning of commitments under U.S. law, and the confidence of regional allies. For Beijing, it is tied to a core sovereignty claim and the PRC’s stated aim of unification. For Taiwan’s people, it concerns the future of the democratic institutions that govern them. Those interests overlap, but they are not identical. [1] [2] [3]

The uncertainty is genuine. U.S. law calls for arms and capacity to resist coercion, but it does not specify a guaranteed military response. Analysts can describe scenarios and incentives, but cannot know in advance how decisions would unfold in a particular emergency. Deterrence depends not only on capability, but on perceptions—what each side believes the others will do. [1] [2]