Written by Colin Aponte.
Image credit: Public domain.
As the United States grapples with mounting tensions with China, one key question looms: how do you maintain economic strength when your top trading partner becomes your greatest strategic threat? Taiwan has faced that question for decades. Long before the U.S. embraced the language of “de-risking,” Taiwan was navigating asymmetric interdependence, political intimidation, and weaponised trade. Its experience offers more than just a cautionary tale. It offers a playbook.
Taiwan’s semiconductor success, anchored by TSMC, is well known. But behind the so-called “silicon shield” lies a deeper story: an economy learning, sector by sector, to loosen China’s grip. The real question for U.S. policymakers isn’t just how to protect Taiwan—it’s what Taiwan’s experience can teach them about resisting Chinese economic coercion at home.
The ECFA Trap
It isn’t mere rhetoric when China threatens to pull the plug on the Economic Cooperation Framework Agreement (ECFA). It’s a reminder that Taiwan’s economy remains vulnerable in all the wrong places despite years of warning. For over a decade, ECFA symbolised a pragmatic if uneasy arrangement: deeper cross-Strait trade without the political baggage of formal agreements. But now, as tensions continue to rise and Beijing turns economic ties into weapons, the deal looks less like cooperation and more like a death trap.
ECFA, signed in 2010 under the Ma Ying-jeou administration, promised to boost exports and integrate Taiwan into the regional economy. On paper, it succeeded: China quickly became Taiwan’s largest trading partner, and key sectors such as petrochemicals, machinery, and agriculture heavily leaned on tariff-free access to the Chinese market.
In true Chinese fashion, however, the agreement came with strings attached. Because it was signed under the ‘One China Principle’, Taiwan had limited leverage. Consequently, China has repeatedly used trade as a pressure tactic. In May 2024, China reinstated tariffs on 134 Taiwanese products, including critical agricultural, mineral, and petrochemical goods, citing a lack of compliance with ECFA’s terms. The impacts were immediate: Taiwanese exporters faced rising costs, and fears of further economic retaliation loomed. This underscores the core vulnerability of Taiwan’s asymmetric interdependence: China’s readiness to use leverage turns economic integration into a tool of coercion, not stability.
ECFA was also meant to lay the groundwork for deeper integration. Its follow-up agreement, the Cross-Strait Service Trade Agreement (CSSTA), aimed to liberalise Taiwan’s service sector for Chinese investment. But in 2014, the Sunflower Movement halted its ratification. The public backlash revealed an apparent public fear: economic dependence on China could erode Taiwan’s democratic autonomy. CSSTA’s collapse exposed the political limits of cross-strait economic engagement and foreshadowed the cautious diversification efforts currently underway.
Chips Don’t Lie
Taiwan’s semiconductor industry tells a very different story. TSMC, the world’s largest chip factory, has become the backbone of global tech, producing 90% of super-advanced chips. But its success is not an accident; it’s the result of smart industrial policy, high-volume output, and continuous improvement.
The roots of this success trace back to the late 1970s, when Taiwan, reeling from an oil crisis, set out to build a new national industry. Engineers like Shih Chin-tay returned home to join the Industrial Technology Research Institute (ITRI), where an experimental chip plant, built with licensed U.S. technology, soon exceeded expectations. That early breakthrough gave the government the confidence to invest further: first in the United Microelectronics Corporation (UMC), and then in 1987, in what would become the world’s most advanced chipmaker, TSMC. Today, TSMC is expanding abroad, with new and upcoming manufacturing facilities in the U.S., Japan, and Germany, designed to hedge against geopolitical risk. Some scholars have described Taiwan’s semiconductor dominance as a “silicon shield,” suggesting that China would hesitate to invade for attempts at “reunification” out of fear of disrupting the global tech supply chain.
But that’s a fragile form of deterrence. The shield doesn’t extend to other key industries, and it depends on Taiwan continuing to have the edge. This economic power provides leverage over China that must be reinforced, not blindly relied upon.
The Rest of Taiwan’s Economy Is Still Exposed
While semiconductors lead the way, other parts of Taiwan’s economy lack the same sense of resilience. Traditional export sectors remain vulnerable to sudden disruptions. The agricultural sector, for example, has been repeatedly targeted by China. According to the U.S. Department of Agriculture, Taiwan’s agricultural exports to China dropped by 20% in 2023 alone. And mango, pineapple, and grouper import bans have become routine tools of political messaging.
The petrochemical industry is similarly exposed. When China suspended ECFA concessions in 2024, base oils and chemical products were among the first to be hit. S&P Global reports that new tariffs on products like paraxylene, propylene, and orthoxylene, which contribute to core Taiwanese exports, will cut into profits and force supply chain and trade flow adjustments overnight.
So why haven’t these sectors followed the semiconductor model? The answer is partly inertia, partly cost. Creating alternative markets takes time. Chinese demand is still attractive to Taiwan. And on the political front, there’s extreme hesitancy: pushing too hard for economic independence risks provoking China further.
But remaining complacent and doing nothing is the bigger risk.
TSMC Takeaways: Lessons for the U.S.
If Taiwan’s experience teaches the U.S. anything, it’s that economic interdependence with China is not inherently stabilising. In fact, it can be the opposite: a source of leverage that China is all too willing to exploit. As the U.S. looks to protect its supply chains and strategic sectors, Taiwan offers both a sobering case study and a roadmap.
First, Taiwan’s experience shows that diversification beats dependence. Taiwan’s trade with China has declined significantly from a peak of 44% in 2020 to less than one-third in 2024. The U.S. has begun making similar moves, but Taiwan shows that it must be deliberate. After China banned pineapples, Japan became the main buyer. After bans on fruit, fish, and minerals, new partners emerged across the Indo-Pacific. Diversification isn’t just a theory in Taiwan—it’s survival.
Second, strategic industries can become a form of self-protection. China hasn’t sanctioned Taiwan’s chip exports—because it can’t. Chinese companies depend on Taiwanese semiconductors. The U.S. should follow suit by building up critical industries that the world, including China, can’t function without. This is already underway through the CHIPS and Science Act, but Taiwan shows the importance of not just funding production, but supporting talent pipelines, global partnerships, and long-term planning.
Third, retaliation from China should be expected and prepared for. Taiwan didn’t eliminate Chinese coercion, but it learned to adapt and survive it. When China pulled ECFA concessions, Taiwan had contingency plans in place. It had cultivated new trade ties. It had invested in domestic capacity. The U.S. must similarly assume that economic confrontation with China isn’t a risk—it’s a reality. That means stockpiling strategic resources, protecting intellectual property, and supporting allies like Taiwan, who are already weathering the storm.
Beyond the Silicon Shield
Semiconductors have made Taiwan indispensable to the global economy, but they won’t save Taiwan from political pressure, nor will they prevent military escalation if China believes it can weather the consequences. Overreliance on one successful model breeds complacency. The real lesson to be learned from TSMC’s success isn’t that Taiwan is protected, but rather that Taiwan can strategically build resilient industries when it plans ahead, invests wisely, and embraces international support.
With lingering threats of invasion and persistent economic coercion tactics, Taiwan’s best defence isn’t just chips: it’s an economy that’s too globally embedded, too diversified, and too resilient to be cornered by China. For the U.S., Taiwan’s experience is more than a case study—it’s a warning and a wake-up call. While the U.S. cannot fully replicate Taiwan’s strategy, it can craft its own version of economic resilience. That means treating economic security as national security, and acting now, not reactively, to ensure it is never caught off guard.
Colin Aponte is a B.A. candidate in International Relations at Stanford University, with minors in Economics and Music. He recently served as an Economic Policy Analyst at the Taiwan Institute of Economic Research (TIER), advising the Taiwanese Ministry of Economic Affairs on U.S.–Taiwan collaboration in AI and robotics through analysis of over $4.7 billion in U.S. federal R&D investments. He has also conducted research on U.S.–Asia economic policy and global health at Stanford’s Shorenstein Asia-Pacific Research Centre and has studied at Peking University and the Chinese University of Hong Kong.
This article was published as part of a special issue on ‘Stanford Student Commentaries‘.
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