Written by Pam Kennedy.
Image credit: Trucks entering and leaving TSMC Fab 18 May 2025 by 4300streetcar/ Wikimedia Commons, license: CC BY 4.0.
For many years, analysts have scrutinised the effect of Taiwan’s competitive advantage in semiconductor production on the island’s security. Now the “AI shield” raises the same question: Does the ongoing AI boom give the West, particularly the United States, greater interest in Taiwan’s security, thanks to Taiwan’s production of the cutting-edge semiconductors that are vital for AI? There is some overlap with the “silicon shield” in this proposed dynamic, since Western demand for Taiwan-made advanced chips is a central component of both concepts. But the AI shield is actually more limited in its scope. It rests on the dependence of the United States and other countries on Taiwan for the production of AI-capable chips, which gives these countries greater interest in the security of Taiwan’s semiconductor production to ensure access to the AI chips. These chips are among the most advanced semiconductors, and they are mostly produced in Taiwan’s well-developed chip manufacturing ecosystem. Yet the durability of the AI shield depends on whether the AI boom continues, and what happens should an AI slowdown occur. The AI shield is both narrower and more fragile than the current discourse assumes, and its erosion, if it comes, would matter far less to Taiwan’s security than the attention the concept receives would suggest.
Chip Demand
The AI boom is going strong, at least for now, with investment in AI continuing unabated. AI companies are spending heavily to buy advanced semiconductors and build out data centres and power grid capacity. In the United States alone, there was $355.9 billion in venture capital investments in AI in the first half of 2026. Tens of thousands of AI startups have entered the market, further bolstering the strong demand for compute, electricity, and AI-capable chips. Taiwan’s chip giant TSMC posted record net income in July 2026 for the fifth quarter in a row, driven by AI chip demand. Yet while the boom has defied suspicion of in fact being a bubble thus far, the risk of a downturn in AI investments, and therefore chip demand, remains a possibility. At some point, AI investments will stop growing. After all, the uses of AI have so far not lived up to the promises of tech companies, with one study finding low AI adoption rates among companies, and increasing concerns about reports of autonomous AI agents hacking unaware targets.
For Taiwan, any downward trend in AI chip demand will present a serious challenge due to lopsided economic growth, heavily concentrated in the high-tech industries, especially semiconductors. This is coming at the expense of the Taiwanese economy’s other sectors: economists have been concerned about the much more sluggish growth outside the tech sector. A hit to the economy’s most profitable sector, whether from a slump in AI-related chip demand or a slowdown in investments, would leave Taiwan with a weaker economy overall. And, according to the logic of the AI shield, less demand for AI chips from the United States would reduce the incentive for the U.S. to intervene in a contingency—though it is worth noting that less demand for specifically AI chips does not necessarily mean a substantial reduction in advanced chip demand.
Complications from Hedging
But even if AI chip demand remains high, other countries that depend on Taiwan’s chip manufacturing are not likely to indefinitely accept this weak point in their own chip supply chains. The United States has already begun reshoring chip manufacturing—with Taiwan’s help—precisely to mitigate the effects of a scenario in which U.S. access to Taiwan-made chips is interrupted. U.S.-based production will take years to produce at scale and quality comparable to Taiwan, and even then may not meet a significant portion of U.S. demand, but some AI chips are already being produced in the United States. While U.S. businesses will continue to purchase many chips from Taiwan, especially the most advanced chips only produced on the island, it is important to read between the lines of this diversification effort. Not only is the United States reshoring manufacturing, but it is also pouring money into innovation in other parts of the AI and semiconductor industries, including AI chip design and data centres. The Trump administration has stated that it is concerned about losing access to Taiwan-made chips in a contingency, and its policies aim to secure the chip supply as much as possible.
U.S. demand for chips, driven to even greater heights by AI, will remain strong, but the reality is that the United States is working to reduce its dependency on Taiwan for advanced chips. As the U.S. Commerce Secretary argued in September 2025, obliquely referring to the possibility of the United States intervening in a Taiwan Strait contingency, “If we have half [of semiconductor production], we have the capacity to do what we need to do, if we need to do it.” By bringing some of the AI chip production to U.S. soil, the United States can maintain more flexibility in a scenario where access to AI chips made in Taiwan is abruptly cut off. But being able to fulfil some of AI chip demand domestically may lead to less of a sense of urgency in that scenario—and again, the amount of AI chip demand will depend on how long the AI boom continues. An AI slowdown resulting in lower chip demand will eventually make it easier for the United States to meet more of its AI chip demand domestically. This weakens the AI shield by reducing U.S. interests in Taiwan’s AI chip manufacturing capability.
It is important to remember that the timelines of chip demand and chip supply are different and will have an impact on whether the AI shield erodes or not. AI chip demand could change relatively quickly, in a matter of months, if interest in AI moderates or declines, but building up the U.S. domestic AI chip supply requires at least several years, based on the lead time for TSMC’s Arizona fabs, one of which began operating in 2025. Yet, if the United States eventually manages to reshore enough AI chip manufacturing capacity to substantially reduce its interest in made-in-Taiwan AI chips, this erosion is not fatal. The United States has other interests in Taiwan which give it compelling reasons to consider intervening in a contingency, particularly Taiwan’s position in the First Island Chain, which is a priority concern for the Trump administration.
Strengthening the Shield Effect
While the AI boom has an uncertain future, Taiwan can still take steps that strengthen its overall security position. Domestically, Taiwan needs to strengthen its economy beyond the high-tech industries to create a more stable foundation in case of an AI slowdown. Past initiatives like the 5+2 Industrial Innovation Plan could provide blueprints for promoting economic diversification. The close U.S.-Taiwan tech partnership is deepening, and this is where Taiwan can ensure that AI works to its advantage. While the AI boom continues, Taiwan and the United States are expanding collaboration in chip manufacturing. Even as the tech industry joins calls for more AI guardrails and regulations, there are ample opportunities for Taiwan to work with the United States and other partners to make AI safer to use and more effective for critical tasks like defending against cyberattacks. Taiwan’s efforts to play an active role in informing AI governance will also ensure that the rules and norms that develop around AI are helpful, not harmful. And Taiwan can leverage its international partnerships to help it defend against AI-enabled disinformation and cyberattacks as they become increasingly sophisticated, since these are challenges that many, if not all, partners face.
Whether these efforts culminate in a decisive AI shield effect may be difficult to judge in the coming months and years, as AI models leap forward in capabilities and governance institutions hurry to catch up. In a decade, perhaps we can answer whether AI is a shield for Taiwan. The AI shield may be working now, but it is also producing the same incentives to diversify away from Taiwan that the silicon shield creates. And the excitement of the AI era obscures the underlying uncertainty about the shield’s sustainability. In the rapidly shifting AI landscape, Taiwan’s security will depend on the full breadth of its partnerships with the United States and other countries rather than on the strength of one industry.
Pam Kennedy is a Fellow and Deputy Director of the China Program at the Stimson Center in Washington, DC.
This article was published as part of the special issue on AI Shield and Energy.