America Built Taiwan's Chip Industry. Now Washington Is Using It as a Weapon Against Taiwan
Trump says Taiwan stole America's semiconductor industry. The demand to relocate it is built on a lie and it is being enforced by withholding weapons Congress already approved.
Air Force One put down at Ted Stevens Airport in Anchorage on a refueling stop. This was the night before the Beijing summit. Jensen Huang, Nvidia’s CEO, was not on the original delegation list. His absence had generated a full news cycle of its own. Then Trump called him directly, overriding concerns from his own staff, and Huang flew from California to Alaska and boarded the plane in a black leather jacket. The final seat claimed, Air Force One continued west. Tim Cook was already on board. So was Elon Musk. The list of accompanying executives ran to seventeen American CEOs, drawn almost entirely from companies with unresolved commercial grievances against Beijing.
The official purpose of the trip was to meet Xi Jinping for two days of what the White House called economic cooperation talks between global rivals. The unofficial purpose was legible from the passenger manifest. Huang’s Nvidia had spent months trying to unlock H200 chip sales in China: a market Huang himself had valued at $50 billion, in which Nvidia’s share had declined from near-total dominance to precisely zero after Beijing told domestic tech companies to pause H200 orders and invest instead in Huawei. Cook’s Apple manufactures the majority of its hardware in China. Musk’s Tesla operates a major gigafactory in Shanghai. These were not neutral witnesses to diplomacy. They were petitioners.
The White House readout published after the summit’s conclusion did not mention Taiwan.
Beijing’s readout did. Xi Jinping warned that mishandling the Taiwan question would put the US-China relationship in “great jeopardy.” The gap between what each government chose to publish is not a discrepancy of emphasis. It is a diplomatic signal, addressed not to each other but to every government in the Indo-Pacific calculating the residual value of an American security commitment.
When Trump spoke about Taiwan, he did so on Fox News from inside China, with no ambiguity about the terms.
“I haven’t approved it yet. I may or may not approve it. It’s a very good bargaining chip for us. It depends on China.”
The “it” was the $14 billion weapons package for Taiwan that Congress had already cleared. That is where this piece begins.
What the Law Actually Requires
The 1979 Taiwan Relations Act was drafted specifically to prevent what is now happening. The Carter administration’s decision to normalize relations with Beijing in December 1978 required, as a condition of domestic political survival, a legislative framework that would prevent future presidents from reading normalization as strategic abandonment. The resulting statute states, in unambiguous terms, that the United States will make available to Taiwan defense articles and services necessary for Taiwan to maintain sufficient self-defense capabilities. It does not include provisions for presidential discretion in the event of forthcoming trade summits. It does not contain a bargaining chip clause.
Trump has not repealed the Taiwan Relations Act. He has done something procedurally simpler and strategically more consequential: he stated, from Beijing, that his administration treats the obligations it implies as leverage in negotiations with the government the Act was written to guard against. The weapons package sits. In December, Trump authorized an $11 billion sale to Taiwan, the largest in American history at the time. His administration has not completed delivery. He then proposed an even larger package, which Congress cleared, and which now depends, in his own words, on China’s comportment.
The White House, asked for comment on the package’s fate after the summit, produced one sentence: “Both sides reiterated their long-stated stance on the issue and everyone understands each other’s position.” That is not reassurance. That is a communique designed to defer a question the administration has already answered.
The Industry America Built and Is Now Demanding Back
The premise underlying every element of the Trump administration’s Taiwan economic policy is a claim Trump has made repeatedly and without qualification: that Taiwan stole America’s semiconductor industry. Speaking from Beijing this week, he said it again. “They stole our semiconductor industry for years. We lost it, but it’s all coming back.”
There is a public record on this question, and it does not support the claim.
In February 1974, a small breakfast meeting took place at a shop in Taipei. The attendees were senior Taiwanese economic officials and Pan Wen-yuan, an RCA Laboratories director and Chinese-American engineer who had spent his career inside American industry. Pan had been invited to advise the Taiwanese government on how to pivot from cheap labor manufacturing to high technology. He proposed integrated circuits. Then he checked into the Grand Hotel and spent ten days alone drafting the project proposal.
Two years later, in 1976, the Industrial Technology Research Institute of Taiwan signed a formal IC technology transfer and licensing contract with Radio Corporation of America. RCA sent its own advisors to Taiwan to train Taiwanese engineers in the fabrication of integrated circuits. Forty young engineers were dispatched to American universities and RCA facilities to learn the process, then returned to build Taiwan’s first IC demonstration factory. That factory opened in October 1977. The first silicon wafers came off the line on American designs, using American knowledge, transferred by an American company under a formal contract with the explicit encouragement of an American government that was treating Taiwan as an anti-communist industrial development project.
Morris Chang, who founded TSMC in 1987 and built it into the dominant global foundry, was recruited to Taiwan from Texas Instruments, where he had worked for twenty-five years. He did not steal into the night with trade secrets. He was hired. The Hsinchu Science Park, which today hosts firms generating $363 billion in semiconductor revenues by firm headquarters and functions as the physical cluster without which advanced chip manufacturing in Taiwan would not exist, was established in 1980 with government incentives designed explicitly to attract overseas Taiwanese engineers back from the United States.
The semiconductor industry in Taiwan was not stolen. It was gifted, cultivated, licensed, and deliberately grown by the United States as Cold War industrial policy, in a country Washington had placed under the protection of the Seventh Fleet precisely because it was a block to Chinese communism and an export platform for American commercial interests. Trump’s historical claim is not a simplification of a complex process. It is its opposite.
What Moving the Industry Would Actually Require
Commerce Secretary Howard Lutnick stated in January that he wanted 40 percent of Taiwan’s semiconductor supply chain to relocate to the United States within Trump’s current term. Trump, in Beijing, said he expects 40 to 50 percent of global semiconductor production to be in the United States by the time he leaves office, and that he wants every chip manufacturer in Taiwan to come to America. Taiwan’s vice premier, Cheng Li-chiun, responded in a single word that does not normally appear in diplomatic exchanges with Washington: impossible.
The evidence supports her.
TSMC committed $65 billion to its Arizona manufacturing operation, then expanded the commitment to $165 billion covering six planned facilities. Its first Arizona fab recorded a loss of approximately $441 million in 2024. TSMC’s founder Morris Chang warned in 2023 that manufacturing costs in Arizona ran approximately 50 percent above those in Taiwan, with some internal estimates placing the gap at double. The second Arizona fab, planned for 3-nanometer production, has already been pushed from its 2026 start date to 2027 or 2028. TSMC’s institutional “N-2” policy, which mandates that Taiwan-based fabs must remain at least two process generations ahead of any overseas site, is not a corporate preference. It encodes a physical and organizational reality: the offshore fabs depend on the anchor for talent pipelines, specialized supplier proximity, engineering problem-solving, and the accumulated manufacturing knowledge that cannot be codified into a transferable document.
The Hsinchu cluster is the anchor. It was built across four decades through the co-location of thousands of specialized firms, water reclamation and chemical processing infrastructure that a desert cannot easily replicate, and an engineering workforce trained specifically for this industry that does not exist at comparable scale anywhere else. You can build a fab in Phoenix. Samsung is building one in Taylor, Texas, delayed from its original 2024 timeline, currently without enough customers for the chips it expects to produce. Building fabs and building a semiconductor industry are different projects, on different timescales, with different requirements.
The demand that 40 to 50 percent of global semiconductor production move to American soil within a presidential term is not a negotiating position. It has no relationship to any physical constraint that governs the industry it describes. Taiwan offered $250 billion in direct investments by its technology companies and a further $250 billion in credit to expand US production capacity, in exchange for which Washington lowered tariffs on Taiwanese goods to 15 percent from 20 percent. Taiwan’s parliament, breaking months of legislative gridlock this week, approved $25 billion in new arms purchases. A senior Trump administration official called that figure “disappointing,” because it fell short of the $40 billion President Lai Ching-te had proposed. Taiwan is not refusing to pay for its security. It is paying while being told the payment is insufficient, for a product whose delivery the president has made conditional on the preferences of the buyer’s adversary.
The Logic Underneath
Hold three things alongside each other.
The administration’s stated rationale for demanding Taiwan relocate its semiconductor manufacturing to the United States is supply chain security: chips made in Taiwan are exposed to Chinese military action, and the United States cannot sustain a strategic technology dependency concentrated in a conflict zone. The same administration is withholding the weapons package that constitutes Taiwan’s most immediate deterrent against the military action that justifies the relocation demand. And if Taiwan were to comply with the demand, a material reduction in its strategic value to Washington would follow, since Taiwan’s claim on American protection rests substantially on its irreplaceable position in the global technology supply chain.
The threat validates the demand. The demand, if met, weakens the case for defense. The weapons package is withheld to enforce the demand. Trump said Taiwan “stole” the industry; the implicit accounting is that once restitution is made, the debt is cleared. He has not stated this. He does not need to. The structure operates whether or not it is acknowledged.
What Was Actually Being Negotiated in Beijing
The tech executives on Air Force One were not there for the geopolitics. Cook’s manufacturing exposure to China is estimated at the majority of Apple’s hardware production. Musk’s Shanghai gigafactory is a core revenue source. Huang had watched Nvidia’s China market share collapse to zero as Beijing boycotted H200 purchases despite American approval for their sale. The chip in question carries a US government revenue surcharge of 25 percent as a condition of export. China had approved none. What Huang was in Beijing to discuss was worth, by his own estimate, $50 billion in addressable market. Boeing, which has not completed a commercial jet sale to China in over a decade, was in the headline deals as a bilateral goodwill gesture. Two hundred jets, Trump announced from Beijing.
This is the trade that was being made in that room. Boeing’s commercial recovery. Apple’s manufacturing continuity. Nvidia’s China market. These commercial interests were not background context to the security discussion. They were the foreground. Taiwan’s $14 billion weapons package was the variable that could be adjusted to facilitate the other outcomes. Trump named it a bargaining chip. The chip companies in his delegation were the other side of the trade.
Xi Jinping did not warn about “great jeopardy” from a position of alarm. Xi’s warning was leverage, issued by a government that has read, accurately, that Washington’s commitment to Taiwan has become conditional and negotiable, and that demonstrating displeasure about Taiwan carries a cost that appears, at the moment, to be denominated in Boeing orders and semiconductor market access. The warning was addressed not to Trump but to the governments of Seoul, Tokyo, and every other capital now quietly revising its assessment of what the American security umbrella actually covers.
Taiwan’s foreign minister said Friday that Taipei would seek to deepen ties with the United States, citing regional risks. That statement, issued in the immediate aftermath of a summit from which Taiwan was excluded and during which its president’s arms package was publicly described as a negotiating instrument, has the quality of a communique issued by a government that has learned not to wait for reciprocation.
The Question That Remains
Taiwan’s GDP grew 7.37 percent in 2025, the fastest pace in fifteen years. Semiconductor and AI exports drove the expansion. The Lai government raised defense spending from 2.4 percent of GDP to 3.3 percent this year, targeting 5 percent by 2030. Taiwan is not a free rider. It has spent the better part of two years investing in its own defense and in American manufacturing capacity simultaneously, under constant pressure from an administration that privately endorsed the $11 billion arms package in December, then declined delivery, then proposed a larger package it has now suspended, while flying to Beijing with seventeen CEOs whose companies need Chinese market access.
Morris Chang’s warning about Arizona manufacturing costs was delivered publicly in 2023. Taiwan’s vice premier called the relocation demand impossible in February. Semiconductor analysts across the board agree. The demand will not be met within any realistic definition of Trump’s remaining term, not because Taiwan is unwilling, but because the physical geography of industrial ecosystems does not bend to presidential timelines.
The $14 billion package will be approved, or withheld for longer, or quietly reduced. Its fate will be determined by whatever Xi Jinping offers or declines to offer in the weeks that follow a summit from which the White House omitted Taiwan’s name.
The Taiwan Relations Act was written to ensure that what is happening could not happen. What does a statutory obligation mean when the executive it binds describes it, from the capital of the government it was written to deter, as a very good bargaining chip?