Three Questions to Cheng Ting-Fang: Semiconductors as the Hardware of AI - The Case of Taiwan

What makes Taiwan unique in the AI revolution?

Whether in chip manufacturing, packaging and testing, chip design, or components such as smartphone camera lenses, servers, and computing devices, Taiwan is home to some of the world’s most critical players. Notably, TSMC has secured a foundational role in the hardware backbone of AIsystems-its advanced CoWoS packaging technology is an essential link in Nvidia’s global AI supply chain.

Thanks to Taiwan’s efficient infrastructure, it takes just 90 minutes by high-speed rail to travel from Taipei to Kaohsiung. This makes it feasible to visit nearly all the companies involved in the AI data center supply chain-from advanced packaging and assembly to chemical materials and equipment-within a day or two. TSMC exemplifies this efficiency: its advanced fabs in Tainan manufacture Nvidia’s Blackwell superchips, while mass production of 2-nanometer chips is set to begin in Hsinchu later in 2025, with another 2-nanometer fab under construction in Kaohsiung the same year.

Taiwan’s second major advantage lies in the depth and experience of its talent pool, built over more than three decades. Skilled labor is indispensable in chip manufacturing. When TSMC decided to build a cutting-edge facility in Arizona, it initially assumed that the local workforce-bolstered by Intel’s presence-would be sufficient. However, the project demanded 10,000 workers daily just for construction, ultimately requiring TSMC to bring in 50% of the workforce from Texas, according to TSMC’s chairman and CEO C.C. Wei. This underscores the value of industrial clustering, where geographic concentration of expertise and resources directly enhances execution.

Taiwan’s dynamic semiconductor industry has made its know-how globally sought after, drawing sustained interest from the U.S. and Europe. After five years of planning and construction, TSMC’s first advanced overseas plant began mass production in Arizona earlier this year and is now capable of producing Nvidia’s latest Blackwell superchips on U.S. soil. In March, TSMC committed an additional $100 billion to expand its Arizona operations. Meanwhile, several Taiwanese suppliers are also scaling up their presence in the U.S., reinforcing Taiwan’s central role in the global AI and semiconductor ecosystem.

This current US focus on industrial revitalization, particularly through the development of a comprehensive AI ecosystem on US soil, carries significant implications for Taiwanese players. How is this viewed in Taiwan?

It would not be an overstatement to say that the United States is now setting the pace for global AI development. In 2025, global investment in AI data center construction is projected to reach around $600 billion-with half of that concentrated in the U.S, according to research company Dell’Oro. The "Make America Great Again" agenda is delivering tangible results, particularly in the AI server supply chain. Production is steadily shifting to U.S. soil, and by 2032, it is estimated that roughly half of U.S. demand for 5-nanometer and more advanced chips could be met through domestic manufacturing. Nvidia alone plans to invest $500 billion to build supercomputers in the U.S., working with a wide range of suppliers.

While the majority of TSMC’s production still takes place in Taiwan, this shift reflects a new global reality that Taiwan must contend with.

Still, it would be a mistake to conclude that Taiwan is giving away its "silicon shield" by allowing TSMC to expand internationally. The company is simply responding to customer demand. The post-chip shortage world has ushered in a new mindset focused on supply chain resilience and geographic diversification-even if it comes at a higher cost. TSMC founder Morris Chang long argued that this approach would undermine cost efficiency, which relies on Taiwan’s uniquely integrated semiconductor ecosystem. Nevertheless, around 70% of TSMC’s current revenue now comes from the U.S., driven by major clients like Nvidia, Amazon and Apple. Meanwhile, the share of Chinese customers has plummeted-from about 20% in 2019 to single digits last year-due to U.S. export controls.

Taiwan also faces structural challenges at home, most notably a looming energy crunch. AI data centers and advanced chip fabs consume enormous amounts of electricity, making power supply, thermal management, and high-capacity cabling critical infrastructure issues. Nvidia’s GB200 platform-which connects 36 Grace CPUs and 72 Blackwell GPUs-requires liquid cooling and high-speed switching systems. Yet Taiwan’s energy outlook is under pressure. With nuclear power being phased out and renewable capacity still insufficient, the reliability of future electricity supply remains a major question. As a result, relocating part of the ecosystem abroad is increasingly viewed as a strategic necessity.

Ultimately, the era of unfettered globalization and free trade appears to be behind us. Taiwan’s semiconductor industry has achieved extraordinary success over the past three decades, but the critical question now is what comes next. How can Taiwan maintain its competitive edge in the face of profound geopolitical change? In the end, the core challenge may be less about technological capability and more about navigating an increasingly uncertain geopolitical landscape.

What can we expect from China’s future in semiconductors and AI?

China’s role as the world’s manufacturing hub for notebooks, smartphones, TVs, and now electric vehicles (EVs), has attracted a broad range of global brands and suppliers. This concentration of production has, in turn, helped nurture a new generation of Chinese manufacturers and fostered the development of a world-class component ecosystem.

The country now ranks among the global top three in production capacity across most of these segments. That said, China still struggles to produce cutting-edge chips due to ongoing export restrictions. Yet Chinese firms remain active contenders, developing alternative architectures and solutions that deliver performance increasingly comparable to Nvidia’s. A fundamental distinction sets China apart: its emphasis on building "sufficiently effective" systems often outweighs traditional market metrics such as profitability or cost-efficiency.

China is also making significant inroads into sectors where Europe and Japan previously held dominance-such as chips for industrial automation, robotics, and automotive applications. In particular, Beijing is pushing for increased use of domestic semiconductors in electric vehicles. The government has directed top automakers to ensure that at least 25% of the chips in their vehicles are locally sourced, with plans to raise this share in the coming years. If Chinese EVs continue to gain ground globally, the domestic automotive chip industry could scale rapidly, especially with increasing AI integration. Notably, SMIC’s automotive chip sales reached 10% of its total revenue in the first quarter of 2025. China is also making visible progress in the global DRAM market, long dominated by South Korean firms.

Like it or not, China remains a formidable player in semiconductors-particularly when it comes to system integration. Companies like Huawei benefit from an exceptional capacity to assemble complex technologies into functioning systems under tight constraints. However, when Western governments call on companies to support national efforts to contain China’s technological rise-such as by preventing technology transfers-we must also acknowledge that China is a critical market. The size and dynamism of the Chinese market often explain why commercial behavior diverges from official policy. National security concerns may shape export control strategies, but companies operate in the real economy, and China remains the world’s largest market for smartphones, EVs, and much more.

In any case, with no end in sight to the U.S.-China tech rivalry, it is reasonable to expect Beijing to double down on its self-reliance agenda and continue to climb the value chain in semiconductors and AI.

Collected by Claire Lemoine
Copyright image : Andrew Harnik/Getty Images/AFP 
President Donald Trump, Commerce Secretary Howard Lutnick and Taiwan Semiconductor Manufacturing Company (TSMC) CEO C.C. Wei in the White House on March 3, 2025 in Washington.