Taiwan Weighs Chip Export Controls as Geopolitical Leverage – Semiconductor Power Play Intensifies

Semiconductors become the new chess pieces in global diplomacy.

Taiwan—home to TSMC and 60% of global chip production—is reportedly re-evaluating its export policies as tensions escalate. The island nation's dominance in advanced node manufacturing gives it rare leverage, but playing this card risks triggering a full-blown supply chain earthquake.

Market watchers predict Beijing's reaction could make the 2020-2021 chip shortage look like a minor inventory adjustment. Meanwhile, Wall Street analysts are already pricing in the 'geopolitical risk premium'—because nothing boosts quarterly earnings like manufactured scarcity.

One thing's certain: in the high-stakes game of tech sovereignty, everyone's bluffing with someone else's chips.

Taiwan triggered chip sanctions over South Africa dispute

The conflict tracks back to a deepening diplomatic rift between Taiwan and South Africa, which cut formal ties with the island in the 1990s.

Tensions resurfaced some time in 2023 when Taiwan accused South Africa of trying to downgrade its diplomatic presence. Specifically, Pretoria pushed Taiwan to MOVE its Liaison Office from the capital to Johannesburg, a city considered the country’s commercial hub.

And interestingly, that decision coincided with a BRICS summit hosted by South Africa and, of course attended by Chinese President Xi Jinping.

As South Africa prepares to host the G20 leaders’ summit this month, with Xi once again expected to show up, the pressure on Taiwan has increased.

In response, Taipei briefly pulled the trigger on chip controls. It was the first time Taiwan had ever unilaterally blocked chip exports to another country.

But even with a more hardline tone under President Lai Ching-te, officials walked it back fast, probably worried about hurting companies like Taiwan Semiconductor Manufacturing Co. (TSMC), which plays a critical role in global AI chip supply chains. And there’s no avoiding the elephant in the room, China, which remains one of Taiwan’s top chip buyers and is highly sensitive to any hint of semiconductor restrictions.

Taiwan faces pressure from China, the U.S., and global markets

Lai, who took office promising a firmer stance against Beijing, is now balancing a growing list of problems. While his administration has challenged China’s aggression more openly than any of his predecessors, not everyone at home is cheering. A good chunk of the public wants the government to focus on bread-and-butter issues instead of cross-strait drama.

Things got more complicated in July, when the United States slapped a 20% tariff on Taiwanese goods, putting the island at a disadvantage compared to Japan and South Korea.

That stung. Then in August, Lai reshuffled his cabinet for the first time since taking office, trying to calm political headwinds.

And last week, Washington threw another curveball. The TRUMP administration, now back in the White House, reportedly blocked a $400 million military aid package to Taiwan, just as Trump was working on a broader trade deal with Beijing. The timing didn’t go unnoticed in Taipei.

Taiwan is now trying to figure out where it stands; with China breathing down its neck, South Africa nudging it around diplomatically, and America suddenly less dependable.

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