The semiconductor industry, including Integrated Circuit (IC) manufacturing, design, and packaging, forms a major part of Taiwan's IT industry. Due to its strong capabilities in OEM wafer manufacturing and a complete industry supply chain, Taiwan has been able to distinguish itself as a leading microchip manufacturer and dominate the global marketplace.

In 2025, Taiwan's semiconductor industry output reached about NT$6.5 trillion (US$203.9 billion). Taiwan held 43% of global mature-node semiconductor manufacturing capacity in 2024, while Taiwan Semiconductor Manufacturing Company (TSMC) remained the world's largest contract chipmaker.

Overview

In the 1970s, policy decisions by technocrats like Li Kwoh-ting helped Taiwan pivot from low-tech manufacturing to high-tech industries. The 1976 RCA Project, one of the first significant policy shifts, facilitated critical technology transfer from the U.S., which led to Taiwan's first IC plant and laid the groundwork for technological self-reliance. Further early developments included the founding of the Industrial Technology Research Institute (1973), United Microelectronics Corporation (1980), and the Hsinchu Science Park (1980).

Morris Chang's founding of Taiwan Semiconductor Manufacturing Company (TSMC) in 1987 was a foundational moment for Taiwan's semiconductor industry. Close ties with Silicon Valley and the return of engineers trained in the U.S. fostered a startup ecosystem distinct from the conglomerate-driven models of Japan and South Korea.

TSMC now produces over half the world's advanced chips, supplying firms like Apple Inc. and Nvidia. However, its strategic value has made Taiwan a key geopolitical flashpoint, especially amid U.S.-China tensions. The semiconductor industry is one facet of a wider geopolitical contention regarding Taiwan's independence from China. Taiwan has responded to the crisis by growing closer to the United States, via investments in U.S.-based fabs, including a $65 billion project in Arizona, supported in part by the CHIPS and Science Act.

China's industrial espionage campaigns have targeted Taiwan's semiconductor sector. In response, Taiwan has strengthened cybersecurity, enacted stricter investment laws, and bolstered domestic talent retention.

History

The Taiwanese semiconductor industry got its start in 1974. In 1976 the government convinced RCA to transfer semiconductor technology to Taiwan. Under the direction of Chiang Ching-Kuo the government appointed the Industrial Technology Research Institute (ITRI) to lead the development of the industry with an emphasis on developing commercial products rather than pure scientific advances. ITRI sent four teams of engineers to train at RCA before building a demonstration factory in Taiwan. The demonstration factory was able to achieve higher yields than RCA's fabs in the US. The demonstration factory was spun off by ITRI in 1980 as United Microelectronics Corporation (UMC). UMC received initial investment from both private and public sources.

In 1987, TSMC pioneered the fabless foundry model, reshaping the global semiconductor industry. From ITRI's first 3-inch wafer fabrication plant built in 1977 and the founding of UMC in 1980 the industry expanded rapidly. MediaTek was originally a unit of UMC, tasked with designing chipsets for home entertainment products. On May 28, 1997, the unit was spun off and incorporated. MediaTek Inc. was listed on the Taiwan Stock Exchange (TSEC) under the "2454" code on July 23, 2001. The industry had developed into a world leader with 40 fabs in operation by 2002. In 2007, the semiconductor industry overtook that of the United States, second only to Japan.

The sector output reached US$39 billion in 2009, ranking first in global market share in IC manufacturing, packaging, and testing, and second in IC design. Although the 2008 financial crisis affected sales and exports, the industry has rebounded with companies posting record profits for 2010. In 2010 Taiwan had the largest share of 300 nm, 90 nm, and 60 nm manufacturing capacities worldwide, and was expected to pass Japan in total IC fab capacity by mid-2011. By 2020, Taiwan was the unmatched leader of the global semiconductor industry with Taiwan Semiconductor Manufacturing Company (TSMC) alone accounting for more than 50% of the global market.

In the 2020s artificial intelligence processing emerged as a significant demand driver for the Taiwanese semiconductor industry.

While Taiwan continues to dominate global semiconductor manufacturing, its critical role in global supply chains has placed it at the center of geopolitical tensions, especially between the United States and China. In response to growing concerns about supply chain resilience, and the Trump Administration's contentions that Taiwan had taken away the chip business from the United States, TSMC pledged to invest $100 billion in three new fabrication plants and two packaging facilities in Arizona. Taiwan remains a global leader in semiconductor manufacturing, with TSMC at the forefront. TSMC produces over 50% of the world's advanced semiconductors, supplying critical components to tech giants like Apple, Nvidia, and AMD.

In 2025 the Merck Group opened a major semiconductor components and supplies production facility in Kaohsiung.

Challenges facing industry development Cyber espionage and cybersecurity threats The Taiwanese semiconductor industry has become a primary target of Chinese intelligence operations due to its global strategic importance. Chinese state-sponsored actors have engaged in cyber espionage campaigns aimed at acquiring proprietary Taiwanese semiconductor technologies and undermining supply chain resilience. For example, a 2024 report by cybersecurity firm FireEye identified a surge in activity by the Chinese-affiliated threat group APT41, which targeted Taiwan's semiconductor research institutions through spear-phishing emails and the deployment of custom malware tools such as Cobalt Strike and PlugX.

A joint investigation by the Hsinchu, Taipei, and New Taipei City prosecutors' offices revealed in September 2024 that eight Chinese semiconductor firms—including Naura Technology Group Co, Shanghai New Vision Microelectronics Co, and iCommsemi—allegedly concealed their corporate identities to recruit engineers from Hsinchu Science Park illegally. These efforts form part of a broader pattern of cyber and human intelligence operations, which, according to Taiwan's Ministry of Justice Investigation Bureau (MJIB), resulted in over 2.4 million cyber intrusion attempts per day in 2024—double the volume recorded in 2023.

To counteract these threats, Taiwan has passed amendments to its National Security Act, tightening restrictions on foreign investment in key technologies and enhancing legal penalties for unauthorized technology transfers. Taiwan has also established partnerships with international cybersecurity firms and government agencies, including the U.S. Cybersecurity and Infrastructure Security Agency (CISA) and Japan's National Center of Incident Readiness and Strategy for Cybersecurity (NISC), to coordinate on intelligence sharing and best practices. In parallel, the Taiwanese government has funded public-private cybersecurity initiatives and expanded educational outreach programs focused on cyber hygiene for businesses and academic institutions.

Talent poaching and industrial policy Beyond cyber intrusion, Chinese efforts to access Taiwan's semiconductor expertise include talent recruitment campaigns. According to a 2024 analysis by the Taiwanese think tank Institute for National Defense and Security Research (INDSR), Chinese firms have offered engineers up to three times their local salaries, along with relocation packages and incentives, to join mainland companies. These campaigns often operate through shell companies or overseas research collaborations, complicating enforcement efforts.

In response, Taiwan has expanded subsidies, tax incentives, and career development grants under its Semiconductor Industry Talent Cultivation Program, designed to retain high-skill workers and encourage university-industry collaboration domestically. Complementing these policy efforts, Taiwan Semiconductor Manufacturing Company (TSMC), the world's leading contract chipmaker, has launched a competitive Ph.D. scholarship program targeting top-tier engineering and science students.

Taiwan has introduced a legislative package often referred to as its version of the "CHIPS Act" where the government offers a 25% tax credit on eligible research and development (R&D) expenditures and a 5% tax credit for capital investments in advanced manufacturing equipment.

Beijing has denied allegations of state-directed theft and framed its industrial development as part of its Made in China 2025 strategy.

In August 2026, Taiwan announced an investigation into 17 Chinese companies which are suspected of illegally recruiting Taiwanese workers from the semiconductor and other high-tech industries.

Taiwanese policy and regional cooperation Taiwan's response to these multifaceted challenges includes policy innovation and regional engagement. In addition to cybersecurity reforms, the Taiwanese government has pursued greater alignment with allies through the U.S.-Taiwan Tech Trade and Investment Framework and trilateral dialogues with Japan and South Korea focused on semiconductor supply chain resilience.

Geopolitics

Taiwanese TSMC and South Korean rival Samsung have near total control of the leading edge of the semiconductor industry with TSMC significantly ahead of Samsung. This situation in which global production capabilities have been concentrated in just a few selected countries leads to significant geopolitical challenges and contributes heavily to changes in global techno-politics.

Due to its significant position in both the American and Chinese tech industry supply chains, Taiwan has been enmeshed in the technological front of the China–United States trade war and the larger geopolitical conflict between the two powers. The US prohibited companies which use American equipment or IP from exporting products to prohibited companies in China. This forced Taiwanese semiconductor companies to stop doing business with major Chinese clients like Huawei.

In January 2021 the German government appealed to the Taiwanese government to help persuade Taiwanese semiconductor companies to ramp up production as a global semiconductor shortage was hampering the German economy's recovery from the COVID-19 pandemic. A lack of semiconductors had caused vehicle production lines to be idled, leading German Economy Minister Peter Altmaier to personally reach out to Taiwan's economics affairs minister Wang Mei-hua in an attempt to get Taiwanese semiconductor companies to increase their manufacturing capacity. Similar requests had been made by the United States, the European Union, and Japan. The Taiwanese government and TSMC announced that as much as possible priority would be given to automakers from Taiwan's close geopolitical allies.

In April 2021 the US Government blacklisted seven Chinese supercomputing companies due to alleged involvement in supplying equipment to the Peoples Liberation Army (PLA), Chinese military–industrial complex, and Weapon of Mass Destruction (WMD) programs. In response Taiwanese chipmakers Alchip and TSMC suspended new orders from Chinese supercomputing company Tianjin Phytium Information Technology.