📈 Risk of a China–Taiwan Conflict for the U.S. AI Industry

China has escalated military pressure on Taiwan through “Justice Mission 2025,” a large-scale joint exercise involving the army, navy, air force, and rocket forces. These drills encircle Taiwan more tightly than in previous years, include live-fire operations, and simulate blockades of key ports. 

Taiwan remains a central hub in the global semiconductor supply chain, particularly for advanced logic chips and leading-edge foundry manufacturing that underpin artificial intelligence and data-center infrastructure. While the United States dominates AI-chip design, it has historically lagged in advanced fabrication, leaving much of the world’s most sophisticated chip manufacturing concentrated in Taiwan.

As a result, Taiwan has become the backbone of the U.S. artificial-intelligence boom, supplying advanced AI chips while simultaneously restricting exports of high-end semiconductors to China. This strategic realignment has driven a dramatic surge in Taiwan’s trade surplus—especially with the United States and in AI-related products.

From 2022 to the twelve months ending November 2025:

·     Total trade surplus: increased from $51 billion to $144 billion

·     Trade surplus with the United States: expanded from $29 billion to $138 billion

·     Trade surplus in data-processing units: rose from $12 billion to $150 billion

·     U.S. imports of Taiwan-made AI chips: surged from $6.8 billion to $110 billion

Although the United States has significantly increased investment in domestic AI-chip manufacturing—through CHIPS Act subsidies and new fabrication plants in Arizona and elsewhere—self-sufficiency remains years away. Any escalation of tensions in the Taiwan Strait, particularly a blockade or annexation scenario, would therefore pose a systemic risk to the U.S. AI ecosystem, threatening supply chains, slowing innovation, and undermining America’s technological leadership at a critical moment in the global AI race.