Musk: China Takeover of Taiwan Will Cripple Global AI Chip Supply

A Chinese takeover of Taiwan would cut off the world's supply of advanced artificial intelligence chips, creating a catastrophic disruption to the global technology industry and potentially handing China a decisive advantage in the AI race, warned Tesla and SpaceX CEO Elon Musk in a recent podcast interview.

Speaking on a podcast with Ted Cruz, Musk underscored the critical role Taiwan plays in the global semiconductor supply chain. "If [China] were to invade in the near term, the world would be cut off from advanced AI chips," he stated. "And currently 100% of advanced AI chips are made in Taiwan."

This stark warning highlights the extreme concentration of advanced chip manufacturing in Taiwan, particularly at Taiwan Semiconductor Manufacturing Company (TSMC). TSMC produces over 90% of the world's most advanced chips, including those essential for training and running the large language models (LLMs) that power cutting-edge AI applications. These chips are used in everything from smartphones and data centers to military hardware.

The vulnerability of this supply chain has become a central concern in the escalating US-China tech war. The US government, under both the Biden and Trump administrations, has imposed export controls to restrict China's access to advanced chips and chipmaking equipment. However, as Musk noted, the vast majority of advanced chip fabrication plants ("fabs") are located in Taiwan, making the island a critical geopolitical chokepoint.

National Security Implications

Musk emphasized the national security implications of this dependence, stating that establishing domestic US chip manufacturing capacity is "essential for national security, and we’re not doing enough." He argues in the interview that if more AI chip factories are controlled by China, then China will win the AI race.

This concern is shared by US officials. Yesterday, Commerce Secretary Howard Lutnick stated his belief that Chinese AI company DeepSeek improperly used American chips, a sign of the lengths some Chinese companies are willing to go to obtain the latest tech, and reiterated the need to prevent such occurrences.

The potential for a Chinese invasion of Taiwan raises the specter of a complete disruption to the global supply of these critical components. As Lutnick warned, if the United States "lost Taiwan" and access to Taiwanese chips "you couldn't make a car." Beyond consumer goods, this would also have significant impact on military technology.

China's Efforts to Get Ahead

Despite US efforts to restrict access to cutting-edge technology, China is aggressively pursuing self-sufficiency and innovation in the AI chip sector. Chinese companies have reportedly resorted to stockpiling chips before restrictions take effect, and even smuggling restricted components through shell companies and other indirect channels. Furthermore, the Chinese government is heavily investing in domestic chip manufacturing capabilities, aiming to reduce reliance on foreign suppliers.

The rapid rise of Chinese AI firm DeepSeek adds a new dimension. DeepSeek's success in developing high-performing AI models, with reliance on older or less powerful chips, demonstrates that cutting-edge AI development is not solely dependent on access to the most advanced hardware. This challenges the assumption that simply restricting access to the latest chips will effectively contain China's AI progress. It highlights that software innovation and algorithmic improvements can, to some extent, compensate for hardware limitations.

This development, combined with the "open source" approach of many Chinese tech firms — where they give away free models — potentially diminishes the effectiveness of US sanctions, as it allows China to bypass restrictions and decentralize development.

Taiwan's Dilemma: Balancing Security and Economic Interests

The concentration of advanced chip production in Taiwan, while a source of economic strength, also creates a precarious geopolitical situation. Taiwan finds itself caught between the competing pressures of the US and China, each vying for control over this critical technology. While Taiwan's dominance in chip manufacturing is often referred to as a "silicon shield" against Chinese aggression, the reality is more complex. TSMC's recent $100 billion investment to expand operations in the US, a move largely driven by US pressure, highlights this complexity. This expansion, while potentially bolstering US supply chain security, has sparked concerns within Taiwan about the potential hollowing out of its own vital industry.

This internal debate reflects a fundamental tension. Some Taiwanese officials and analysts view closer ties with the US, including increased investment in US-based facilities, as a necessary step to ensure continued American support and protection. As Jason Hsu, a former Taiwanese legislator, told NPR, "Without U.S. security guarantees or commitments, there's no shield." He further argued that Taiwan needs to "keep pushing the boundary, by making high level chips in the U.S.... but still keeping the most cutting-edge generations in Taiwan," thereby maintaining leverage.

However, others fear that ceding too much control over chip production to the US could weaken Taiwan's strategic importance and, paradoxically, increase its vulnerability. This perspective underscores the inherent difficulty of relying on a "silicon shield" that is increasingly subject to external pressures. As Darson Chiu, director-general of the Confederation of Asia-Pacific Chambers of Commerce and Industry, points out, TSMC's chairman faces a "dilemma": balancing the demands of the US administration with the need to reassure the Taiwanese people about their long-term security.

This balancing act between economic interests, technological leadership, and geopolitical realities defines Taiwan's current predicament, with no easy solutions in sight.