In a recent appearance at the New York Times Dealbook conference, Nvidia CEO Jensen Huang said there are dozens of well-funded companies in China trying to build their own GPUs as an alternative to Nvidia's now that the US trade rules mean its best GPUs are not available in the country.

For China, these restrictions are an annoyance. But for Taiwan, this is a much bigger problem.

As the world craves advanced semiconductors, the phrase "silicon shield" has entered the political vernacular.

The phrase comes from the belief that China might avoid invading Taiwan to protect its vital semiconductor chip supply -China is Taiwan's largest trading partner and is wholly reliant on these chips as much as the rest of the world -while Taiwan's allies, especially the US, the EU, and Japan would defend it to prevent the disruption of Taiwan Semiconductor (TSMC) chip production, crucial for both geopolitical and economic reasons.

China may have the military might to pull off an invasion, but Taiwan has the economic importance to make it so painful Beijing would reconsider, the logic goes.

"Restricting China's access to advanced American technology would just encourage Beijing to use their vast pools of venture capital and brightest minds from institutions to de-couple, akin to a 'Manhattan Project' for China," said Jason Hsu a senior research fellow at Harvard's Ash Center and former legislator from Taiwan.

US faces formidable competition from China

Recently, Nvidia's Huang said that Huawei is among the "very formidable" competitors his company has from China.

Hsu sees a crack in Taiwan's silicon shield, and while he doesn't believe a cross-strait conflict is likely anytime soon, the tool for deterrence isn't as strong as it once was.

The US, in Hsu's opinion, should allow China to use these chips as a calculated risk, one that offers the US strategic insights and a chance to influence China towards peaceful utilization.

China's race to develop -and eventually beat -Nvidia at AI chips has some precedence. In 2015, Washington's move to block Intel from selling Xeon chips to Chinese supercomputer projects added fuel to the fire of Beijing's efforts to build indigenous processor architectures. 

In 2016, China unveiled the world's fastest supercomputer -all made without US chips.

"Chinese tech standards might dominate emerging markets, projecting their power to countries that rely on their economic or technology support, which potentially undermines American interests," Hsu noted.

US officials are scheduled to visit Taiwan later in December to explain new chip rules, according to reports, and Taiwan's economics minister recently reminded local firms to do more to be compliant with these rules.

Hsu would like to see Taiwan have a bigger seat at the table regarding rules around chips, and talks with the US to be bilateral, not unilateral.

"Taiwan's relationship with the US is not one of dependency but mutual respect and collaboration to ensure security and economic prosperity," he said.

The right policy response?

As part of bolstering its commitment to keeping core technology out of China's hands, Taiwan recently unveiled heightened controls on 22 key technologies spanning defense, aerospace, agriculture, semiconductors, and ICT, to prevent technology leaks.

Taiwan first began to strengthen its rules about protecting key technologies from China when in 2021, crypto mining giant Bitmain set up front companies in Taiwan to poach talent. 

Economy Minister Wang Mei-hua said on Wednesday that this list shouldn't impact chip companies' business, and "aims to ensure national security and industrial competitiveness."

But that might be because the policy is misguided, as it covers many industries -including aerospace and satellites -where Taiwan isn't internationally competitive, and, ironically, China has an advantage, explained Paul Huang, an independent defense analyst and a visiting fellow at Harvard University.

"Taiwan is seriously lagging on almost all the items on this 'critical technologies' list saved for the two related to semiconductor fabrication and integration," Huang said. "All the listed technologies related to space are the ones China is leading Taiwan by decades, and the gaps between their practical level of development are night and day."

Huang questioned how relevant this would be as an enforcement mechanism when it seems so unfocused.

"It begs the question of who were the officials in these respective departments that compiled such list, and if they were genuinely ignorant of the technologies involved," he said.