Deepening Taiwan-EU Economic Cooperation and the Restructuring of the Semiconductor Supply Chain: Geopolitical Implications and Policy Responses

Executive Summary

The EU's engagement with Taiwan is proceeding not as a form of diplomatic recognition but as an industrial policy initiative, driven by a growing mistrust in U.S. security commitments following the conflicts in Ukraine and the Middle East. However, the EU's trade policy operates on a dual track that prioritizes managing relations with the United States. Consequently, its deepening cooperation with Taiwan is largely confined to semiconductors and advanced technologies, exhibiting an asymmetry where cooperation with China continues in traditional manufacturing sectors like automobiles. The most likely path forward is a gradual expansion of partial and selective cooperation (55% probability). The key inflection points that will determine a shift toward optimistic or pessimistic scenarios are whether China expands its export controls on materials to Taiwan and the intensity of U.S. pushback. South Korean companies should continue investing to secure a leading position within the European semiconductor ecosystem while simultaneously pursuing a hedging strategy to avoid over-reliance on Europe. They must also prepare for the possibility that their competition with Taiwan could expand beyond semiconductors to encompass materials, components, and equipment.

I. Situational Analysis

Deepening Taiwan-EU Economic Cooperation: The Rise of a Geopolitical Partnership Amid Semiconductor Supply Chain Restructuring

1. Background and Developments

The EU officially launched its Indo-Pacific Strategy in September 2021. At the time, the strategy focused on managing economic interdependence with China while promoting multilateral norms in the region. Less than five years later, the war in Ukraine and conflict in the Middle East occurred in succession [1]. These two conflicts instilled in European governments the realization that U.S. security commitments are not absolute [1]. This prompted Europe to re-examine its own supply chains and industrial base.

During the same period, the U.S.-China tech rivalry turned semiconductors into a key battleground. Since 2014, TSMC has maintained an unrivaled position in leading-edge process technology [6]. The United States is heavily dependent on TSMC's advanced foundry capabilities, while TSMC, in turn, cannot produce its chips without U.S.-made equipment [6]. At the same time, its business relationships with Chinese IT firms and the potential of the Chinese market are variables that TSMC cannot easily abandon [6]. In this context, Taiwan is seen as being in a position where it must simultaneously manage both "U.S. risk" and "China risk" [6].

Within European industry, however, a different trend coexists. To break a vicious cycle of sluggish demand, rising costs, and low operating rates, the European automotive industry has actually expanded its cooperation with Chinese companies, drawing scrutiny from the United States [9]. In other words, the EU's China policy has a dual structure, simultaneously driven by pressure to de-risk from China in semiconductors and advanced technologies, and the need for cooperation with China in traditional manufacturing.

2. Current Situation

As of August 2026, Taiwanese industry and government are working in parallel to overhaul their economic security framework in response to rising trade risks. The Chinese National Federation of Industries (CNFI), which represents a majority of Taiwan's manufacturing sector, released its 2026 white paper outlining seven proposals to strengthen the nation's economic resilience [5]. This aligns with Taiwan's efforts to institutionalize cooperation with Western partners, including the EU, at the industrial policy level.

Taiwan's National Security Council (NSC), once viewed with suspicion and labeled a "government within a government," has grown in stature under President Lai Ching-te's administration to become the core body for designing strategy toward China [12]. NSC Secretary-General Joseph Wu has taken a prominent role in foreign diplomacy, such as accompanying President Lai to a briefing co-hosted by the Taiwan Foreign Correspondents' Club [12]. This demonstrates that Taiwan is treating its cooperation with the EU not merely as an economic issue but as part of its broader security and resilience strategy.

In response to these developments, China is expanding its pressure tactics against Taiwan into the realm of physical supply chains. China has reportedly been restricting or delaying exports of key metal materials used in optics and aerospace to Taiwan [17]. This move is interpreted as a measure targeting Taiwan's vulnerability, which stems from its reliance on specific sources for materials needed in semiconductor and precision instrument manufacturing.

Meanwhile, at the EU level, trade defense policy is being managed on a dual track concerning both the United States and China. The European Commission has adopted an implementing regulation to extend the suspension of the EU's rebalancing measures on U.S. exports, and is separately conducting a stakeholder consultation on products subject to the EU's steel regulations [4]. This suggests that the EU is operating under multifaceted constraints, needing to strengthen cooperation with Taiwan while simultaneously managing its trade relationship with the United States.

3. Key Actors and Positions

Taiwanese Government and Industry: Taiwan seeks to leverage its semiconductor ecosystem, headlined by TSMC, as both a security asset and a negotiating tool. The emergence of the NSC as the focal point for designing strategy toward China reflects the Lai administration's intent to manage security and industrial policy in an integrated manner [12]. The CNFI's seven proposals show that the government and industry are forming a united front in responding to trade risks [5]. However, with its heavy reliance on semiconductor exports identified as a structural vulnerability, some observers note that Taiwan faces even greater pressure for industrial diversification than South Korea [15].

EU/European Commission: Amid wavering confidence in U.S. security commitments following the events in Ukraine and the Middle East, the EU is incorporating economic cooperation with Taiwan as a pillar of its friend-shoring strategy [1]. At the same time, the EU must continuously navigate its practical interests in its trade relationship with the United States. The EU's acceptance of a commercially unfavorable U.S.-EU trade agreement in July 2025 is seen by some as a move aimed at keeping the United States engaged in the defense of Ukraine [8]. This implies that the EU's engagement with Taiwan is not driven by the sole objective of countering China, but is pursued in parallel with the secondary calculation of managing relations with the United States.

China: China is developing concrete methods to use the supply of resources and materials to Taiwan as a tool of control [17]. This represents a means of economic coercion, separate from military pressure, that can directly damage Taiwan's industrial ecosystem. Deeper EU-Taiwan cooperation will inevitably be read by Beijing as an attempt by Europe to reduce its dependence on China, which could incentivize Beijing to escalate its response.

United States: The United States is highly dependent on TSMC and, at the same time, has made stability in the Taiwan Strait a cornerstone of its Indo-Pacific strategy [6]. The scrutiny Washington directs at the European automotive industry's expanding cooperation with China [9] reflects its desire to ensure that the approaches of its allies and partners toward China are aligned with its own pressure campaign against Beijing.

4. Key Issues

The first issue is whether the EU's engagement with Taiwan will lead to substantive de-risking from China or remain a selective diversification limited to strategic industries like semiconductors. The case of the European automotive industry's expanding cooperation with China [9] shows that EU industrial policy is taking different directions in different sectors.

The second issue is China's means of response. China's use of export controls on optical and aerospace materials as leverage [17] foreshadows the possibility that it could expand similar non-military pressure tactics if EU-Taiwan cooperation becomes more concrete.

The third issue is the challenge of internal policy coordination within Taiwan. A key point to watch is the extent to which industrial diversification efforts to mitigate over-reliance on semiconductors can succeed as the expanded role of the NSC [12] and the CNFI's industry proposals [5] are translated into actual policy [15].

The fourth issue is the U.S. factor. The balance the EU strikes between managing its trade relationship with the United States and deepening cooperation with Taiwan is subject to readjustment at any time depending on the intensity of U.S. tariff and trade pressure [8]. This means the sustainability of EU-Taiwan cooperation depends not only on Europe's own strategic autonomy but also on U.S. trade policy toward Europe.

II. In-Depth Analysis of the Issue

Deepening Taiwan-EU Economic Cooperation: An In-Depth Analysis

1. Analysis of Root Causes

The root cause of the EU's deepening economic cooperation with Taiwan can be traced back to the issue of security commitment credibility. Through the war in Ukraine and conflict in the Middle East, European governments came to realize that the U.S. security umbrella is not unconditional [1]. This shift in perception was not mere diplomatic rhetoric; it led to a redesign of industrial and trade policy. When the EU announced its Indo-Pacific Strategy in 2021, it still treated economic interdependence with China as a manageable risk [1]. Less than five years later, that premise has collapsed.

The second root cause is the geographical concentration of the semiconductor supply chain. Since 2014, TSMC has occupied an irreplaceable position in leading-edge process technology [6]. The structure in which the United States depends on TSMC, while TSMC cannot produce without U.S.-made equipment, has transformed semiconductors from a purely economic good into a strategic asset [6]. From the EU's perspective, this fact has two implications. The first is Europe's own vulnerability due to its low level of semiconductor self-sufficiency. The second is the need to secure a third source of supply that is not subordinate to either the United States or China. Taiwan has emerged as a partner that satisfies both of these needs.

The third cause is China's use of economic coercion. China's move to delay exports of key metal materials for optics and aerospace to Taiwan [17] poses an indirect risk not only to Taiwan but also to European manufacturers that rely on Taiwanese materials and components. The more such instances of coercion occur, the more European companies and governments find justification for diversifying their supply chains.

2. Structural Context

From a political-structural perspective, the EU's engagement with Taiwan appears to be driven less by consensus among member states and more by the European Commission's broader trend of strengthening trade defense policies. The Commission is extending the suspension of rebalancing measures on U.S. exports to the EU while separately conducting stakeholder consultations on items subject to EU steel regulations [4]. This demonstrates the EU's dual-track approach of refining defensive trade measures against both the United States and China. Cooperation with Taiwan is positioned within this dual-track framework as a means of securing an alternative on the China axis.

In the economic structure, the revival of industrial policy provides the backdrop. The supply chain vulnerabilities exposed by the COVID-19 pandemic and U.S.-China geopolitical tensions have prompted governments to move policy tools for promoting and protecting specific industries from the periphery to the mainstream [3]. Within this trend, semiconductors, along with carbon-neutral technologies, have become a key area for justifying sovereign industrial policies [3]. However, this structure also has fissures. The European automotive industry is expanding cooperation with Chinese firms to overcome sluggish demand and low operating rates, drawing scrutiny from the United States [9]. In other words, EU industrial policy has an asymmetric structure: it strengthens de-risking from China and engagement with Taiwan in the semiconductor sector, while maintaining cooperation with China in traditional manufacturing, such as automobiles.

In the security structure, institutional changes within Taiwan are notable. Taiwan's National Security Council, once viewed with suspicion as a "government within a government" [12], has now grown in stature to become the body that designs defense and resilience reforms and conducts key diplomacy [12]. The case of Secretary-General Joseph Wu accompanying President Lai Ching-te to a briefing with the Taiwan Foreign Correspondents' Club [12] shows that Taiwan is not limiting its cooperation with Western partners, including the EU, to the economic agenda but is linking it to its overall national security strategy. This is in line with the seven proposals for strengthening economic resilience presented in the CNFI's 2026 white paper [5]. It signifies that industry and the security apparatus are not moving separately but are being coordinated within a single national strategic framework.

3. Comparison with Historical Precedents and Similar Cases

The U.S.-China tech rivalry began in earnest with China's announcement of 'Made in China 2025' in 2015 [6]. In the subsequent trend, from the first Trump administration's export controls on China to the Biden administration's long-term, sophisticated strategy of technological containment, national strategies for high-tech innovation have shifted from being driven by market factors to being subordinated to geopolitical considerations [6]. The EU's strengthened engagement with Taiwan is the latest phase in this trend; it is not a new phenomenon but an extension of a structural transformation that has been building for nearly a decade.

The evolution of U.S. economic security policy shows a similar pattern. The Biden administration has structured its economic security policy around three pillars: supply chain restructuring, industrial subsidies, and export controls [10]. This marked a shift away from previous unilateral import restrictions and export controls toward a more fundamental approach aimed at restoring the global competitiveness of core U.S. industries [10]. In this process, supply chain vulnerability in the semiconductor sector was identified as a structural problem stemming from the concentration of production in Asia [10]. What the EU is now attempting through cooperation with Taiwan is akin to following the learning curve that the United States has already traversed.

However, the path is not identical. While Asia-Pacific countries have accepted 'reciprocal trade agreements' in response to the second Trump administration's tariff policies, the EU has a precedent of accepting a commercially unfavorable U.S.-EU trade agreement in July 2025 [8]. This was a choice made with the aim of keeping the United States engaged in the defense of Ukraine [8]. This precedent suggests that the EU's cooperation with Taiwan is not driven solely by calculations of pure economic interest. It implies that a pattern of tolerating economic losses to secure security engagement is already established in EU foreign policy.

There are also perspectives that compare the situations of South Korea and Taiwan. Both countries are seen as being in a structure where they are forced to choose between "a culturally close but militarily threatening emerging power, China" and "a friendly nation and established power with which they have maintained a long-standing alliance, the United States" [13]. The strategic options of balancing, bandwagoning, neutrality, and hedging are presented as common choices for both countries [13]. The process of the EU choosing Taiwan as a partner serves as a case study that foreshadows how similar pressures to choose could be applied to South Korea.

4. Key Variables Shaping Future Developments

The first variable is how TSMC manages its dual risks. TSMC is structured to bear both U.S. risk and China risk simultaneously [6], and if this balance tilts to one side, the EU's entire strategy of relying on Taiwan could be subject to review. As long as TSMC cannot reduce its dependence on U.S.-made equipment, the scope of Taiwan's foreign cooperation will be structurally constrained by U.S. export control policies [6].

The second variable is the intensity of China's control over the supply of materials. If the export delays on metal materials for optics and aerospace [17] are extended to key semiconductor materials, the very physical foundation of EU-Taiwan cooperation could be shaken. The crucial question is whether China will use such measures as a negotiating lever or shift to all-out pressure.

The third variable is the internal policy consistency of the EU. The sustainability of its dual-track approach—maintaining a de-risking stance on China in semiconductors and advanced technologies while expanding cooperation with China in traditional manufacturing like automobiles [9]—will be tested. As U.S. scrutiny intensifies, the political costs of this dual track will rise.

The fourth variable is Taiwan's internal capacity for strategic coordination. Whether the NSC can continue to expand its role in designing an integrated security and industrial strategy [12], and whether the economic resilience proposals put forth by the CNFI are implemented as actual policy [5], will determine if Taiwan can remain a reliable partner for the EU.