DSET CEO Jeremy Chih-Cheng Chang and Min-yen Chiang, Deputy Director of DSET’s Economic Security Program, co-authored the book chapter “Building Techno-Arsenals for Democracy: Partnership with Taiwan in Semiconductor Supply Chain Restructuring amid Techno-Geopolitical Challenges.” The chapter is included in the 2026 volume Workarounding: Tech Middle Power Cooperation in a Turbulent World, published by Springer Nature, and was first published online on June 3, 2026.
The chapter focuses on how tech middle powers (TMPs), including Europe and Japan, can regain techno-geopolitical leverage amid intensifying US–China technology competition and the growing politicization of semiconductor supply chains. It argues that Europe and Japan should not merely remain passive participants following the techno-geopolitical strategies of major powers. Instead, they should take Taiwan as a key partner in building a geographically diversified and resilient semiconductor and AI industrial cooperation network supported by real market demand.
“Workarounding”: Neither Fully Dependent on the US nor Turning Toward China
In the chapter, the authors propose a model of “workarounding”: a form of cooperation that is neither fully dependent on the United States nor oriented toward China. Instead, it connects tech middle powers with one another by integrating their respective strengths in manufacturing, equipment, materials, research and development, and markets. The ultimate goal is to build a “techno-arsenal” collectively supported by democratic countries. What this arsenal seeks to preserve is not only chipmaking capacity, but also the manufacturing capabilities, innovation base, and shared economic security of the democratic camp.
Semiconductor Competitiveness Depends on a Complete Industrial Ecosystem
The chapter first points out that semiconductors have become a core foundation of national economic strength, national security, and geopolitical power. Supply chain disruptions during the pandemic exposed the risks of excessive production concentration, while the escalation of US–China technology competition has pushed semiconductors further to the strategic front line. In response, the United States, Europe, and Japan have begun rebuilding domestic semiconductor capabilities through subsidies, export controls, and investment policies.
However, building fabs is only the first step. The real key to sustaining semiconductor competitiveness lies in a complete industrial ecosystem. Taiwan’s strengths have never come solely from a small number of advanced fabs, but from the dense linkages among chip design, wafer fabrication, packaging and testing, equipment and materials, engineering services, specialized talent, and customer demand. This is also why overseas fab construction is so challenging: costs are higher, talent is scarcer, and the supplier base remains weaker. Without sufficient market demand and industrial support, new capacity may struggle to develop into a truly competitive semiconductor cluster.
Europe and Japan Face Dual Structural Pressures from the US and China
The authors further analyze how Europe and Japan are simultaneously facing dual structural pressures from the United States and China. On the one hand, the United States holds advantages in AI models, chip design, EDA tools, key intellectual property, and capital markets, while continuing to consolidate its technological leadership through export controls and industrial subsidies. Although Europe and Japan have aligned with the United States to some extent on economic security policies, they may not fully share in the market opportunities created by the rapid growth of the US AI and advanced computing industries.
On the other hand, China’s industrial expansion and technological catch-up continue to squeeze the strategic space of European and Japanese firms in global supply chains. By contrast, Taiwan has developed a complementary division of labor with the United States: US firms create demand for high-end chips and AI hardware, while Taiwanese firms respond to this demand through advanced manufacturing, supply chain integration, and rapid scaling capabilities, upgrading their own industrial capacities in the process. This is precisely what Europe and Japan need to recognize. If they merely follow US export controls and de-risking policies without simultaneously building their own application markets, manufacturing base, and industrial ecosystems, they may end up bearing the costs of restricting China without gaining corresponding industrial returns.
China Is Not a Reliable Alternative Path for Europe and Japan
The chapter also argues that China is unlikely to serve as a reliable alternative path for Europe and Japan. China’s industrial policy model operates by having the central government set strategic directions while local governments compete with one another to implement them. This model combines subsidies, government funds, public procurement, demand guarantees, and industrial cluster development to support semiconductors, electric vehicles, memory chips, and other strategic industries. Although this process entails resource waste and duplicated investment, China can still rapidly expand its global market share through its vast domestic market, low-price competition, and vertical integration capabilities.
The problem is that this state-capital-driven capacity expansion may create overcapacity in mature-node chips and other technology products, further compressing the market space of European and Japanese firms. If European companies continue to increase investment in China in order to maintain access to the Chinese market, they may deepen their dependence on Chinese demand and face risks of technology leakage.
Supply Chain Restructuring Must Look Beyond Supply and Create Demand
These structural risks offer an important lesson for European and Japanese industrial policy: supply chain restructuring cannot be approached only from the supply side. It must first create sufficient demand to support new capacity. TSMC’s overseas investments illustrate this point. Its US fab is backed by advanced-node customers such as Apple and Nvidia; its Japan fab is closely connected to Sony and the image sensor industry; and its Germany fab corresponds to Europe’s automotive and industrial chip markets. The significance of these investments is not simply to relocate Taiwanese capacity overseas, but to embed specific production sites into existing local end-market demand.
In other words, for new fabs to operate sustainably over the long term, they must be pulled by markets. If Europe and Japan wish to build sustainable semiconductor industries, they need to cultivate application markets in automotive electronics, industrial AI, edge computing, smart manufacturing, and other areas, allowing chip design, system integration, and manufacturing investment to form a mutually reinforcing industrial cycle.
Taiwan Can Help Connect Manufacturing, R&D, and Application Markets
Within this cooperation framework, Taiwan’s key value comes from its complete semiconductor ecosystem. Taiwan has long accumulated capabilities in rapid scaling, flexible division of labor, supplier coordination, and global production network management through its EMS model. These capabilities can help European and Japanese firms reduce production costs, shorten product development cycles, and translate emerging AI applications into concrete chip demand.
In other words, Taiwan can provide a set of organizational capabilities that connects design, components, manufacturing, system integration, and market demand, creating an industrial system that can continue to operate and expand.
Policy Recommendations: Protection and Promotion Must Move in Tandem
In terms of policy direction, protection and promotion must proceed in tandem. On the protection side, Europe and Japan need to use cybersecurity, data protection, human rights, and economic security standards to review Chinese technology products with state-backed backgrounds. They should also use countervailing, anti-dumping, and other trade tools to respond to potential low-price competition from Chinese electric vehicles and mature-node chips.
On the promotion side, governments should actively advance business cooperation, talent exchanges, and joint R&D between Taiwan and Europe and Japan, while improving tax and investment environments to help Taiwanese companies enter local supply chains. Only when protection and promotion advance together can cooperation move from policy declarations to substantive industrial linkages. Firm-to-firm co-development, government support for chip design and application R&D, and government-to-government economic security coordination must reinforce one another in order to form a truly sustainable cooperation framework.
About the Book
Workarounding: Tech Middle Power Cooperation in a Turbulent World is edited by Maximilian Mayer, Gedaliah Afterman, Narayanappa Janardhan, and Laura Mahrenbach, and was published by Springer Nature in 2026. The book focuses on how tech middle powers navigate future challenges in a turbulent international environment and analyzes the role of technology in geopolitics.
Bringing together diverse perspectives from different regions and backgrounds, the volume explores how middle powers can develop new paths of cooperation amid intensifying US–China technological and economic competition, the declining influence of multilateral institutions, and the redistribution of global technological and industrial capabilities, without becoming fully dependent on the United States or turning toward China.
Chang and Chiang’s chapter uses semiconductor supply chain restructuring as its core case, highlighting Taiwan’s key role in technological cooperation and economic security strategies among democratic countries.
