The Taiwan Enigma: How One Decision Shaped the AI Arms Race

The Importance of Taiwan

In 2022, I attended a Wall Street dinner in Westchester to discuss the macro environment. I seldom attend these types of dinners, as they usually take a lot of time relative to the valuable data points I can collect. Podcasts—with an off button—are always a more efficient way for me to find useful insights.

That night, one of the topics was potential unexpected risks around the world. As we went around the table, someone I have always known to be balanced and thoughtful when assessing low-probability events made a statement that has stuck with me ever since.

He had just returned from Asia and said that China’s invasion of Taiwan was not a question of if but when. If this statement had been made by a former general at a macro conference getting paid to speak, I wouldn’t have given it much weight. But coming from someone I respect as a level-headed macro thinker, it carried a different gravity. At the time, the statement was a stark warning but felt like a distant concern to many in the room.

Last week, while walking in Miami, I was reminded of that night. I was listening to the podcast Forward Guidance—an interview with Alex Campbell, founder of Rose AI and formerly of Bridgewater. He was discussing DeepSeek, and during the conversation, the geopolitical importance of AI in the U.S.-China race came up. As he outlined the implications, DeepSeek’s relevance was made clear in a market-driven, macroeconomic context.

Two days later, on a flight home, I was listening to a five-hour Lex Fridman podcast with Dylan Pater and Nathan Lambert, and once again, I was reminded of that 2022 dinner. During the marathon podcast, the discussion eventually turned to the importance of Taiwan for AI. At some point, when you are collecting data points, patterns start to emerge when put into the context of the broader situation. The AI race is accelerating—and both China and the U.S. intend to lead it.

The timing of the DeepSeek release was no coincidence. As global attention focused on Washington for the presidential inauguration—with AI tech leaders sitting in the front row—Beijing sent a strategic message: in the battle for technological supremacy, AI dominance is just as critical as political power. At the same time, the U.S. export ban on advanced chips had not slowed China’s progress; on some AI models, it had already surpassed the U.S.

The release of DeepSeek R1 underscored the deepening economic and technological tensions between the U.S. and China. With tariffs on Chinese goods under discussion, tighter restrictions on Nvidia’s AI chip exports, and increasing calls to ban TikTok over national security concerns, the decoupling of the world’s two largest economies is accelerating. However, for me, the most important part of this situation is where we stand in relation to AGI.

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The AI Race and the Stakes of AGI

In the realm of artificial intelligence, AGI refers to Artificial General Intelligence—a system capable of understanding, learning, and applying intelligence across a wide range of tasks at a level comparable to human cognition. Unlike narrow AI, which is designed for specific functions like image recognition or language translation, AGI would be capable of performing any intellectual task a human can.

This moment in time makes Taiwan a far more important discussion than ever before. For investors, this isn’t just a trade dispute. Taiwan’s dominance in chip manufacturing is not a new development, but in the context of the AI race, it signals that conflict over Taiwan is becoming more likely, not less.

I say this with the caveat that just because something moves from a 10% probability to a 15% probability, it still means there is an 85% chance it won’t happen. Nonetheless, in my distribution of outcomes, the race for AGI makes Taiwan not just a semiconductor hub—it is the linchpin of AI and quantum computing supremacy. If the strategy is to slow down the competition, Taiwan becomes a crucial piece in this game-theory-driven, winner-takes-all scenario. The U.S.-China confrontation is no longer about tariffs or supply chains; it is about who controls the future of intelligence, digital infrastructure, and global power.

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Morris Chang’s Vision: The Decision That Changed Everything

At the heart of Taiwan’s technological dominance today is a single, pivotal decision made in 1987. Morris Chang, a veteran of the U.S. semiconductor industry, left a promising career in America to found Taiwan Semiconductor Manufacturing Company (TSMC) under an unproven business model: a pure-play foundry. Unlike Intel, IBM, and Texas Instruments—firms that designed and manufactured their own chips—TSMC would focus solely on manufacturing for other companies, allowing fabless semiconductor firms like Nvidia, Qualcomm, and AMD to thrive.

Few understood the magnitude of this decision at the time. Chang not only pioneered a new industry model, but he also transformed Taiwan into the single most strategically important place in the world. By the 2020s, TSMC was producing 90% of the world’s most advanced semiconductors, making Taiwan the center of the AI and computing revolution. Ironically, a company designed to foster competition and innovation ended up making Taiwan an unavoidable geopolitical flashpoint—one that now sits at the intersection of global economic stability and technological warfare.

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Taiwan’s Role in AI and Quantum Computing

Taiwan’s significance in the AI and quantum computing race cannot be overstated. TSMC produces roughly 60% of the world’s semiconductor chips and an astonishing 90% of the most advanced ones—making its role in AI development indispensable. TSMC’s cutting-edge semiconductor fabrication processes power the world’s most advanced AI models, high-performance computing systems, and next-generation quantum processors. From OpenAI’s ChatGPT to China’s DeepSeek R1, Taiwan’s semiconductor infrastructure is the backbone of modern AI innovation.

Beyond AI, Taiwan also plays a crucial role in quantum computing—a field with the potential to revolutionize encryption, intelligence gathering, and cyber warfare. Just as Alan Turing’s codebreaking efforts accelerated the end of World War II, Taiwan’s semiconductor industry now determines the pace of quantum advancements. If China were to invade and seize Taiwan’s chipmaking infrastructure, it wouldn’t just gain an AI advantage—it could leapfrog global competitors in quantum computing, posing an existential threat to U.S. cybersecurity, military intelligence, and digital sovereignty.

Taiwan is no longer just a regional flashpoint; it is the single most valuable geopolitical asset in the global race for technological supremacy.

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The Alan Turing Parallel: The Lesson of Computational Supremacy

The urgency of Taiwan’s position today echoes the work of Alan Turing at Bletchley Park, where breaking the Enigma code gave the Allies an intelligence advantage that shortened World War II and altered history. Just as Turing’s breakthroughs dictated the trajectory of a global conflict, the control of AI and quantum computing today will define the power structures of the 21st century.

Morris Chang’s decision to build TSMC was a pivotal moment in history, though few recognized its significance at the time. Like Turing’s codebreaking efforts, Chang’s creation of TSMC enabled the AI revolution—but it also came with a cost. It made Taiwan the most valuable and vulnerable place on Earth. The lesson of Enigma is clear: whoever controls computation controls the world.

One of the most important parts of being an investor is thinking about what could go wrong. The left side of the distribution of outcomes always contains low-probability events, but they remain part of the distribution. While I hope the conversation in Westchester back in 2022 does not end as stated, I now believe the probability of conflict has risen since DeepSeek’s release.

Taiwan is not just a geopolitical flashpoint—it is the single most important piece of the technological puzzle shaping global power. The AI arms race is no longer in the future; it is happening now.

At the center of it all, standing between two superpowers, is Taiwan: the greatest enigma of the modern world.