The Spatial Limits to Weaponizing Interdependence: TSMC in the US–China Chip War

The US–China rivalry is focusing attention on how geoeconomics impacts corporate operations and global production networks. States are seeking to weaponize interdependence through policies like sanctions and export controls, and through instrumentalizing corporations as tools to secure relative gains over geopolitical rivals. This article examines how firms’ territorial embeddedness complicates states’ weaponization efforts. To illustrate this phenomenon, we investigate Taiwan Semiconductor Manufacturing Company (TSMC). TSMC has played an important role in the development of China’s chip ecosystem and is also critical to securing the competitive advantage of US chip and AI firms. The US government has sought to pressurize TSMC to limit commercial relations with Chinese firms in a bid to impede China’s semiconductor industry. However, TSMC itself is deeply embedded in a cross-strait manufacturing ecosystem, integrating Taiwan and mainland China. We find that the potential compliance costs of TSMC fully discontinuing its commercial links with China and the collateral damage that would be experienced by the US and its firms have enhanced TSMC’s bargaining power. This has enabled the company, in turn, to further expand its China operations. Operationalizing the concept of embeddedness can significantly enhance understanding of how corporate geographies relate to geoeconomic dynamics.