Taiwan under the US-EU Strategic Realignment: Supply Chain Resilience, Technological Decoupling and Sustainable Futures

This article was originally published by Global Taiwan Institute in its weekly newsletter, The Global Taiwan Brief, Vol. 10, Issue 5. Used with permission. To get the Global Taiwan Brief in your inbox every week, subscribe at globaltaiwan.org/subscribe. Yu-Ning Chiu is a policy analyst at the Research Institute for Democracy, Society, and Emerging Technology (DSET), a think tank in Taiwan. Her research interests span economic security studies, foreign policy analysis, hegemonic strategies and power dynamics.

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In recent years, supply chain restructuring has accelerated, forcing enterprises to prioritize geopolitical risks over cost considerations. This shift has intensified the trend toward “short-chaining,” with businesses moving toward localized or regional production rather than relying on global production networks. Under the influence of regional conflicts and potential risks, globalization has been significantly impacted and continues to intensify amid varying degrees of nationalist sentiment.

While short-chain production can mitigate risks, it faces numerous challenges: increased production costs, regional variations in environmental regulations, and difficulties meeting large-scale market demands. Taking the semiconductor supply chain as an example, Taiwan’s dominance in advanced manufacturing processes (particularly through Taiwan Semiconductor Manufacturing Company [TSMC, 台灣積體電路製造公司]) has created a strategic vulnerability that both the United States and European Union are actively working to address.

This article explores the importance of supply chain restructuring and green transformation for the United States and the European Union, while also examining their future implications for Taiwan. As supply chain restructuring is not solely driven by US-China competitive dynamics, and with the United States and European Union progressively establishing green transformation objectives, balancing supply chain stability while achieving high standards of green transformation presents a seemingly contradictory yet unavoidable future challenge.

Global Supply Chain Current Status Under the US-China Competition

The Global Supply Chain Pressure Index (GSCPI) has shown significant improvement, dropping from peaks above 4.0 in 2022 to 0.13 in September 2024. By January 2025, it had further declined to -0.31, indicating that supply chain pressures were below historical norms, reflecting improved logistics, lower transportation costs, and stabilized manufacturing. Developed by the Federal Reserve Bank of New York, the GSCPI quantifies disruptions in global supply networks, providing policymakers and businesses with a key indicator—where positive values signal strain and negative values suggest easing conditions.

KPMG’s Supply Chain Stability Index also reflects reduced operational instability: dropping from 2.34 in January 2023 to 1.12 in December 2023. However, the United States has not yet fully recovered from past disruptions and continues to face ongoing market volatility. Challenges persist, including US port strikes and Red Sea conflicts affecting maritime trade. The closure of cross-border patrols (CBP) between the United States and Mexico and escalating conflicts in the Red Sea region have caused additional supply chain interruptions.

The United States pursues “selective decoupling,” as embodied in the “small yard, high fence (小院高牆)” approach, which aims to prevent China from accessing critical technologies like advanced semiconductors and artificial intelligence (AI). This strategy establishes high barriers through export controls, investment reviews, and technological blockades. The approach specifically targets areas closely related to national security and military capabilities, including quantum computing and biotechnology. In the latter half of 2024, the US government reinforced this strategy with additional economic measures. In February 2025, the administration announced a 10 percent tariff increase on Chinese imports, citing national security concerns and the need to curb illicit fentanyl flows. Concurrently, stricter trade regulations have prompted Chinese e-commerce and logistics firms to adapt by leasing warehouses within the US to navigate evolving restrictions and ensure supply chain continuity.

Conversely, China employs “asymmetric decoupling,” seeking to reduce dependence on Western countries while increasing those countries’ reliance on China, particularly in areas like mature process chips. China achieves this through self-reliance initiatives and market expansion, especially in developing countries. Additionally, China intensifies independent research and development, striving to overcome key technological bottlenecks—such as providing substantial subsidies in mature process chip domains to potentially replace Taiwan’s share in the legacy chips market.

Policy Background Differences between the United States and European Union

The United States has a first-mover advantage in supply chain adjustments, while the European Union leads globally in green transformation. Regarding supply chain transparency, the United States is primarily influenced by laws like the California Transparency in Supply Chains Act (CTSCA) of 2012, which requires companies to disclose risks of modern slavery and human trafficking in their supply chains.

While many US companies increasingly recognize transparency’s importance for brand image, overall transparency improvements still depend on voluntary corporate disclosures. Recent policy initiatives demonstrate divergent approaches to supply chain resilience. For example, the CHIPS and Science Act allocates USD $52 billion for semiconductor manufacturing and research, aiming to reduce dependence on Asian chip suppliers.

In environmental regulations, the US federal government has set forth the Inflation Reduction Act as the largest US climate initiative, offering USD $369 billion in subsidies to encourage green technology and renewable energy development. These policies focus on strategic industries while maintaining market flexibility. However, regulations remain relatively fragmented, with varying standards across states. While California leads in environmental protection, the lack of nationwide unified standards suggests that US enterprises will face increasing compliance costs in a heterogeneous market.

For the European Union, industrial policy remains relatively new, but the pandemic has prompted development of short-chain strategies. The European Union faces complex trade challenges, including export controls and escalating protectionism, while dealing with critical raw material dependencies and responding to US-China trade friction. The Visegrád Group (comprising the Czech Republic, Hungary, Poland, and Slovakia) exemplifies the coordination challenges with EU objectives.

Unlike the US approach of encouraging voluntary disclosure, the European Union has adopted a more proactive and mandatory policy. A prime example is the Corporate Sustainability Reporting Directive (CSRD), formally implemented in 2023. The CSRD mandates that large companies and listed entities provide detailed reports on their ESG governance performance—thereby expanding the scope of non-financial information reporting, increasing reporting detail requirements and comparability, and influencing non-EU companies doing business with European enterprises.

The ESG (Environmental, Social, and Governance) landscape also shows stark contrasts between the US and EU approaches. In the United States, ESG reporting remains largely voluntary, with the Securities and Exchange Commission still developing comprehensive climate disclosure rules. The fragmented approach has led to varying standards across states and industries, creating challenges for companies operating nationwide.

In contrast, the European Union’s approach is more comprehensive and mandatory. The European Union’s Sustainable Finance Taxonomy further defines what constitutes green investments, providing clear guidelines for financial markets and corporate planning. However, there are doubts about the effectiveness of policies positioning the European Union as a “global standard-bearer.” Many people worry that current EU carbon reduction targets (such as reducing emissions by 50-55 percent by 2030) may be insufficient to address climate change challenges. The European Union had even explicitly stated plans to end fossil fuel subsidies by 2025, yet these have not been implemented.

Global Supply Chain Changing Trends

Companies are accelerating digital technology adoption to optimize supply chain management, utilizing big data analytics and Internet of Things (IoT) technologies for real-time monitoring to predict and resolve potential issues. Supply chain digitization can enhance overall transparency; promptly identify high-risk suppliers, components, and products; and effectively prevent potential losses. Companies are also adopting various strategies, including reshoring and “friendshoring” initiatives to more stable environments like India, Southeast Asia, and Mexico.

Leading companies selected by Global Top Supply Chain Enterprises and The World Economic Forum, such as Cisco Systems and Schneider Electric, demonstrate how restructuring and green transformation can be mutually reinforcing. Cisco’s circular revenue goal ensures 99.8 percent of materials are recyclable, while Schneider Electric’s STRIVE (sustainable, trusted, resilient, intelligent, velocity and efficiency) program strengthens regional influence while promoting sustainability.

For Taiwan, the enlightening implication is that companies and countries are increasingly focusing on controlling not just the physical components but also the intellectual property and research ecosystems that support these technologies. This not only helps countries develop contingency strategies and optimize inventory management, but also to establish alternative solutions—for most enterprises, the benefits far exceed investment costs. Notably, numerous corporate cases have demonstrated that supply chain restructuring and green transformation can be mutually reinforcing rather than conflicting objectives.

Geopolitical risk assessment has become increasingly complex as traditional economic considerations intersect with technological and security concerns. The concept of strategic autonomy has evolved beyond simple supply chain independence to encompass technological sovereignty, particularly in critical areas like artificial intelligence and quantum computing. The development of common standards and protocols for emerging technologies could help reduce friction in supply chain restructuring while ensuring that security objectives are met.

Conclusions

In terms of technological development, the challenge lies in balancing the need for strategic autonomy with the benefits of international collaboration. Both the United States and European Union must balance protectionist pressures with maintaining international trade relationships, particularly as they develop “friendshoring” networks with trusted partners. The shift toward short-chain production is likely to accelerate, but with important nuances. Rather than complete regionalization, we’re seeing the development of “trusted networks” of supply chains that span multiple friendly nations.

For example, the Technology Trade and Investment Collaboration (TTIC) between the United States and Taiwan represents a significant evolution in supply chain cooperation. This framework has established new mechanisms for technology sharing and joint development, particularly in emerging fields like artificial intelligence and advanced manufacturing. The initiative specifically addresses supply chain vulnerabilities by creating dedicated working groups focused on supply chain mapping and early warning systems for potential disruptions.

Such a networked approach helps balance the need for resilience with economic efficiency. Taiwan’s efforts to secure critical supply chains through international partnerships have taken several forms. With the United States, cooperation has expanded into areas like quantum computing and advanced materials. European partnerships have focused more on sustainable technology and precision manufacturing. These relationships are increasingly formalized through mechanisms like:

• Joint technology development programs
• Shared research facilities
• Standardized certification processes
• Coordinated investment in strategic sectors

The island has leveraged its technological expertise to become a crucial node in trusted supply chain networks, particularly in areas requiring advanced manufacturing capabilities. This approach allows Taiwan to maintain its technological edge while helping allies develop complementary capabilities. Recent developments in international cooperation have created new opportunities for Taiwan to strengthen its position in global supply chains. These include:

• Expanded research collaboration with democratic partners
• Joint development of supply chain security standards
• Coordinated investment in strategic technologies
• Shared approaches to environmental protection in manufacturing

The role of Taiwan in global supply chain resilience extends beyond its manufacturing capabilities to include expertise in supply chain management, quality control, and technology development. As global supply chains continue to evolve, Taiwan’s experience in managing complex manufacturing networks while maintaining high quality standards offers valuable lessons for other economies pursuing supply chain resilience.

The main point: US-China competition and US-EU strategic realignment have forced a fundamental shift from cost-efficient global production networks toward “short-chain” regional production systems, while simultaneously creating new imperatives for green transformation. Taiwan, especially through its semiconductor industry, has become a critical focal point in this restructuring. Through analysis of the policy differences between the US and EU approaches to supply chain resilience and environmental regulations, Taiwan is leveraging its technological expertise to position itself within emerging “trusted networks” of supply chains spanning democratic partners. This strategic adaptation exemplifies a broader trend in which countries and companies must balance multiple competing priorities: maintaining technological leadership, ensuring supply chain security, pursuing environmental sustainability, and fostering international collaboration.

(Featured photo by Samuel Wölfl on Pexels)