The Three-Layer Dividend of De-Risking from China: How Much Can Taiwan Actually Capture, and Who Might Route Around It?

To work out how much of this pie Taiwan can actually eat, you first need to see how the pie is being cut, and how deep that cut really goes.

McKinsey's research finds that global trade has entered a period of "structural diversion" — most companies have not actually left China; instead they have adopted a "China+1" approach, spreading part of their capacity elsewhere ^[1]. The numbers make the point: by McKinsey's count, China's share of U.S. imports has fallen from 22% to 16% (other measures put it even lower); U.S. imports from China dropped to roughly $308 billion in 2025, the lowest level since 2009 ^[1].

But there is a crucial truth here that gets overlooked far too often: so-called "China+1" is very often really "China+0.5." Research from Rhodium and other institutions finds that many companies have not actually left China at all — they have simply moved the "last mile" of assembly and packaging to Vietnam or Mexico, while the machinery, the engineers, and the upstream materials still come from China ^[5]. The label reads "Made in Vietnam," but underneath it the supply chain is still Chinese at its core. China is therefore shifting from being "the world's central factory" to becoming the "manager of the global manufacturing network" — it has not exited the stage, it has simply moved to a new position from which to keep directing it.

This carries a double meaning for Taiwan: on one hand, the "order-diversion" pie is not nearly as clean and easy to eat as it looks on the surface; on the other hand, the segment where a company can "actually de-risk from China — upstream included" is rarer and more valuable than ever — and that segment happens to be exactly where Taiwan's high-end manufacturing is strongest.

Layer one: high-end manufacturing staying in Taiwan — the most stable, with the deepest moat. Semiconductors and advanced packaging (the CoWoS dividend staying in Taiwan, lifting packaging-and-testing houses like ASE) — these are the segments where "everyone else wants to de-risk from China, but they still can't do without Taiwan" (see "Silicon Shield in Depth"). This layer's dividend is the most stable, because it rests on a generational technology gap: you can swap out China, but you cannot swap out Taiwan.

Layer two: positioning in new de-risked supply chains — the fastest-growing, and one Taiwan can actively drive itself. The textbook case is drones: Taiwan's drone exports surged 749% year-on-year in 2025 (January–July), and by the first quarter of 2026 export value had already topped $100 million — more than all of 2025 combined — as Europe's "China-free component" supply chain binds itself to Taiwan (see "The European Warships Have Arrived") ^[2][6]. What makes this layer distinctive is that it is "still taking shape" — the specifications are not yet locked in, so Taiwan can actively compete for the specs and the position. Of the three layers, this is the one Taiwan should be attacking hardest.

Layer three: China+1 order diversion — the biggest opportunity, but also the most cutthroat competition. Orders in traditional industries and assembly really are on the move, but the biggest beneficiaries are Vietnam, India, and Mexico, not necessarily Taiwan; and these "China+1" destinations are themselves rated among the highest-risk sourcing locations (on political, infrastructure, and compliance grounds), on top of the compliance minefield of "transshipment laundering the country of origin" (see "After the 15% Tariff"). This is the layer where Taiwan has to fight head-on for every order.

Worth noting: Taiwanese firms themselves are already diversifying. One industry survey finds that about 91% of Taiwanese manufacturers' operations remain in Taiwan, with only about 5% in China, while as many as about 73% of Taiwanese firms have adopted a "dual-source" strategy, spreading capacity across Vietnam, Thailand, Indonesia, India, and Mexico (single survey; medium confidence) ^[8]. Taiwan is not merely the payee collecting other people's diverted orders — it is itself an active player in this great "China+1" migration; as Asia's new supply-chain landscape takes shape, Taiwan's strategic position is rising along with it ^[7].

Of the three layers, drones are the one most worth dwelling on, because they show what "actively securing a position" actually looks like.

After the war in Ukraine, the world woke up to the fact that "you cannot fight a war with drones containing Chinese components" — China is simultaneously the largest supplier of drones and drone components and a potential adversary, so using its components effectively hands an adversary the back door. Europe therefore began building a "China-free component" drone supply chain, and Taiwan — a partner with the technology, political credibility, and the same wariness of China — happened to fill exactly that slot. Taiwan's drone exports accordingly surged 749% in 2025 (January–July), with 2026 Q1 export value again breaking past $100 million (see "The European Warships Have Arrived").

The lesson of this story is: Taiwan's opportunity does not lie in "being cheaper than Vietnam," but in "being more trustworthy than China." When an industry needs a "de-China, trustworthy" supply chain for geopolitical reasons, Taiwan's value is upgraded from "manufacturing cost" to a "trust premium." And that trust premium is precisely the chip Taiwan should be cultivating hardest in this reshuffle — because it is the one thing Vietnam, India, and Mexico cannot outbid with low wages.

The most uncomfortable line in this piece — and the one most worth saying — is this: the de-risking dividend does not land automatically, and Taiwan could even be routed around.

The Stimson Center flags a paradox: under the CHIPS Act and the "friend-shoring" framework, Taiwan could be defined as "too geopolitically risky" — after all, Taiwan sits within range of China's missiles. The ultimate beneficiary of supply-chain diversification could then turn out to be the U.S. mainland, or Japan, or Southeast Asia — not Taiwan ^[3]. The world cannot do without Taiwan's existing high-end manufacturing, and yet in building new supply chains it may deliberately route around Taiwan as a "risk point" — what it wants is "Taiwan's technology," but it would prefer that technology to "live somewhere other than Taiwan."

The two red teams meet on this point. Red Team East says: "The biggest beneficiaries of China+1 are Vietnam, India, and Mexico — don't get carried away." Red Team West says: "The bigger danger is friend-shoring routing around Taiwan — the dividend could slip away entirely." Both are right — which is exactly the point: the dividend has to be fought for, not waited for.

The most concrete version of the "routed around" risk is, in fact, already playing out inside Taiwan's own strongest industry: semiconductors.

TSMC's plants in the U.S. (Arizona), Japan (Kumamoto), and Europe (Dresden) are, on one hand, a response to customer and geopolitical demands — and they also bought tariff relief (see "Taiwan's 15% Tariff"). But on the other hand, this is also TSMC dispersing, piece by piece and with its own hands, the very scarcity that once made it "impossible without Taiwan." Optimists call this "thickening the silicon shield" — turning Taiwan's technology into a network the whole world depends on, giving more countries a reason to defend Taiwan; pessimists call it "hollowing out the sacred mountain" — once the most advanced capacity can also be replicated in the United States, Taiwan's leverage as "the one irreplaceable place" gets diluted (see "Silicon Shield in Depth").

This is the deepest paradox the de-risking supply chain poses for Taiwan: the very same act of "dispersal" can be resilience that Taiwan actively cultivates, or leverage that Taiwan passively loses — the difference lies in who holds the steering wheel, and in whether Taiwan simultaneously keeps "the next generation of irreplaceability" (more advanced processes, packaging, materials) firmly anchored on the island. The only way to hold onto your leverage is not to refuse dispersal, but to always stay one step ahead of everyone else: by the time someone else has copied today's lead, you need to already be standing on tomorrow's high ground.

If the dividend does not land automatically, then what Taiwan needs to do is clear: actively "design" itself into the specifications and certifications of Europe and America's de-risked supply chains.

Once the standards are written — a "China-free component" standard for drones, N-1 export controls and "trusted supplier" certification for semiconductors (see "The Gate Changes Hands") — whoever meets them gets the ticket. What Taiwan needs to do is not passively wait for orders to be diverted its way, but actively participate in, and help define, these specifications, so that "meeting the spec" itself becomes synonymous with "impossible without Taiwan." Once Taiwan's components, certifications, and standards are written into the whitelist of Europe and America's "trusted supply chain," Taiwan shifts from being "a risk point that might get routed around" to being "a checkpoint that cannot be routed around."

This is a "war of standards." In this war, whoever turns their own specification into everyone else's specification first, wins.

Pulling together the three layers of dividend, the risk of being routed around, and the truth of China+0.5, Taiwan's best position in this reshuffle is not "another world factory" (a fight Taiwan cannot win against Vietnam or India on cost) but the "indispensable intermediary."

What does that mean? In an awkward world that wants to de-risk from China yet cannot cut itself off from China's upstream, the most valuable role is the bridge that can "connect both ends and be trusted": using Taiwan's technology, management, and credibility to integrate capacity scattered across many locations into a high-quality product that meets Western specifications. Taiwan's machine tools, components, equipment, and IC design already play exactly this role — hidden in the middle of the supply chain, yet indispensable — which is precisely the core value of Taiwan as a "global industry intermediary" described in "Taiwan's Two Faces."

For SMEs, this points to a clear path: don't just think about "landing a U.S. order" or "moving to Vietnam" — think instead about "can I become the one irreplaceable link in this new supply chain." A small firm making a niche connector or a specialty-process component, if its product is written into Europe and America's "trusted supply chain" specification and is hard to replace, need not fear being routed around — because routing around it would leave a gap in the whole chain. That is the real way for Taiwan's SMEs to survive in the age of de-risking.

For the state: actively design Taiwan into Europe and America's de-risking specifications and standards (China-free components, trusted-supplier status, N-1 controls) — don't passively wait for orders to be diverted. At the same time, run a two-track approach on the risk that "friend-shoring routes around Taiwan": on one hand, keep consolidating the high-end scarcity that makes Taiwan indispensable; on the other, build Taiwan's own footholds abroad among friendly-shore partners, so that "dispersal" is something Taiwan drives itself, rather than something used to disperse Taiwan away.

For industry: attack in layers — defend the moat at the high end (advanced packaging, specialty materials), grab position in new supply chains (drones, non-China components), and have traditional industries pragmatically build "China+1" overseas capacity and dual sourcing. See through the truth of "China+0.5": what is really valuable is not "moving assembly out of China," but the ability to "swap out the upstream too, with non-China sources that can be certified."

For SMEs: certification as a "de-China, trusted supplier" is the entry ticket of this era. Get certified early, avoid the compliance minefield of pure transshipment, and move toward niches and specialty processes — make yourself the named supplier on someone else's spec sheet. For resource-constrained SMEs, rather than chasing the same red-ocean diverted orders everyone else is fighting for, it is safer to go deep into a niche that is hard for others to copy and that the whitelist actually needs — in this era, depth beats size.

The world is redrawing the map of its supply chains, and Taiwan is holding the best pen at the table — the irreplaceability of its high-end manufacturing. But holding the pen does not mean your name will appear on the map by itself. The dividend of de-risking from China is earned by writing Taiwan into everyone else's spec sheet — it does not fall into your lap on its own. The most dangerous mindset in this reshuffle is assuming that "the world can't do without Taiwan" and resting easy; the smartest move is to use the window while it is still open to weld the words "can't do without" into the new global supply chain, one specification and one certification at a time. After all, this window of "middle-power reshuffling" will not stay open forever — once the new supply-chain landscape sets over the next few years, who gets written in and who gets left out may well be a position that is hard to reverse for the next decade. Every move Taiwan makes to actively secure a position today is reserving a seat for itself a decade from now.