In a recent interview with Bloomberg Businessweek, former US President Donald Trump emphasized the need for Taiwan to pay additional protection money to the United States in order to prevent a potential invasion by China. Trump's comments have serious implications for Taiwan's leading artificial intelligence (AI) companies and the semiconductor industry.

Taiwan, seen by China as its sovereign territory, serves as the primary manufacturing hub for cutting-edge semiconductors such as the Nvidia H100 graphic processors. These semiconductors are crucial components powering generative AI data centers used by major tech giants including Microsoft, Google, Amazon, Tesla, and startup xAI.

Beijing's persistent threat of invasion or naval blockade has raised concerns among investors. This apprehension was exemplified last year when renowned investor Warren Buffett divested his entire stake in Taiwan's leading chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), to mitigate unnecessary risks.

Trump's recent statement likening America's role in Taiwan to an insurance provider for the country has further heightened these risks. Such a public statement sends a clear message to rivals like China that Taiwan's political landscape may be shifting, potentially inviting them to exploit any perceived weaknesses.

Moreover, speculation of the Biden administration considering tighter export controls on advanced semiconductor equipment has added to the uncertainty surrounding the semiconductor industry. As a result, chip stocks experienced a significant decline in Wednesday's trading.

For Nvidia, Taiwan's TSMC plays a critical role as the sole provider of its AI training chips. Unlike Intel, Nvidia outsources its chip production to foundries such as TSMC. Founded in 1987, TSMC has become the world's largest foundry, offering the most advanced form of miniaturization in the market.

TSMC's irreplaceable status, coupled with its exclusive supply of Nvidia's AI chips, has allowed the company to ride the wave of AI growth. Earlier this month, TSMC became the first East Asian company to achieve a market capitalization exceeding $1 trillion. Following robust quarterly results, the company has even raised its revenue forecast.

Highlighting the immense importance of Taiwan's semiconductor industry to US interests, researchers from the Army War College have explored scenarios suggesting the destruction of chip fabs in the event of an invasion to prevent them from falling into Chinese hands.

Trump's lukewarm attitude towards standing up to Chinese aggression, as reported by Bloomberg, and his resentment towards Taiwan chipmakers outcompeting their US counterparts have raised concerns. His implicit threat of potentially withdrawing the security umbrella provided to Taiwan under a new Trump administration echoes the stance taken by his former opponent, Vivek Ramaswamy, who promised to defend Taiwan until the US could produce the chips independently.

Taiwan's government has sought to downplay Trump's remarks, emphasizing their commitment to strengthening defense budgets and meeting growing military needs. Premier Cho Jung-tai expressed Taiwan's willingness to take on more responsibility in security matters.

Despite heavy losses in the stock market, shares in Nvidia, Tesla, and TSMC's US-listed ADR shares are expected to rebound when trading commences on Thursday.

The issue at hand may persist as long as the US alliance with Taiwan remains transactional in nature, leaving the AI industry and semiconductor sector vulnerable to potential disruptions.