China’s dramatic responses to the House Speaker’s visit have largely sidestepped the chip issue – signaling that both the US and China hope to preserve Taiwan’s prized semiconductor factories no matter what happens in the coming weeks and months. “I think both the U.S. and China are starting to get a little bit more pragmatic about semiconductors,” Sarah Kreps, professor and director of the Cornell Tech Policy Lab, told Yahoo Finance this week. After a few years of pandemic and supply chain issues, he noted, “chips have almost become a third rail that these two countries don’t want to mess with.” Speaker Nancy Pelosi with Taiwan President Tsai Ing-wen at the president’s office on August 3 in Taipei. (Getty Images) And the signals the two nations are sending seem to confirm it. Certainly, the chances of a military confrontation continue to escalate with Beijing dramatically launching missiles near Taiwan as part of “military exercises”. The country also retaliated on the economic front by blocking selected imports such as citrus fruits, fish and other foods from Taiwan. However, China has specifically stated that it will continue to allow semiconductor imports from Taiwan.

“There’s still a ton of uncertainty”

Taiwan is a world leader in the production of semiconductor chips, particularly advanced chips desired by businesses in both the US and China. Taiwan Semiconductor Manufacturing Company (TSM) is the world’s largest semiconductor company with its products powering electronics around the world. However, the implications for the company could be yet to come. “As we know, [Chinese president] Xi Jinping was incredibly unhappy with this visit [and] there’s still a ton of uncertainty about Taiwan’s future,” Futurum Research principal analyst Daniel Newman, a close industry watcher, told Yahoo Finance. But he added on Wednesday that “there are kind of two conversations taking place” around the conflict with the first focusing on semiconductors and the second focusing on “the role for everything else.” The story continues A Taiwan Semiconductor Manufacturing Company building in Hsinchu in northern Taiwan. (Walid Berrazeg/SOPA Images/LightRocket via Getty Images) Pelosi’s visit also came days after US lawmakers passed the CHIPS and Science Act of 2022, which includes a provision that sends $50 billion to semiconductor companies. The CHIPS Act represents the biggest effort in years to boost U.S. chip manufacturing and try to reverse the decline of the U.S. role in semiconductor manufacturing. U.S. chipmaking has declined from nearly 40 percent of global production in 1990 to 12 percent today, according to the Semiconductor Industry Association. The situation is even worse with the world’s most advanced logic semiconductors, 100% of which were manufactured abroad in 2019. President Joe Biden is set to sign the bill in a ceremony at the White House next Tuesday. But experts say the results — in the form of newly built manufacturing plants inside the U.S. — are years away. “The CHIPS act alone is not going to do anything about our supply chain problem for at least two years,” says Newman. The process of rebuilding US manufacturing capacity in space will be slow, he said, stressing: “We have to walk before we run.”

“Strengthening both our economies”

While the CHIPS Act may not immediately solve the shortage, observers have noted that the final form of the bill is less likely to spark a confrontation with China than previous versions. While previous iterations of the bill took direct aim at China and its trade practices, the final bill focuses on strengthening US capabilities. The soon-to-be-introduced law is also notable because it allows foreign companies to claim a piece of that $50 billion if they put it toward new construction or design within the United States. Pelosi repeatedly addressed this aspect of the CHIPS Act during her visit to Taipei, noting that her main economic takeaway from the trip, in addition to working on a new framework for trade, was how which “our CHIPS and Science Act will go a long way in strengthening both of our economies.” During a press conference with President Tsai Ing-wen of Taiwan, he argued that the CHIPS Act would help the US and Taiwan “enhance our relationship” in the face of China’s aggression. Industry leaders in Taiwan have already signaled interest in more investment in the U.S. GlobalWafers is considering a $5 billion facility in Texas and Taiwan Semiconductor Manufacturing Company is considering new facilities in Arizona. But Kreps notes that Pelosi and other U.S. policymakers should remember that “Taiwan has options other than the U.S.” for new semiconductor factories in the coming years — particularly in places like Singapore, which was another stop on Pelosi’s tour this week. “I think the US cannot be complacent and expect Taiwan to have an inflexible interest,” he notes. “So Pelosi’s visit probably helps support the view that the relationship is a win-win and should continue.” Ben Werschkul is a Washington correspondent for Yahoo Finance. Read the latest financial and business news from Yahoo Finance Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube and reddit.