A growing chorus in Washington, Silicon Valley, and the financial press is convinced that the artificial intelligence boom may eventually cool into a painful correction. The anxiety shows up in search data, political conversations, and investor chatter. Because AI plays a central role in the United States’ long-term competition with China, the possibility of a downturn is not a question that can be left to market forces alone. If valuations fall sharply, pressure will mount to loosen restrictions on advanced semiconductors and to rethink America’s stance toward Taiwan. Both steps would risk long-term strategic harm in exchange for only short-lived economic ease.
Predictions about where AI is headed differ widely, and no one can honestly claim to see the future with precision. Some observers remain convinced that the technology is still in its early stages and that both capabilities and equity prices have further to climb. Their confidence, however, has softened as leaders within the industry have begun to temper earlier claims about rapidly approaching general intelligence. Others have taken the opposite view and believe the market has already outrun real-world performance. They point to the mismatch between enormous capital expenditures and far more modest revenue, the lack of measurable returns for most corporate adopters, and increasingly wary bond markets. Between those two poles is a group persuaded that short-term turbulence is probable but that the longer horizon still favors AI-driven productivity growth. They expect the possibility of a period in which the costs of adopting these tools temporarily exceed their benefits before the payoff arrives.
Regardless of which camp proves correct, a significant downturn in AI-related markets would leave the United States confronting a set of hard choices. A recession sparked or deepened by collapsing AI valuations could trigger calls to mend economic ties with China. Beijing would welcome any willingness to ease restrictions on advanced chips. If demand for semiconductors falls, manufacturers might also lobby for fewer export limits in order to offset revenue losses. The temptation to compromise would be real. Yet selling China chips capable of training or running sophisticated models would help strengthen its military applications of AI and erode America’s strategic position.
The notion that Beijing might become dependent on American hardware has little support in China’s own stated ambitions. Its industrial policies consistently aim to acquire technology, scale production, reduce costs, and then dominate global markets. That pattern has already been visible in automotive supply chains, solar manufacturing, batteries, and critical minerals. AI is central to China’s long-range plans and national directives. If the United States relaxed controls, China would be far better positioned to pursue its own frontier models or to build systems that surpass what American firms produce. Its security services would also gain more powerful tools for collection and influence.
All of this touches Taiwan in direct and immediate ways. The island’s semiconductor sector is large relative to its economy and workforce. A global glut of chips would cut into its earnings and weaken one of the foundations of its economic influence. At the same time, a United States absorbed by domestic economic problems could become more transactional in its foreign policy. In such an environment, some in Washington might view Taiwan not as a democratic partner essential to regional balance, but as a point of leverage in negotiations with Beijing. The combination of a chip surplus and an American recession would leave Taipei exposed.
For Taiwan to weather such a scenario, it must emphasize its value beyond manufacturing capacity. Its location, technological experience, and the regional consequences of its fate matter regardless of short-term market swings. If Beijing gained control of the island, the strategic picture across the Indo-Pacific would tilt sharply in its favor, causing allies and partners to hedge and leaving the United States facing a consolidated rival with access to even greater industrial and technological resources.
Taiwan can strengthen its position by pursuing reforms that enhance resilience. The legal ceiling on government borrowing constrains the island’s ability to invest in defense and energy security at the scale required by its situation. Although domestic politics complicate efforts to raise that ceiling, the alternative is a far more vulnerable Taiwan. Ongoing expansions in defense spending represent progress, but the island will need a broader range of distributed capabilities to complicate any attempt at coercion or invasion. Energy diversification is similarly essential, involving nuclear power, liquefied natural gas, renewables, oil, and even limited coal where needed to maintain stability during disruptions.
For the United States, advance preparation matters. Legislators could safeguard access to the most advanced semiconductors by passing targeted measures that ensure American companies receive priority during periods of scarcity. A statutory minimum for export controls would prevent sudden relaxation during moments of political stress. Strengthening the capacity of regulatory agencies charged with overseeing those controls would slow adversarial technological advances. Clear and consistent political support for Taiwan would help deter opportunistic pressure from Beijing if markets contract.
If an AI downturn arrives, many voices will urge rapid concessions in the name of short-term economic relief. Resisting those impulses would require disciplined political leadership, but the stakes are enormous. The choices made in such a moment would influence not only the trajectory of the AI industry but the broader balance of power in Asia. Navigating that period wisely could leave the United States and its partners in a stronger position once the turbulence passes.
