As Taiwan is a critical node in the global semiconductor market, a full-scale invasion of the island could have dire impacts on the global economy. How did Taiwan’s position in the semiconductor market come to be, and how could its disruption impact us?
Background
In 1987, Taiwan Semiconductor Manufacturing Company (TSMC) was founded as a firm solely dedicated to manufacturing chips. Because the manufacturing of chips became increasingly costly due to more complex designs, companies began relying on TSMC to manufacture chips while said companies could dedicate more of their resources to design and research. Eventually, America’s semiconductor manufacturing global market share dropped from 40 percent in 1990 to 12 percent in 2020. Subsequently, TSMC rose to manufacturing more than half of all semiconductors in the entire world. Furthermore, American corporations, such as Amazon, Apple, and Qualcomm, rely on Taiwanese manufacturers for 90 percent of their chips. The impact of Taiwan on the global semiconductor market cannot be understated.
Impacts
According to TSMC Chairman Mark Liu, the company's most advanced factory will not be able to produce chips because it relies on global supply chains. He further states that because of the sophistication of the manufacturing facility, it depends on a real-time connection to the international market for various resources such as software, chemicals, and spare parts. Essentially, a Chinese invasion of Taiwan would freeze nearly half of the global semiconductor market, leading technology costs to skyrocket. Ironically, China would be one of the biggest losers in such a scenario, given their economy’s dependence on manufacturing consumer technology.
The best way to avoid a semiconductor industry collapse is for nations to build up a domestic semiconductor industry. In July, the House of Representatives signed the Chips and Science Act which subsidizes the construction of domestic chip factories. Furthermore, TSMC is building a $12 billion chip factory in Arizona.
Just like the Russian “Special Military Operation” in Ukraine, a Chinese invasion of Taiwan would be an economic lose-lose scenario. It is important that chip-manufacturing capabilities be expanded outside of Taiwan in order to keep the global economy running in such a scenario.
