From electric cars to the latest smartphones, technology has simplified our lives. But have you ever wondered what makes these devices tick? It is all due to a small electronic component, semiconductor chip.
These chips are the backbone of modern technology. Over the years, these chips have gotten smaller in size but more powerful in terms of performance. The smaller the chip, the more advanced tasks it can perform.
Taiwan dominates the chip sector. It has mastered the intricate manufacturing process of semiconductor chips, from slicing silicon wafers to printing patterns on minuscule electric circuits. Taiwanese firms are involved in every aspect of chipmaking.
Taiwan’s dominance in semiconductor chips
According to the latest data, Taiwan manufactures over 60 per cent of the chips in the world. When it comes to smaller and cutting-edge chips, the country’s dominance is even more pronounced. It produces 70 per cent of all chips smaller than 7 nanometers.
The island nation is home to some of the world’s top chipmakers. Leading them is the Taiwan Semiconductor Manufacturing Company, or TSMC.
The company manufactures chips for some major tech firms. Its list of high-profile customers includes Apple, Microsoft, Google, Amazon, Nvidia, Meta, and Tesla.
TSMC’s fabrication plants make chips for everything from iPhones and Android devices to supercomputers and artificial intelligence systems. TSMC produces over 90 percent of the world’s most advanced chips. So, what happens to the chip sector if Taiwan comes under attack?
Rising tensions between China and Taiwan
Last week, Taiwan’s new president, Lai Ching-te, took office. Just hours before the swearing-in ceremony, Chinese fighter jets and navy vessels reportedly crossed the sea border of the self-governed island. While these border zone violations are not new, there have been rising concerns about China’s intentions regarding Taiwan. That’s because China claims Taiwan as its own territory, although Taipei rejects its claims.
Just in March, a top US army official said that China is building its military and nuclear arsenal. The official said that Beijing is preparing to invade Taipei by 2027. From military exercises to ramping up gold reserves, geopolitical experts view every Chinese move as preparation for a potential conflict with Taiwan.
Above all, on multiple occasions, China’s President Xi Jinping has called for reunification with Taiwan. Xi has refused to rule out the use of force on the island.
TSMC: A shield for Taiwan?
A potential invasion of Taiwan can have far-reaching consequences. Many Taiwanese believe that it’s unlikely that China will invade them, all due to the island’s dominance in the chip supply chain. For many, the presence of TSMC on the island works as a shield.
However, this optimism is not reflected at the top. TSMC itself understands threats of tension with China. For years, the firm’s founder, Morris Chang, has hoped for tensions to de-escalate in the region.
At the same time, the firm has prepared for the worst. Since tensions between China and Taiwan have flared up, the firm has tried to diversify its production away from the island. TSMC has opened new factories in Japan and the U.S. It further plans to build another facility in Germany.
Reducing dependence on Taiwan
Taiwan’s top ally, the US itself, recognises these vulnerabilities. Earlier this month, US Commerce Secretary Gina Raimondo said that a Chinese invasion of Taiwan and a chip production halt by TSMC would be “absolutely devastating.”
The US has taken steps to reduce its dependence on Taiwan’s chipmakers. The country is providing billions of dollars in subsidies to chip firms to set up new cutting-edge fabrication facilities on American soil. Even TSMC has received subsidies from the US government, and they have promised to make three new factories in the country.
However, analysts say these efforts still face enormous challenges. Even with vast resources, it would likely take years to recreate the scale and capabilities of Taiwan’s semiconductor industrial base.
Impact of a potential conflict in Taiwan
Now, as escalating threats from China cast a shadow over Taiwan, the island’s chip supremacy has come under the scanner. Governments, businesses, and consumers around the world are utterly reliant on these chips.
As per analysts, in the near term, any serious impairment of the island’s chipmaking operations would severely constrain supply. This could likely trigger a chip shortage and lead to prices skyrocketing. That, in turn, can have a ripple effect on the global economy. According to one assessment, a war over Taiwan would cost the world around $10 trillion, or about 10 percent of the global GDP.
Meanwhile, a new report says that TSMC has a new plan in case of Taiwan’s invasion. The firm plans to remotely shut down all its cutting-edge machines.
Safeguarding Taiwan’s chip production has become imperative for many around the world. If not, any war or conflict in the country will most likely snowball into a chip war.
