lobal reliance on Taiwan for semiconductor production has emerged as a critical issue, with far reaching economic and geopolitical consequences. Semiconductors, or chips, are small pieces of integrated circuits carrying tens of billions of transistors and powering various technologies. In fact, almost every conceivable piece of technology, from automobiles to LED lights, carry one or multiple semiconductors vital to its functioning. Though the production of these chips is undoubtedly crucial, manufacturing is concentrated in one country—Taiwan, which “produces about 90 percent of the world’s most advanced semiconductors, mostly through the Taiwan Semiconductor Manufacturing Companies (TSMC).” This global dependence on Taiwan for semiconductors, in a time of heightened conflict and uncertainty, poses a glaring risk to international supply chains—most notably through the looming threat of a potential Chinese invasion of Taiwan. A Chinese invasion, or even blockade, would have unparalleled consequences for global supply chains, likely “forcing them to grind to a halt, shaving trillions of dollars off economic output, and plunging the world into an economic depression.” Due to this reality, the international community feels compelled to defend their ability to receive semiconductors, demonstrated by their increased interests in onshoring semiconductor manufacturing, as well as US efforts to curb China’s technological and military development.
Over the last 20 years, semiconductor manufacturers in Taiwan have decisively led the industry in innovations and investment, leading to significant results in comparison to competitors. TSMC was founded in 1987, and was the world’s first contract manufacturer solely focused on chip manufacturing instead of design. This created an environment where firms could “invest heavily in chip research and design,” while outsourcing manufacturing to TSMC. The pattern led to increased, and now complete, dependence on Taiwan and TSMC for chip manufacturing. TSMC is a crucial “choke point in the logic semiconductor industry”—its near 500 customers, including industry juggernauts like Apple, AMD, NVIDIA, and Qualcomm, cannot function without the company’s support and all outsource their chips to the Taiwanese foundries. They continue to rely on the company’s cutting edge fabrication technology and unrivaled intellectual property (IP) library. The importance of Taiwan’s network was especially demonstrated through the COVID-19 pandemic, when the closure of several Taiwanese manufacturers led to a semiconductor chip shortage that shocked global supply chains.
The global reliance of the semiconductor industry on Taiwan is especially concerning due to the significant risks faced by both the country, as well as its foundries, amid the potential threat of a Chinese invasion. In recent years, China has increased military exercises near the Taiwan straits, “conduct[ing] 950 sorties over Taiwan’s air defense identification zone” in 2021. Additionally, in his 2024 New Year’s address, President Xi Jinping also expressed that “China’s ‘reunification’ with Taiwan is inevitable”. With this increase in tension, as well as the backdrop of intensifying hostilities between China and the US as well as EU countries, the risk of the semiconductor industry falling into China’s hands seems to be increasingly imminent. As a Chinese-operated semiconductor industry would certainly see many cut off from crucial supply lines, the result of a military operation would be devastating for the global economy, exceeding far beyond the impact caused by the pandemic. For example, it is estimated that losing access to Taiwanese semiconductors would decrease US GDP by five to ten percent. Furthermore, due to the level of sophistication Taiwanese chips have reached, “it would take years to build and activate high-end chip production facilities to replace Taiwanese foundries.”
The clear risk of concentrated chip production in Taiwan, due to the threat of a Chinese invasion, has incentivized many countries to begin to onshore and redirect semiconductor manufacturing. For example, the CHIPS Act released by the Biden administration in 2022 invests nearly $53 billion into promoting domestic semiconductor manufacturing, research and development, and workforce. Additionally, the Act also caps the increasing amount of interest given to the semiconductor industry by US administrations. The CHIPS Act has also incentivized the formation of TSMC fabrication plants around the world, aiming to diversify supply. For example, TSMC has opened a fabrication plant in Camas, Washington, currently the only TSMC plant present in the US. The company argues that this form of “globalization” will help them be “competitive worldwide,” while also reducing “the need for crisis management” should conflict begin in Taiwan. TSMC has committed to the development of a plant in Arizona as well, which upon its creation would become the most advanced TSMC plant not based in Taiwan.
Like the US and its allies, China has also aimed to build its own semiconductor manufacturing capabilities, investing in fabrication plants. For example, TSMC has also set up a plant equal to the one in Washington in China. In response to this, the US has aimed to restrict China’s technological development and onshoring of Taiwanese semiconductor manufacturing, which could threaten US national security if used for military applications. For example, the US Department of Commerce’s Bureau of Industry and Security (BIS) strengthened export controls in October 2022, aiming to restrict Chinese artificial intelligence and semiconductor capabilities and advancements. Most recently, on December 2nd, 2024, the US curbed semiconductor exports to 140 Chinese companies, including the Technology Group, a chip equipment maker. China has responded by banning exports of gallium, germanium, and antimony, critical minerals that have “widespread military applications.”
Given the semiconductor industry’s significant geopolitical implications, it became a central issue during the 2024 presidential race and a prominent topic in the American public’s conscience. While President-elect Donald Trump has stated that significant changes are needed within the industry to ensure its security, he has also continuously bashed the CHIPS Act, claiming that the act lacks effectiveness and that only rich companies will profit off of the proposed investments. When he comes into office, Trump will likely enact his promised 60 percent tariff on all Chinese imports, which he believes will prevent the purchase of the newly expensive semiconductors from overseas, while also encouraging innovation among domestic manufacturers. However, “imposing tariffs on partners like Taiwan, whose exports to the US have surged thanks to Nvidia, would harm silicon valley too,” meaning that domestic production could decline as a result. As exemplified by these debates, it is clear that the solution to semiconductor security, both in the US and abroad does not have a simple solution. However, the sheer vitality of the industry in the world of technology ensures that discussion will endure, and more solutions will be found as companies and countries work together.
