CHINA WATCHThe Microchip Industry Would Implode if China Invaded Taiwan, and It Would Affect Everyone

By Robyn Klingler-Vidra

Published 12 June 2023

Taiwan plays a critical role in the conflict between the US and China over computer chips. Taiwan has a huge share of the global semiconductor industry, but is also the focus of tensions between Beijing and Washington over its political status. If China invaded Taiwan, the global semiconductor industry would freeze, inflation would spiral further upwards, the post-COVID recovery would be reversed, and many of the tools we rely on would disappear from our shops for years.

A conflict between the US and China over computer chips – or semiconductors – has been escalating in recent months. In particular, the US has taken steps to limit China’s access to advanced chip technology amid heightened international competition in the area.

The US recently tightened export controls to undercut China’s access to high-end chip manufacturing equipment and has banned top talent from working for Chinese semiconductor firms. Beijing retaliated by banning US chip maker Micron from operating in China.

Taiwan plays a critical role in this struggle. It has a huge share of the global semiconductor industry, but is also the focus of tensions between Beijing and Washington over its political status.

For all practical purposes, Taiwan has been independent since 1949, but Beijing believes it should be reunited with the rest of China – possibly by force. In April 2023, China conducted extensive military drills near Taiwan, simulating an encirclement of the island.

So, what might happen to the chip industry were China to invade?

A US act passed in 1979 requires Washington to help defend Taiwan. Providing for the island’s security also fits with wider US objectives on technology and economic security. US politicians have not minced their words in affirming that a Chinese invasion would be met with a swift military response.

A Democratic congressman from Massachusetts, Seth Moulton, recently quipped that if China invades, “We’re going to blow up TSMC” – this being the acronym for Taiwan Semiconductor Manufacturing Company, the world’s most valuable semiconductor company. Congressman Moulton later clarified that he had been discussing several options for conveying the enormous costs of invading Taiwan to Beijing.

Because of Taiwan’s dominant position in the chip industry, its economy has been described as the “most indispensable” in the world. And TSMC is the cornerstone of what’s been described as Taiwan’s “silicon shield” – the idea that an outsize global reliance on its microchips protects it from invasion by China.

Critical Technology
The author Chris Miller tells the story of how Taiwan reached this dominant position in his book Chip War. It turns out to have been largely the result of strategic geopolitics and the individual leadership of several chip industry “godfathers”, including Morris Chang, the founder of TSMC.