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The Chip Crisis: What Will Happen if China Invades

by | Mar 24, 2022

                In the few weeks since Russia began its invasion of Ukraine, the US and other countries around the world have already felt shockwaves ripple through their economies via rising pump costs and rising food prices. In the back of many people’s minds is how this economic crisis could be further impacted if China decides to invade Taiwan and seize control of most of the world’s supply of semiconductor chips which are the vital building block of most of the world’s technologies. Here we analyze what could happen if the island is seized.

                Taiwan contains the two largest foundries in the world that produce semiconductor chips, accounting for 63% of the world’s supply. The largest of these foundries is run by the Taiwan Semiconductor Manufacturing Company (TSMC). TSMC dominates 58% of the semiconductor market and 90% of the microchip trade. The Taiwan issue becomes even more concerning when considering that the world has already felt a profoundly negative impact due to the lack of semiconductor chips. The global chip shortage that started in 2020 continues to weigh on industries all over the globe. The auto industry lost over $210 billion in 2020 because of the crisis and continues to suffer as many people find their cars being back-ordered. Many other industries have felt similar impacts because of the shortage. Because of these profound effects of the 2020 semiconductor chip shortage, many now wonder what will happen if China gains control of the already waning semiconductor chip supply.

                First, let us consider what an invasion of Taiwan would look like.  Taiwan is a large island country with enormous cities along its Western Coast with a total population of 13 million people. An invasion of Taiwan may prove to be difficult for the Chinese given the fact that it must be reached by sea and the fact that the country has very unpredictable weather that can suddenly make a turn for the worst. Further, most of Taiwan is covered in rugged mountains that reach up to 12,000 feet. Therefore, political leaders could be easily hidden in caves and tunnels making an invasion more drawn out. The invasion would not be easy but even if it failed, the foundries on the island would certainly be put on hold during the fighting halting production of so much technology everywhere.

                But let’s say that the invasion is successful, and the Chinese gain a hold on two-thirds of the global chip supply and hike up prices for the already dwindling supply of computer chips. Experts predict that such an event would cause new products to be delayed and canceled and old products to rise in prices. A new PS6 and Xbox would probably be out of the question. The New iPhone would probably be delayed. But more alarming is the fact that since so many essential technology industries such as automobiles, appliances, and medical equipment, rely on computer chips to make their products, many of these products would be put on a stand still.

                There are, however, measures being taken to hedge against these possibilities. The EU has now invested $160 billion to fund the production of semiconductor chips with the goal of being able to produce 20% of the world’s semiconductor chips by 2030. Since Europe has been investing heavily in electric cars, which tend to require double the amount of computer chips required by gas-powered cars, this move would make sense to continue those efforts. In the United States, TSMC has agreed to build a plant in Arizona and in the State of the Union, Joe Biden mentioned that a semiconductor plant is scheduled to be built in Ohio by Intel.

                Another thing that could happen is that companies may begin trying to be less dependent on computer chips. We may therefore see the rise of alternative ways of making things that don’t rely on computer chips. After all, you don’t necessarily need a computer chip in a car to make it go from point A to point B or make clothes spin in your laundry cycle. New companies may rise and overtake some of the bigger companies that have been too reliant on computer chips.  

                However, even with these efforts being made, they may do very little to prevent a profound impact of a Taiwan invasion on technology. Even with all the money going into these new plants being built, it still takes a lot more money to run the plants efficiently. Foundry workers are needed to run these plants properly. These workers are highly skilled engineers and are currently in short supply. These new plants also don’t have the infrastructure and methodology that the Taiwanese have built up for decades.        

                We can certainly hope that an invasion of Taiwan never happens. However, Russia’s invasion of Ukraine has shown us that territorial aggression is more than possible. It is, therefore, more than necessary to prepare for such events to happen. Considering this, we can also hope that the world will be able to adapt and innovate in response to the challenging times which are probably on the horizon.

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