Amid China’s escalating military exercises around Taiwan, the tech scene is increasingly pre-occupied with one question – what happens if China ever invades Taiwan?
Taiwan is home to TSMC (Taiwan Semiconductor Manufacturing Company), one of the most valuable and crucial chips companies in the world, making this a genuine concern. Established in 1987, TSMC produces an estimated 90% of the world’s super-advanced semiconductor chips, with around 70% produced in Taiwan. Its customers include Apple, AMD, and Nvidia.
Given that chips are the backbone of the electronic devices we use daily from EVs to mobile phones, and TSMC plays a vital role in their manufacturing, an invasion could lead to a major disruption in supply. This supply shock would severely impact businesses that rely on chips, as well as limit end users’ access to electronic devices.
However, as much as an invasion poses a clear threat to Taiwan, TSMC, and its global network of allies and customers, a non-invasion scenario carries its own set of bitter consequences—ones that are often underestimated and overlooked.
U.S. Positioning Amid Invasion Risks
Understanding the risks of an invasion and the U.S. positioning is crucial to grasping the less-discussed dangers of a non-invasion, where Taiwan lives under the constant shadow of China’s threat.
One thing is clear: If China invades Taiwan, the world will face an immediate supply shock with widespread delays in tech manufacturing. Many tech companies depend on several components produced in Taiwan, such as chips, sensors, and circuit boards. An invasion will likely halt production and create severe shortages, leading to skyrocketing prices and extended lead times for consumer electronics, automotive industries, and other tech sectors.
Additionally, China will potentially gain control over advanced technology in Taiwan and at TSMC facilities, giving it a significant edge over global competitors—something the U.S. is determined to prevent.
This is partially the reason why President Joe Biden has stated that U.S. forces would step in to defend Taiwan if China were to launch an invasion. A clear example of TSMC’s importance, and the level of U.S. commitment to Taiwan, can also be seen in the remarks of Representative Seth Moulton. As a prominent Democrat voice on defence, Moulton proposed that threatening to destroy TSMC could be a potential strategy to deter China from invading Taiwan.
On a more hopeful note, if an invasion were to happen at a time when Taiwan and TSMC have already taken the necessary precautions such as relocating TSMC facilities, the supply shock and negative consequences could be less severe. This is indeed the direction TSMC is pursuing by expanding its operations to multiple locations around the globe, such as its new chip fabrication plant in Arizona, which aims to bolster semiconductor production in the United States.
Constant Pressure from China Can Be as Devastating as an Invasion
Conversely, the diversification of TSMC operations include many drawbacks that could make Taiwan gradually lose its competitive edge in the semiconductor industry.
Meanwhile, China’s constant pressure on Taiwan and Taiwan’s response are likely to lead to three unfortunate consequences:
Firstly, diversification can lead to brain drain, as skilled professionals and experts may migrate to other countries where TSMC is expanding. This loss of talent could substantially diminish Taiwan’s position in the semiconductor sector, hampering its capacity for innovation and weakening its competitive advantage.
Secondly, by moving some core manufacturing operations outside Taiwan, TSMC may shield itself from disruptions, but this could also dilute Taiwan’s technological supremacy in the industry. Fragmented production may result in a greater dependence on external markets, jeopardizing Taiwan’s status as the primary global semiconductor hub and eroding its current economic and geopolitical advantages.
Lastly, TSMC’s pivotal role in the global semiconductor supply chain is a significant concern for the U.S. regarding a possible Chinese invasion of Taiwan. TSMC’s operations are seen as a strategic asset for U.S. tech firms, directly affecting American involvement in the region. While an invasion might not alter China’s calculations drastically, Beijing understands that it could lead to TSMC halting production remotely, cutting off access to vital chips, which would ultimately harm China as well.
If TSMC successfully diversifies its global operations, signalling that an invasion wouldn’t disrupt chip production, the U.S. may still value Taiwan’s sovereignty but could prioritize it less. This change could weaken U.S. support for Taiwan, diminishing its role as a deterrent against Chinese aggression. Consequently, China might see reduced risks in accessing semiconductors, potentially eliminating a key disincentive for invasion. Additionally, China could exploit this uncertainty to enhance its own semiconductor capabilities, decreasing reliance on TSMC and undermining Taiwan’s influence in the global chip industry and its geopolitical significance.
Taiwan Should Keep TSMC Close for Strategic Advantage
TSMC may not be the sole factor driving China’s invasion plans or U.S. involvement. However, as a powerful example of how a corporation can exert significant influence on behalf of a nation and beyond, it remains a critical factor that impacts a decision on invasion and involvement.
Given that, the often-suggested solution of a simple diversification may not always be the best course of action in the long run. Instead, it may be wiser and more advantageous to pursue a more strategic form of diversification—one that maintains a strong link between TSMC and Taiwan, ensuring that the country retains its influence while still protecting against potential disruptions.
As tensions between China and Taiwan escalate, the fate of TSMC will not only shape the semiconductor landscape but also determine Taiwan’s strategic standing in global politics. A hasty approach to diversification may weaken Taiwan’s grip on its technological prowess, ultimately emboldening China’s ambitions. To safeguard its future, Taiwan must forge a nuanced strategy that preserves the intrinsic link between TSMC and its national interests, ensuring that its semiconductor industry remains a cornerstone of both its economy and its geopolitical relevance.