Chip War Jitters: Perfect Storm Brewing Over Taiwan?

Chip War Jitters: Perfect Storm Brewing Over Taiwan?

Could the US chip embargo, which applies to Taiwan Semiconductor Manufacturing Company rattle the world’s largest chip foundry and global chip giant?

TSMC supplies almost all of Huawei’s chips, and if push comes to shove between the U.S. and China over China’s access to TSMC’s foundries, the worry is: could it “push Beijing towards forcefully reclaiming the island?”

International desputes between the U.S. and China over Huawei and China’a access to the industry’s component design and supply chain are intensifying. So much so, it is fueling international speculation about a potential worst case scenario in Taiwan about Beijing’s potential responses to the U.S.’s China chip embargo. Tensions in, and speculation about Taiwan are a buzz in the industry.

Within the semiconductor industry, Taiwan has always been the elephant in the room: Outsize in its footprint across the global technology business but unknown to the general public. After Hong Kong’s crushing democratic repression, what will happen to Taiwan – the democratic island that is a thorn in China’s side, and now at the nexus of speculation about the future of the global semiconductor industry?

That’s exactly what one observer, a student in International Relations from Jacobs University in Bremen, Germany, writing in the Comment | Letters  page of last week’s South China Morning Post suggested might happen, for a variety of reasons he spells out.

Sound far fetched? Far from it. History records that when the United States shut off the tap on Japan’s critical supply of oil, it was a trigger for Pearl Harbor. It’s an observation, and worst case scenario, not lost on astute observers like the SCMP’s letter writer.

Current tensions and the outbreak of the China-US chip war date back to May 15th, 2020 when the US Department of Commerce introduced a new rule that blocked global shipments of advanced semiconductors to Huawei, including those made by Taiwan Semiconductor Manufacturing Co. TSMC is the world’s biggest contract chip maker and supplied over 90 per cent of Huawei’s smartphone chips prior to the embargo.

Industry watchers have expressed fear that the impact of this chip ban “may not be confined to the technology industry” and could “permeate the realm of national security.” One of these is Professor Graham Allison of the Harvard Kennedy School.

According to the published SCMP’s Commentary. Allison wondered if this ban could be the “twenty-first-century equivalent of the oil embargo the United States imposed on Japan in August 1941”, which precipitated Japan’s attack on Pearl Harbour four months later.

The situation is serious, and perhaps even more dire than the scenario Allison described, the letter writer suggests.

As the ban’s potential impact widens and morphs from a global supply chain issue to a full-blown national security issue, letter writer Chin Hsueh is especially apprehensive.

“This is not only because of the potential wider impact of this ban, but also because of the waning influence of one of the most powerful constraints preventing China from invading Taiwan – the idea that the “Chinese don’t fight Chinese”. This idea is weakening with the steady rise and gradual consolidation of Taiwanese identity on the island, and with Taiwanese people’s growing inclination to favour independence over the maintenance of status quo and unification with the mainland, Chin Hsueh writes.

China’s rational for a potential seizure any Taiwan tech assets has nothing to do with the semiconductor supply chain and everything to do with  Chinese national pride and that nation’s technological ‘manifest destiny’ some analysts suggest. Chin Hsueh agrees.

“All these factors may increasingly steel China’s determination to forcefully reunify what it regards as a renegade province. It would not only allow China to seize TSMC factories and laboratories, buying Huawei critical time to advance its own initiatives, but also achieve what China considers a “must” for the great rejuvenation of the Chinese nation.”

According to the “Silicon Shield” theory, existing strategic defense ties between the U.S. and Taiwan would prevent any kind of Chinese unilateral action on Taiwan.

Two decades ago the following observations were made about the silicon industry, Taiwan, and its place in the global semiconductor supply chain in a New York Times editorial.

The editorial observed that “silicon-based products, such as computers and networking systems, form the basis of the digital economies in the United States, Japan and other developed nations, And “in the past decade, Taiwan has become the third-largest information technology hardware producer after the United States and Japan.”

The editorial warned that “Military aggression by China against Taiwan would cut off a large portion of the world’s supply of these products. Suddenly the global information technology economy — dependent on silicon and software — would be threatened with disruption.”

However, the editorial suggested, “Taiwan can take comfort from a “silicon” shield that is already in place. It will provide some protection for the island if China seeks a military solution to the so-called Taiwan problem.”

“Not only would America not tolerate an outright military attack on Taiwan, it would not allow any action that might disrupt the island’s exports.”

That was then. What now?

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