Taiwan's chip dominance becomes global security, economic flashpoint

UPI

21 hours ago

President Donald Trump listens at a White House news conference March 3 as Commerce Secretary Howard Lutnick comments on Trump's announcement of a $100 billion U.S. investment by Taiwan Semiconductor Manufacturing Co. Ltd. File Photo by Samuel Corum/UPI | License Photo
WASHINGTON, June 12 (UPI) -- Taiwan may be an island of just over 23 million people, but what happens there could ripple across the global economy. The small democratic nation produces the vast majority of the world's most advanced semiconductors -- chips that are used in everything from smartphones and electric cars to defense systems and spacecraft.
Taiwan Semiconductor Manufacturing Co. Ltd. "produces roughly 90% of the most sophisticated computer chips, and the loss of that would be devastating," said Steven David, a professor of political science at Johns Hopkins University in Baltimore. "We can't get around without it."
For Taiwan, this manufacturing dominance isn't just economic -- it's strategic. Analysts call it the island's "silicon shield." The world relies heavily on Taiwan's chips, which deters China from launching a military attack and pushes allies like the United States to come to Taiwan's defense.
The geopolitical stakes around Taiwan's semiconductor dominance have soared as China escalates military pressure, through increased fighter jet incursions, large-scale naval drills and explicit threats of reunification.
U.S. lawmakers from both parties have increasingly voiced concern that a Chinese invasion could upend global chip supply chains and empower Beijing with outsized economic leverage.
"It [would be] monumentally stupid to try to keep something as fragile as chips production going during the time of war," said Kitsch Liao, associate director of the Atlantic Council's Global China Hub. "One stray shell could destroy that plant and you're done."
The United States has taken steps to address this vulnerability. In 2022, former President Joe Biden signed the CHIPS and Science Act, allocating $280 billion to support domestic semiconductor manufacturing and research, including subsidies for Taiwan Semiconductor to build a plant in Phoenix.
In March, President Donald Trump announced a new $100 billion deal with the company to dramatically expand its manufacturing presence in the United States.
"America is building plants with Taiwanese investment and cooperation in Arizona and elsewhere, but it would still be devastating," David said, referring to the potential impact of a Chinese attack on chip production.
Taiwan's government has had to carefully balance cooperation with the United States against growing fears at home that shifting too much chip production abroad could weaken its security.
Taiwan's two main political parties, the Kuomintang, or KMT, and the Democratic Progressive Party, or DPP, have debated the best approach to cross-strait relations.
While the KMT supports closer ties with China, the DPP, which currently holds the presidency under Lai Ching-te, has leaned toward reinforcing Taiwan's democratic independence and diversifying trade, actions that could increase already mounting pressure from China.
"If China does successfully invade Taiwan and takes over the TSMC plant, it won't be able to use the plant the way Taiwan does," David said. "But it would deny its use to others, and that would be devastating to the world economy. Several percentages of world GDP would drop as a result."
Analysts worry that even the threat of invasion could destabilize markets. Blockades or gray zone tactics by Beijing, short of all-out war, could still limit Taiwan Semiconductors' ability to export.
"Any erosion in Taiwan's ability to trade with the rest of the world would have a significant impact on the global economy," said Jack Burnham, a research analyst at the Washington-based Foundation for Defense of Democracies.
"It would disrupt the flow of semiconductors to a variety of different industries that are incredibly valuable to the United States, its allies and partners, and the global community."
Taiwan has long been one of the most contentious issues in United States-China relations. After the Chinese Civil War, the Nationalist government fled to Taiwan in 1949, and the Chinese Communist Party established the People's Republic of China on the mainland. Since then, Beijing has claimed Taiwan as an inalienable part of its territory.
In 1979, the United States. ended formal diplomatic recognition of Taipei in favor of Beijing, but passed the Taiwan Relations Act, which commits the United States to help Taiwan maintain a "sufficient self-defense capability."
The United States, though, has remained deliberately vague about whether it would come to Taiwan's defense in the event of a Chinese invasion -- a policy known as strategic ambiguity.
But as threats of an invasion increased, this stance continued to be tested. In a speech in Singapore last month, Defense Secretary Pete Hegseth vowed that "devastating consequences" could result should China seek to "conquer" Taiwan, warning that an invasion could be "imminent."
Beyond semiconductor and chips manufacturing, Taiwan remains a core interest in the Indo-Pacific region. The island sits at the heart of the "first island chain," a line of U.S.-aligned territories stretching from Japan to the Philippines.
If China were to take over Taiwan, experts warned it could use the island as a launchpad to project power deep into the Pacific, posing a direct challenge to U.S. interests.
"Should China be successful [in a reunification scenario], it would have a significant impact on the lives of everyday Americans -- both in their wallets and in the political situation they find themselves in," Burnham said.
"What's at stake when it comes to Taiwan is the free flow of trade, a significant part of the American economy, and the health and stability of the United States' key allies and partners in the region."