A battle for semiconductor manufacturing is happening across the Pacific. For years, Beijing has been pumping hundreds of billions of dollars into its domestic industry in an effort to cut foreign-made products out of China鈥檚 market. Meanwhile, Washington and its partners have been working to make sure that the means and know-how to make the most advanced versions of these microchips don鈥檛 find their way into China.
Just recently, the Dutch government new export restrictions on semiconductor manufacturing machines coming out of the Netherlands. And China since has announced export on certain minerals used in the semiconductor manufacturing process.
The process to make semiconductors is long and complex. By some measures, a chip product could cross up to 70 borders before ever finding its way to a consumer. While American companies have developed some of the most advanced methods for designing semiconductors, the most advanced manufacturing capabilities right now exist in Taiwan and South Korea 鈥� with most chips coming out of Taiwan. If the U.S. were no longer able to access Taiwan鈥檚 semiconductor industry, it would have a devastating impact on the U.S. economy.
According to a , losing access to Taiwan鈥檚 semiconductor industry would have a negative impact on the U.S. economy greater than either the global financial crisis of 2008 or the COVID lockdown of 2020. A significant disruption to Taiwan鈥檚 semiconductor industry could affect as much as $1.6 trillion, or roughly 8%, of America鈥檚 annual gross domestic product 鈥� hurting industries like personal electronics, automotives and telecommunications. And even this estimate may be low, considering how our lives, from farming to health care, are increasingly reliant on new technologies that require more advanced chips.
Nearly one in five semiconductors used for exports comes out of Taiwan. Taiwanese companies account for nearly 75% of manufacturing of the most advanced chips in the world. As the pandemic lockdown showed us, if there鈥檚 a disruption to the industries that rely on a continuous flow of semiconductors, large swaths of the economy can suffer from a domino effect of delays, loss of sales, and factory shutdowns.
Supply chain disruptions can come from anywhere. Taiwan鈥檚 location in the Indo-Pacific makes it prone to earthquakes and typhoons. Semiconductor manufacturers are no stranger to , either. But the one event that , and which could cause such a significant disruption, is a potential invasion of the island by China鈥檚 army.
As the conflict in Ukraine reminds us, war is devastating in its own respect, and a significant disruption to Taiwan鈥檚 semiconductor industry wouldn鈥檛 be limited to just the United States. Most of the chips America gets from Taiwan come after they鈥檝e been shipped to and assembled with other electronic products in China and other parts of Asia.
Whether it鈥檚 research and development, minerals, chemicals, machine tools, or their final products, the global semiconductor industry is connected through Taiwan. Asian countries such as China, Japan, Vietnam and Malaysia would see similar devastation to their economies if there were a significant disruption.
Semiconductor manufacturing is one of the most capital-intensive industries; some of the newest facilities cost billions of dollars to build. Even then, new facilities can鈥檛 be brought online overnight because construction takes years. The high costs and time to build are just two reasons that Taiwan鈥檚 mature semiconductor industry isn鈥檛 something that鈥檚 easily replaceable 鈥� especially during a global disruption.
Over the past few years, more nations have looked inward for their semiconductor manufacturing needs. The Japanese government has been new manufacturing. The also plans to spend billions on new manufacturing.
Washington has been working with domestic and foreign firms to build more semiconductor manufacturing in the United States. It鈥檚 an effort by the Congress and the Biden administration to reduce the need for foreign-made products in America. One firm in particular, Taiwan Semiconductor Manufacturing Company, is building its first state-of-the-art facility in Phoenix 鈥� with another planned in just a few years. Other leading companies, such as Intel and Samsung, and those throughout the semiconductor supply chain, are all building new capacity in the U.S. as well.
While these efforts will help mitigate some of the small shocks to the semiconductor supply chain in the future 鈥� like disruptions caused by the occasional earthquake, fires, or port delays 鈥� it will do little in the face of a significant disruption like another global pandemic or a war involving Taiwan.
Whether Washington likes it or not, the world鈥檚 reliance on Taiwan as a semiconductor manufacturer isn鈥檛 something the U.S. or can replicate. New facilities cost billions of dollars, take years to build, and require a strong signal from the market that Washington can鈥檛 just hope comes to fruition.
While the U.S.-Taiwan Business Council highlights the cost to the U.S. economy if it were to lose access to Taiwan鈥檚 semiconductor industry, it also details many of the collaborative efforts between American and Taiwanese companies. The past several decades of Taiwan鈥檚 success in building itself as a leader in semiconductor manufacturing is also a success story of American ingenuity. Taiwan鈥檚 semiconductor industry would not be where it is today without its close partnership with American industry.
As the world comes to rely more on new technologies, including the need for data storage and the growing use of artificial intelligence, so too will we continue to rely on Taiwan鈥檚 semiconductor industry. As much as Washington, Tokyo and Brussels want to build more manufacturing at home, Taiwan鈥檚 role will remain irreplaceable. We should look to support such an important partner in Asia, to help mitigate any significant disruptions.