TAICHUNG (Taiwan News) — There are two contradictory, but popular, ideas floating about regarding Taiwan’s national security and semiconductors. Both are wrong, and dangerous.
Both lean in heavily on some basic facts, but to the exclusion of other facts, crucial context and understanding of how the Chinese Communist Party (CCP) thinks and operates. The facts behind these theories are important, however.
Over 90% of the world’s advanced chips are made in Taiwan, as well as over half of the world’s contracted foundry production and one-fifth of all semiconductors produced worldwide. Led by the world’s most advanced chipmaker, Taiwan Semiconductor Manufacturing Co. (TSMC), Taiwanese foundries are the most dominant players in the global market.
The world runs on these chips. It’s not just your cell phone that relies on them, the infrastructure that all of us rely on to provide food and other basic necessities does as well, as do many modern weapons systems deployed by militaries around the world.
These chips are now so integral to the world economy that many have taken to referring to them as the “new oil” or even drawing analogies to the spice in the sci-fi tale "Dune." Regardless of your preferred analogy, Taiwan’s role in global supply chains is a critical chokepoint for a vital commodity.
The first of the two bad, and dangerous, ideas floating around is that China would invade to get its hands on Taiwan’s chip fabs. I tackled this mistaken theory, which is based on flawed understandings of both the CCP and how semiconductor supply chains work, in my previous column.
'Silicon shield' theory
The second idea is a bit more complicated, the so-called “silicon shield.” At the core of this theory is an invasion of Taiwan would take the entirety of Taiwan’s chip industry offline, as confirmed by TSMC Chair Mark Liu (劉德音).
This would be, as U.S. Secretary of State Antony Blinken put it, “devastating” to the world economy. Others estimate the economic destruction would compare with the Great Depression.
Proponents of the silicon shield theory base it primarily on the economic damage it would cause everyone, which would also be economic suicide for China. As the world’s factory and the top trading power in the world, losing access to Taiwan’s semiconductors would wreak havoc and lead to extreme economic stress, probably even worse than in other parts of the world.
The thinking for some is that China is simply too economically reliant on Taiwan’s chips, and that China’s rulers would fear the domestic instability that might come with a sharply contracting economy. After all, since dropping the communist command economy, the CCP has justified its continued hold on power on nationalism and delivering continuous economic growth, right?
CCP could sacrifice economy
It should be clarified that the CCP hasn’t “delivered” economic growth, farmers, workers, entrepreneurs and foreign investors did that. They just got partially out of the way.
No doubt the CCP prizes economic growth. Except when it doesn’t.
After all, this is the party that created the Great Leap Forward, which led to tens of millions of deaths and the chaos of the Cultural Revolution. More recently, Chairman Xi Jinping (習近平) has also shown he often has other priorities than the economy.
The genocide in East Turkestan (Xinjiang) and the sanctions that came with it, the wholesale destruction of the cram school industry and the crackdown on big tech companies are all examples. Then there is the “dynamic zero Covid” policy, which has repeatedly shut down whole swathes of the economy, snarling supply chains worldwide and crushing many small service businesses.
The CCP has also, through a combination of brutal crackdowns and the zero-Covid policy, led to Hong Kong losing its top spot as Asia’s premier financial hub to Singapore. Chairman Xi will damage the economy as he sees fit, based on his priorities.
If he decides to lean in heavily on nationalism, for example, he may be willing to sacrifice the economy as a priority. We just do not know how much Xi is willing to sacrifice.
The bigger picture
There is another major flaw in the silicon shield theory. Regardless of Taiwan’s semiconductors, they would be facing economic disaster if they launched an attack on Taiwan.
They would almost certainly be hit with sanctions, which would idle much of its manufacturing base, regardless of whether the factory-made items include semiconductors or not. China is the world’s second-largest importer, which it relies on to fuel its economy.
China’s own large, albeit lower-tech, chip industry would also lose access to much of the extensive and complicated worldwide supply chain that feeds that industry the key inputs it needs. Losing their domestic semiconductors might be even more destructive than losing Taiwan’s.
Most of the imported fuel, foodstuffs and factory inputs used in China come via the narrow Strait of Malacca or from the Western Hemisphere. Almost certainly, the U.S. Navy will put an end to those imports.
While China has made efforts to diversify supplies, especially fuel, away from easily disrupted trade routes and toward Russia and Central Asia, they are years away from those sources being able to replace those coming via the Pacific. War would deprive China of most of its export revenue and imported supplies.
Xi's calculus on Taiwan
In other words, semiconductors are only one factor in the amount of damage China’s economy would take. Not likely enough to change the CCP’s calculus on its own.
No doubt the economic destruction they would have to bear is a factor on Chairman Xi Jinping (習近平) and the CCP’s mind when considering invading Taiwan, and that probably has some deterrent power. Semiconductors alone do not provide any shield.
Continuing to peddle this myth is dangerous. Taiwan cannot rely on a myth for self-defense, it needs to urgently prepare.
Other silicon shield supporters say the West is so reliant on semiconductors that it will send in the cavalry to defend Taiwan. There may be some veracity to this with smaller players, and it may contribute to a stronger response from countries like Germany, whose auto industry is heavily reliant on chips.
That would indeed be welcome. However, like with the CCP’s calculations, semiconductors would at most play only a part in the calculations of the countries most crucial to coming to Taiwan’s defense.
What is at stake is not just semiconductors, it is the entire world economic order. Bloomberg estimates that around 50% of all world trade in the first half of this year passed through the Taiwan Strait, as well as 88% of the world’s largest container ships.
Worse, if China were to succeed in taking Taiwan, the knock-on effects would destabilize not just the world economic order, but also geostrategically. With Taiwan under China’s boot, it would be able to project power throughout the region.
The first island chain, which currently constrains the Chinese navy to have to traverse relatively narrow waterways that can be monitored, would be broken. Deep water ports on Taiwan’s east coast would be available to Chinese submarines.
This would make it easier for China to maneuver throughout the entire Indo-Pacific region. To the north, the sea routes that supply Japan and South Korea with essentials like oil would be under control of the Chinese, leaving them partially isolated.
To the south, it would increase China’s dominance over the South China Sea. This would give it effective control over the majority of trade routes in the region and the ability to cripple the economies of any country that incurred Beijing’s displeasure.
Left unchecked, they would certainly make moves to revert to China’s previous imperial model of East Asian regional control through a system of tributary states no longer able to fully exercise sovereignty if China views it against its own interests.
The Philippines would be under huge pressure to bow to Beijing. Singapore, which has so far played a deft game of staying friendly with both the U.S. and China, would likely come under China’s sway, as would Malaysia.
If that happened, the Strait of Malacca would come under Chinese control, allowing it to project power south toward Australia and west into the Indian Ocean. Countries like Vietnam and Thailand would also likely need to defer to Beijing, as their neighbors Laos, Cambodia, and Burma already do.
What freedoms and democratic forms of government do exist in East Asia would likely be actively undermined. Entire economies would come under pressure to serve Chinese imperial interests.
The effects of a hegemonic power exercising influence or even outright control over the huge populations and dynamic economies of East Asia would be felt worldwide. It would destabilize the entire world order.
What’s at stake goes far beyond semiconductors.
Courtney Donovan Smith (石東文) is a regular contributing columnist for Taiwan News, the central Taiwan correspondent for ICRT FM100 Radio News, co-publisher of Compass Magazine, co-founder of Taiwan Report (report.tw) and former chair of the Taichung American Chamber of Commerce. Follow him on Twitter: @donovan_smith.
