How TSMC Tensions and US-China Tensions May Decimate the Fate of the Global Economy

• The fate of the global economic system may depend on one company: TSMC. 
• TSMC is the world’s biggest chipmaker — its chips power everything from cars to iPhones. 
• However, US-China tensions and China’s standoff against Taiwan could be costly to the global economy in the trillions.

One company produces a product for household products that can be used all over the world, on a small island just off the coast China.

And as that island — Taiwan — worries about the threat of a standoff between the US and China, the world’s economy holds its breath. This is because there could be. The value of trillions upon trillions of dollarsTaiwan Semiconductor Manufacturing Company (the world’s largest chipmaker) is the key to economic activity.

Industry watchers believe that an escalated dispute between China (US) and Taiwan (China) could have a negative impact on the global economy. The reason being that no other company produces advanced chips in such large quantities. According to industry watchers, if TSMC shuts down, everything from cars and iPhones could be stopped.

“If China would invade Taiwan, that would be the biggest impact we’ve seen to the global economy — possibly ever,” Glenn O’Donnell, the vice president and research director at Forrester, told Insider. This could be even more than 1929.

What is TSMC exactly?

Although TSMC is not a household name you almost certainly have something powered by its chips.

TSMC operates in the foundry industry, meaning that it does not design chips but produces them at plants owned by other companies. It is responsible for more than half the global semiconductor market. This includes advanced processors. As high as 90%. Even the top chip from China’s largest semiconductor manufacturer, SMIC can be a good one. TSMC is believed to be five years behind TSMC..

TSMC considers Apple its largest customer. It supplies the chips that power iPhones to the California tech company. TSMC produces about 60% of all the chips used in automakers’ smartphones, and most of the world’s 1.4 billion smartphone processors. According to The Wall Street Journal.

TSMC semiconductors also play a role in high-performance computing. Process reams data and guide missilesThis makes the company very valuable in the eyes government agencies.

William Alan Reinsch, a Senior Advisor at the Center for Strategic and International Studies, a national intelligence think tank, said that TSMC has become a dominant player in the industry and has therefore automatically become an oligopoly.

“When you have a very complex, very sophisticated, and very expensive technology where barriers to entry are very high — I mean, building a fab plant is in the billions — you can’t just decide tomorrow, ‘Well, I’m going to go into that business,'” he said. It’s not like making tea.

How can we have become so dependent on chips from Taiwan?

The US is the home of the semiconductor industry. Most of the research and development are done here. Technology from the United States is licensed to companies in other countries.

Dylan Patel, chief analyst at SemiAnalysis and a consultant in semiconductor research, pointed out the Dutch company ASML. ASML is known for producing high-end chipmaking equipment. However, it was created in the US National Laboratories.

Reinsch claims that manufacturers in developed countries have decided it is in their best interests, over the past thirty years, to outsource the production of chips.

He explained that a large factory is built and the products are produced in low-wage countries with no environmental regulations. You keep all the IP and design at home. Then you can do all of your sales, marketing and service at home. That’s where the money is.

Reinsch stated that this strategy has led directly to the growth and production of chip foundries such as TSMC, while reducing American soil production.

According to 2021 ReportAccording to the Semiconductor industry Association, 37% of all world chip production was produced in the United States in 1990. The US accounts for only 12% today of the global chip production.

Is this why it is a problem right now?

The following are the coronavirus pandemicThe war in UkraineAs many have shown, too much reliance upon certain countries can lead to disruptions in supply chains. This is why many US corporations are looking into “onshoring” — moving some of their manufacturing to the US — to make their supply chains more resilient.

However, the US’s access TSMC chip chips is particularly vulnerable. Taiwan is self-governing, but China. The island is claimed as its own and has threatened to invade. Controlling Taiwan is central to Chinese President Xi Jinping’s goal of achieving a “great rejuvenation of the Chinese nation” by 2049, the 100th anniversary of the People’s Republic of China.

While the consequences of an invasion could be significant, many experts say it’s just a matter of time before it happens, whether it’s by 2030, 2025, or even by the end of next year. On Monday, US Secretary of State Antony Blinken predicted China would take steps to annex Taiwan on a “much faster timeline” than previously thought, signaling that it could be sooner rather than later. The US government is already playing out war-game scenarios to prepare for this, in the event of a full invasion it would reportedly consider evacuatingThe skilled chipmaker engineers upon which it has become so dependent.

Following the recent events in Taiwan, the spotlight has been shifting to Taiwan and the whole semiconductor industry. Export regulationsChina was subject to US government sanctions. The US government imposed restrictions on China to restrict sales of semiconductors manufactured using US technology. These regulations were meant to reduce China’s ability for advanced technology development.

China and the USA are locked in what Patel called “a full-scale bilateral economy cold war.” This is likely to have serious financial repercussions due to how intertwined their semiconductor supply chains.

What would happen if China invaded Taiwan

Taiwan hopes its semiconductor business will protect it from Chinese aggression — government leaders have called the industry a “silicon shield“Against invasion.”

O’Donnell of Forrester stated that China could invade the world’s supply of chips and “the whole global economy would come to a screeching stop.” He said that semiconductors have “become almost the oxygen of global economic life.” “Without the chips you can’t breath.”

Martijn Rasser, a former senior intelligence officer with the CIA, is now a security expert and technology specialist at the Center for a New American Security. This think tank is left-leaning.

Insider was told by he that “you’d be looking to trillions in economic losses.”

The US National Security Council We agreeIn July, the US commerce secretary was appointed The US would be in a “deep and urgent recession” if American companies were unable to access these chips.

Experts speculate that the chip-manufacturing plants would be deliberately destroyed in case of invasion to prevent China from accessing them. Jared McKinney, an academic at the US Army, described this strategy in a December Army journal article.broken nest” — another way to put it is mutually assured destruction.

Rasser stated that the destruction or inability to access these chips could have serious national security implications.

“Every military system we depend on has a ton semiconductors in it,” he stated. “It could impact our ability maintain existing weapon system, upgrade them, and build new ones.”

Consider that the US has Committed to defendingIn the event of a Chinese invasion of Taiwan, these attacks on the US’s defence capabilities could be particularly significant.

Rasser believes that a Chinese invasion in Taiwan would cause the most severe disruption. However, it wouldn’t take an invasion to prevent chip access from the rest of the world. China could also invest in Taiwanese companies and poach their workers. blockadeOn the island that could shut off the supply of semiconductors from the entire world.

What is the solution?

The US is making efforts to reduce its dependence on Taiwan. For example, Congress took steps to reduce Taiwan’s dependence in July. PassedThe CHIPS Act covers nearly $53 BillionIn order to boost chip manufacturing in the US, subsidies and tax incentives are offered.

Some companies have already started adding US facilities to their operations: Intel is one example. Building two factories worth $20 billionMicron has committed to Ohio Spend up to 100 billionSamsung is building a huge chip factory in New York’s upstate. One factory worth $17 billionTexas is home to TSMC, which is currently building Plant worth $12 billionArizona

TSMC will also build a new Japanese facility to produce the lower-tech chips required by the auto industry. The Wall Street Journal reportedJapanese officials indicated that they would like TSMC expand its presence in Taiwan by adding capacity for advanced chip production. This is another indication of how global powers are becoming more wary about Taiwan’s geopolitical risks.

O’Donnell cautioned that it was premature to celebrate the end of the chip shortage and the US’s dependence on Taiwanese products. The factories themselves require equipment that’s in short supply because of — ironically enough — the chip shortage. It takes years to build these plants and get them online.

“Once a shovel is in the ground, it’s not going to give you chips for at least three decades,” he stated.

There are still obstacles to reducing the country’s dependence on TSMC. Taiwan might continue to benefit from tax and subsidies, even though they will be beneficial. Stay with the less expensive optionFor businesses. TSMC’s chips will likely be of higher quality, at least for the moment. Rasser stated that TSMC is “really on the cutting edge” and chips made in the USA by Intel “wouldn’t have the same sophistication” as chips made in Taiwan.

Although these chips of inferior quality could be used to lessen the US’s dependence on Taiwan, they are not sufficient. Skilled workforceA problem was needed to boost production. companiesThis industry is facing challenges all over the world. Rasser believes that education and training will be more effective in filling this need.

It is because of these reasons, it could take years and possibly even decades before the US can declare independence in chipmaking.

Rasser said, “The CHIPS Act, although it’s a step in the right directions, it’s not much more than scratching it.”

The US might have to wait and see if an economic disruption does not occur.