Impending Military Conflict in Taiwan Threatens Global Economy, Warns Leading Chipmaker

HSINCHU, Taiwan—The potential outbreak of military hostilities in Taiwan could have devastating consequences for the global economy, primarily due to the severe disruption it would cause to the semiconductor supply chain, warns Miin Wu, founder and CEO of Macronix, one of Taiwan’s prominent microchip manufacturers.

Taiwan, a self-governing democracy located about 100 miles off the coast of China, is renowned for producing the world’s most advanced microchips, which serve as the brains behind a wide array of technology, including smartphones, cars, artificial intelligence systems, and even fighter jets.

China, however, claims Taiwan as its territory and has expressed its willingness to employ force to assert control over the island. While the United States officially discourages any conflict and remains neutral, President Joe Biden has repeatedly indicated that he would intervene to defend Taiwan if necessary.

The potential disruption of the semiconductor industry caused by military conflict would have a “tremendous” impact on the global economy, cautions Wu. He believes that such a crisis would set back technological advancements by at least 20 years. His concern stems from Taiwan’s role as a microchip fabrication hub, responsible for producing 60% of the world’s semiconductors and a staggering 93% of the most advanced ones, according to a report by the Boston Consulting Group.

These intricate wonders of technology consist of minute patterns etched onto thin silicon slices, known as “wafers,” with measurements on the nanometer scale.

Wu, now 75, played a significant role in establishing Taiwan’s chip industry. He founded Macronix in 1989 after spending over a decade working in Silicon Valley, including a senior managerial position at Intel. Upon returning to Taiwan, Wu brought back around 40 senior Taiwanese engineers with him. The Macronix campus exudes a Silicon Valley atmosphere, with employees freely moving between workstations, an on-site gymnasium, a roller-blading area, and a sprawling park. The company’s showroom proudly displays the chip manufacturing process and showcases a range of products, including Fitbits, Nintendo game consoles, vehicles, and medical equipment, all powered by their microchips.

Wu admits that he never envisioned semiconductors becoming one of the world’s most critical industries, let alone one at the center of escalating tensions between the United States and China—the two largest economies on the planet.

Tensions between these nations have soared in recent years, stemming from disputes over various issues such as trade, human rights, and international conflicts like Russia’s war in Ukraine. Taiwan, a government not officially recognized by the U.S. but protected by law with defensive weaponry, has become a focal point of these tensions.

The Taiwanese semiconductor industry has been referred to as a “silicon shield,” providing the U.S. and its allies with an added incentive to ensure Taiwan’s security amidst China’s growing threats.

Since the establishment of the People’s Republic of China in 1949, following a civil war, the ruling Communist Party has claimed sovereignty over Taiwan. The island, however, has its own government established by the defeated Nationalist forces. Chinese President Xi Jinping has expressed desires for a “peaceful unification” with Taiwan but has not ruled out the use of force.

The U.S. has long adopted a policy of “strategic ambiguity” concerning its response to a potential Chinese attack on Taiwan, aiming to deter Beijing from invading while dissuading Taipei from taking actions that might provoke a military response. The State Department recently highlighted the economic and security implications that any instability in the Taiwan Strait would have on the region and the world at large.

Although Biden’s administration initially appeared to deviate from the strategic ambiguity policy by asserting the U.S. would defend Taiwan, the White House later clarified that the official stance had not changed.

Malcolm Penn, CEO of the British semiconductor industry consultancy Future Horizons, agrees with Wu’s assessment, stating that a war over Taiwan would “bring the world to its knees” due to the resulting disruption in global chip supplies. Penn even suggests it would make the COVID-19 pandemic seem trivial and would harm China as much as any other country.

Robert Tsao, a Taiwanese billionaire who amassed his wealth in the semiconductor industry, shares the sentiment, believing that a war would “ruin everything” and have disastrous consequences for the international interests of the U.S. and the rest of the world.

Given China’s territorial claims extend to the majority of the South China Sea—a crucial shipping route abundant in natural resources—the Biden administration seeks to “de-risk” its relationship with China by keeping trade open while imposing restrictions on certain areas deemed potential threats to national security or future-defining technology.

Last year, Biden implemented extensive export controls intended to impede China’s access to specific types of semiconductor chips developed with U.S. technology. These controls, along with other technology restrictions, have had implications for companies worldwide, including Macronix. Like other Taiwanese chipmakers, Macronix is prohibited from selling advanced chips to China, its most significant trading partner.

China has criticized these export controls as an abuse of trade measures aimed at preserving U.S. “technological hegemony.” Many industry experts also argue that Washington’s attempt to control the market is counterproductive.

Malcolm Penn believes the U.S. export controls will inevitably delay China’s technological progress but won’t prevent it. He predicts that China will achieve technological parity in about ten years, as the country possesses the necessary resources, scientific expertise, financial means, and a substantial market demand.

While the U.S. aims to bolster domestic chip manufacturing, such a complex undertaking will require time, approximately a decade, according to Wu.

Ultimately, the stability of the semiconductor industry and global access to devices reliant on microchips depend on the decisions made by the leaders of China, Taiwan, and the United States. Wu emphasizes the importance of wise decision-making in finding a solution to this intricate geopolitical and technological challenge.

https://www.nbcnews.com/news/world/taiwan-war-china-us-ruin-global-economy-semiconductors-chips-rcna91321