In context: Tensions between China and other countries, especially the US, grew earlier this year when the communist government laid claim to the self-governed state. Analysts have many theories about what would happen to the TSMC’s factories if China annexed Taiwan. Most agree it would be a bleak outlook for the electronics industry.
Semiconductor analyst Claus Assholm notes that if China invaded Taiwan, one of its goals could be to destroy TSMC’s sophisticated chipmaking factories.
As the world’s largest contract chip manufacturer, TSMC’s destruction would severely disrupt global supply chains. However, Assholm’s analysis contradicts much of the strategic thinking surrounding China’s possible invasion of Taiwan and how it would impact TSMC.
Conventional thinking is that if China successfully invades Taiwan, it will attempt to control TSMC operations. Of course, this would be very challenging considering the increased international sanctions it would face. The island nation’s global supply chain partners are aware of the damage this would cause and are trying to devise alternative solutions.
Bloomberg notes one alternative is to disable its plants remotely. According to people familiar with the matter, TSMC has this capability. More drastically, some US politicians advocate either the US or Taiwan destroy the factories so they don’t fall into China’s hands. Taiwan has come out strongly against this, especially at the hands of the US.
However, Assholm ponders the worst-case scenario: “What if China is not deterred by potentially mined TSMC factories and ASML kill switches? What if the reunification plan is based on eradicating the TSMC factories and the Semiconductor supply chain in Taiwan and beyond?”
China might be tempted into such an act by visions of dominating the world’s supply chain. Assholm notes that Taiwan and South Korea own 22 and 28 percent of the global semiconductor market, respectively.
Meanwhile, China has a 12% stake, making it the third largest player. If both countries are removed from the equation, which could happen if there were a conflict in the region or between Taiwan and South Korea, China would possess about one-third of global semiconductor capacity, making it the leading global electronics supplier.
Assholm speculates that if this were to happen, the US would be forced to buy from China, setting back domestic electronic sectors by 15 to 20 years or until the US built enough chip factories to become self-sufficient, which will be no easy task.
Boston Consulting Group points out that as of 2021, the US only accounted for about 12 percent of global semiconductor manufacturing capacity, down from 37 percent in 1990. While the CHIPS and Science Act, passed in 2022, allocates $52.7 billion over five years to encourage semiconductor development and research in the US, its impact will take decades to materialize.
