As much as China would love control over Taiwan’s world-leading semiconductor industry, it can’t risk taking it by force.
Proponents of Europe working towards self-sufficiency in semiconductor technology probably feel their positions strengthened after a record number of Chinese warplanes entered Taiwan’s air defense zone recently. After all, the beefed-up incursions seem to reinforce the notion that China won’t stop until it has brought the “renegade province” to its knees. With countless European companies, directly or indirectly, depending on chips that are manufactured on the island, this poses a major threat to Europe’s economy and security. What more reason do we need to start reinvigorating our semiconductor activities?
It’s not as simple as that. Ironically, the world-leading position of Taiwan’s semiconductor industry is an important factor in what’s keeping China from turning its military posturing into an outright invasion.
More than twenty years ago, journalist Craig Addison coined the term “silicon shield” to indicate that Taiwan’s world-leading position in semiconductor manufacturing acts as a deterrent to Chinese military action. The West wouldn’t tolerate such an attack, which would wipe out trillions of dollars of market value of American, European and Japanese technology companies. The US stepped in when Saddam Hussein tried to take control of Kuwait’s oil and it would do the same for Taiwan’s semiconductors.
Two decades later, the situation has changed drastically. China’s military and economic might have grown massively, dwindling the willingness of the West to engage in a direct confrontation. Yet, the silicon shield is still up. An attack on Taiwan would send shock waves throughout the world’s technology supply chains, which would hurt China just as much as they would any other country. These days, China has a lot more to lose.
Some have argued that the restrictions US has placed on exports of chip and chip-manufacturing equipment using US technology are weakening the shield. “China has a huge problem with its inability to produce leading-edge IC devices for its future electronic system needs – a problem that it believes can be solved through reunification with Taiwan by whatever means necessary,” IC Insights wrote in a note.
While the semiconductor market analyst acknowledges that China’s economy would also suffer greatly from a military takeover, “the question is whether China is willing to accept relatively short-term economic pain for the long-term benefit of having the largest amount of the world’s leading-edge IC production capacity under its control for many years to come.”
But would a successful invasion really grant China control over the world’s leading-edge IC production capacity? One could easily imagine Taiwan sabotaging the fabs or the US firing a few cruise missiles to lay them to waste. Even if China manages to capture the chip-making infrastructure intact, that doesn’t mean it can operate it. Taiwan’s workforce may be persuaded to continue working, but foreign supplies of essential materials and equipment will dry up.
More importantly, capturing Taiwan’s chip factories won’t further China’s overarching goal of becoming self-sufficient in strategic technologies such as semiconductors. “This means escaping dependence on a transnational supply chain dominated by firms from the US or allied nations. Taking control of TSMC would not achieve this goal, as TSMC’s role in the global value chain depends on inputs from US, European and Japanese firms,” geopolitical analysts John Lee and Jan-Peter Kleinhans pointed out.
Bolstering semiconductor activities is a long-term ambition, which should be based on long-term considerations. There are many good reasons for Europe to push forward with this, but an immediate threat to Taiwan’s independence isn’t one of them.
Main photo credit: TSMC