Taiwan crisis: Battle cries at heart of silicon industry

It was July 2021. The world was in the throes of a severe chip crisis. At such a time, an analyst asked Mark Liu, chairman of TSMC, the center of the technology world, a strange question: "Aren't your customers worried when China threatens war with Taiwan?"

Although the question was unusual, the reason for it was clear. TSMC was at the peak of its profits, and the global chip crisis had further increased its importance. But their factories were on the opposite side of China, on the west coast of Taiwan! Although investors had ignored this geopolitical tension between the United States and China until now, in 2021 many people started looking at the map of Taiwan anew with panic.

Mark Liu, however, was confident. He assured everyone that everyone wanted peace. Since the world depends on Taiwan's semiconductors, no one would want to disrupt this supply chain. Rather, Taiwan's chip industry would act as a kind of 'silicon shield'.

But the very next day, China proved how fragile peace is. It took to the sea with amphibious armored vehicles, essential for an invasion of Taiwan. It practiced long sea voyages' on warships and rehearsed an attack on the shore. Military experts believe that this exercise, or the 'salami-slicing' strategy of seizing small Chinese islands, could lead to a major conflict. The question is: Will the United States risk nuclear war for a small island?

American military analysts assessed that China could choose two less risky strategies instead of a full-scale invasion. First, if China partially blocks its sea and air routes, Taiwan's trade would be quickly damaged. To break this blockade, the United States and Japan would have to attack military installations on the mainland, which would directly create the risk of a major war. Second, China can quickly destroy Taiwan's military bases and radars with missiles and air strikes, leaving the chip factories intact.

Mark Liu was right when he said that no one wants to cut off semiconductor supplies. However, both China and the United States want to gain more control over this supply chain. The idea that China would destroy TSMC's factory is not realistic, because China itself is dependent on these chips.

However, even if China attacked and captured the factory, it would be almost impossible to run it. Because the equipment and software used in it come from America, Japan, and Europe. And disgruntled engineers can destroy billions of dollars of equipment in an instant. Running a semiconductor factory is not as easy as capturing a mountain, it is a matter of extremely complex technology and skill.

China has declared many times that the 'reunification' of Taiwan is its national priority. Militarily, they are now so powerful in the Strait that Chinese missiles can hit US ships and bases in Japan and Guam. In such a situation, the United States may not want to risk a major war. As a result, the world may have to rely on Taiwan's semiconductors, which are under Chinese influence.

If, for some reason, the TSMC factory is destroyed, the disaster will be even more severe. Taiwan produces 37% of the world's logic chips, which are the lifeblood of computers, phones, data centers - everything. If Taiwan shuts down, the world will lose 37% of its computing power in one fell swoop. One-third of PC processor production will stop; AI growth will come to a standstill; it will be almost impossible to make new phones. This economic blow will be worse than the pandemic, which could cost trillions of dollars. Experts believe that this loss will set the world back by about 5 years. 5G, AI - forgetting everything, people may be busy trying to buy everyday goods.

In the past, in 1954 and 1958, there was tension over Taiwan, but China was weak at that time. Now the situation is completely different. Although their president called Taiwan's chip industry a 'silicon shield', this is excessive optimism. In 2021, many Taiwanese thought war was impossible. The Ukraine war proved that even after a long peace, war can suddenly break out. China is not Russia. China has invested heavily in its own chip industry and has the power to influence the United States by sitting very close to Taiwanese factories.

This new crisis is more dangerous than before. There is also a nuclear risk. Because at its center is the semiconductor industry, which is the world's 'digital heartbeat'. China may believe that it can win this time, and that belief has made this crisis even more serious.

(Adapted and abridged from Chapter 54, "The Taiwan Dilemma", of Chris Miller's acclaimed book 'Chip War')

About the Author: Mahmud Hossain, a BUET graduate, has over three decades of leadership experience in Bangladesh’s telecom and ICT sectors. He played a key role in introducing mobile technologies in the country. He now serves as a Commissioner at BTRC, following senior leadership roles in several national and multinational industry-leading companies.