Reliance on Taiwan chips puts US economy at risk amid China tensions
Recent tensions between Taiwan and China could be catastrophic for the United States as it depends on one Taiwanese microchip supplier.
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China's chip companies are rapidly growing, while the US share of the market has dropped from 37% to 12%.
Any conflict between Taiwan and China could be a serious problem for the United States as the latter depends on a single microchip supplier on the island, whose products are found in everything, starting from iPhones to F-35 fighter jets.
Tensions between China and Taiwan increased sharply following US House Speaker Nancy Pelosi's visit to Taipei and the disregard of Beijing's repeated warnings. Beijing launched large-scale military exercises in response, disrupting global supply chains.
Read: China vows reunification with Taiwan after Pelosi's visit
Last month, the US State Department updated its fact sheet on Taiwan again to bring back a line about not supporting formal independence for the island that China sees as an inalienable part of its sovereign territories.
Washington, despite not having any formal ties with Taipei, is the island's most important international backer and arms supplier.
In order to reduce the reliance on the island, the US government will be investing billions in projects to boost domestic semiconductor capabilities.
Read: Biden signs on $52.7 bln microchip investment bill to 'counter China'
US vulnerabilities running deep
Due to the global microchip shortage, the US economy lost last year $240 billion, and a war over Taiwan would be even more catastrophic for the US due to its reliance on one single supplier, Taiwan Semiconductor Manufacturing Company (TSMC).
TSMC makes more than 90% of the world’s most developed microchips, as per the Capital Economics research group, and the company’s market share is only likely to expand. TSMC executives in a July earnings call projected 30% growth this year, which would put total annual revenue well over $70 billion.
US tech giants like Intel, Apple, Qualcomm, NVIDIA, Broadcom, and AMD all depend on TSMC, while the US government depends on it for some of the most complex systems.
In July, Zach Nunn, the former director of cybersecurity for the White House National Security Council, said the semiconductor shortage is a "direct threat to America’s economy and national security."
Even though Biden failed to prevent Pelosi from visiting the island, he is obviously well aware of America’s vulnerabilities. It is true he stopped short of opposing the House Speaker publicly, but senior White House officials behind the scenes were sent to advise Pelosi not to go, as per Bloomberg.
Chip race with China
Although China today accounts for only 15% of global manufacturing in semiconductors, its chip companies are rapidly growing, while the US share of the market has dropped from 37% to 12%.
China has the skills to eventually take the lead in many sectors related to technology and science, according to former senior US diplomat Chas Freeman.
Freeman explained that the gap is widening between China and the US in terms of universities producing students in science, technology, engineering, and math (STEM), noting that Chinese universities produce four times as many students as the US in the field.
