Taiwan’s domination of the microchip industry has been a boon to the global economy, but it now presents an acute challenge. Taiwan today manufactures most of the world’s microchips, which are in practically everything: cars, coffee makers, combine harvesters. The whole world hums with microelectronic components—including about 92 percent of all advanced microchips—that are made largely in a handful of factories on an island less than one-tenth the size of California. Little more than 100 miles away across a strait lies mainland China, which views Taiwan as a breakaway region and has vowed to bring it back under its control.
Were China to seize Taiwan, one of two things could happen to the chip supply: The microchip factories could end up being controlled by China, or they could be destroyed in a conflict. Either way, a global catastrophe would ensue. In the first scenario, China could decide to limit access for the U.S. and its allies to advanced chips, significantly reducing American technological, economic, and military advantages. But if the second scenario came to pass, the world could experience an economic crisis the likes of which we have not seen since the Great Depression.
Luckily, Taiwan is now watching and learning from Ukraine’s resistance to Russia’s invasion. And the lessons Taiwan is taking from that conflict suggest how the U.S. can help Taipei—and itself—avoid either dire outcome.
One of the island’s major manufacturers is Taiwan Semiconductor Manufacturing Company Limited. An enterprise founded in 1987 through a government initiative, it now makes many of the world’s most essential microchips for Nvidia, Qualcomm, Apple, and thousands of other companies. Thirty-five years ago, when TSMC’s foundries were just getting started, the U.S. firm Intel made about 65 percent of the world’s advanced chips. Today Intel controls less than 10 percent, while TSMC’s share is 53 percent.
To see why this matters, look no further than the U.S. auto industry, which forecast an estimated $210 billion in lost revenue last year after factory slowdowns caused by the pandemic led to bottlenecks in the supply chain for automobile chips. In the event of a conflict with China, the destruction of Taiwan’s microchip manufacturing would mean not a slowdown or a bottleneck but a sudden and complete stop of nearly two-thirds of the world’s supply for the industries that depend on it. One view about the risks associated with Taiwan’s near-monopoly in microchip manufacturing in the face of a looming, belligerent China is that it is still, in essence, a supply-chain problem. Therefore, the best way out of this potential catastrophe is to build up production elsewhere, including in the U.S. The recently passed bipartisan CHIPS Act, which will fund programs worth $53 billion, is explicit in its aim “to develop onshore domestic manufacturing of semiconductors critical to U.S. competitiveness and national security.”
Another position on Taiwan is that this issue is a strategic military problem, and the best way to respond to an invasion by China would be for the U.S. to leap to Taiwan’s defense. President Joe Biden expressed this view when asked, in a recent interview on 60 Minutes, if U.S. forces would defend the island. “Yes,” he said, “if, in fact, there was an unprecedented attack.”
The problem with these approaches is that they both, in their different ways, misapprehend the significance of time. The idea of replacing microchip imports with American-made products undervalues Taiwan’s 40-year head start with its microchip industry—and it took at least a decade for the island to become globally competitive. A similar lag will apply to the U.S., which will probably need several decades at least of further investments of the same scale as the CHIPS Act before it can manufacture domestically most of the microchips it requires.
An additional complication is that TSMC’s operations have features that are hard to imagine replicating elsewhere. Its advanced-research division, for example, has engineers working in three shifts so that it can run 24 hours a day, seven days a week—“the Nightingale Army,” as they’re sometimes known, who are sacrificing themselves for this national purpose, Taiwan’s “silicon shield.”
The time issue with the idea of leaping to Taiwan’s defense is that if China attacks, it could be too late. Should China invade, the coastal-based microchip factories could be destroyed by the time the U.S. military responded. The world would already be well on its way to plunging off an economic cliff.
The U.S. does have a third option: make it too costly for China to invade Taiwan by enabling Taiwan to defend itself. Earlier this month, the Biden administration asked for, and Congress is expected to approve, a $1.1 billion arms sale to Taiwan. The package included anti-ship and air-to-air missiles, as well as an estimated $665 million to support Taiwan’s surveillance-radar program. But Taiwan probably needs more defenses to credibly deter an invasion.
Taiwan has an unfortunate history of spending too much of its limited defense budget on expensive platforms such as fighter aircraft and surface ships—neither of which are likely to survive the first days of a war with China. Some of the same types of arms that the U.S. has agreed to sell to Taiwan are currently in use by Ukrainians in their defensive war against Russia.
Even better, these sorts of systems—such as the High Mobility Artillery Rocket System (HIMARS), drones, loitering munitions, anti-tank missiles, and sea mines—might be able to do the job at relatively low cost. For about a tenth of the investment of the CHIPS Act, Taiwan could build up a so-called porcupine defense with a “large number of small things.”
Such a strategy, already proving successful in Ukraine, could yield results within a couple of years, rather than decades. One holdup in the process of arming Taiwan as quickly as America might like is a bottleneck in U.S. arms manufacturing caused by—you guessed it—microchips. The problem is temporary, but it only goes to underline what a priority it is for the U.S. to ensure that Taiwan has the right defense systems to project its own security, in the most timely way possible.