Semiconductor

• A conflict between the US and China over computer chips – or semiconductors – has been escalating in recent months.
• In particular, the US has taken steps to limit China’s access to advanced chip technology amid heightened international competition in the area.
• Beijing retaliated by banning US chip maker Micron from operating in China.
• Because of Taiwan’s dominant position in the chip industry, its economy has been described as the the “most indispensable” in the world.

Critical technology

• However, Taiwan alone manufactures more than 60% of the world’s semiconductors -— and crucially, 90% of the most advanced ones.
• There are fears the silicon shield might not hold forever, and an invasion by China would threaten the global economy with implosion.
• However, if TSMC were to build new manufacturing facilities elsewhere it would reduce the world’s reliance on Taiwan for chip production.
• A practice called “friendshoring” could concentrate manufacturing and the sourcing of materials outside Taiwan in countries friendly to the US.

The chip shortage

• There is already a shortage of microchips, which began with the onset of COVID-19 in 2020 and has affected many industries and products.
• In a bid to boost chip supplies, the Biden administration and the EU have tried to improve supply chain resilience by incentivising production closer to home.
• Under current chip war conditions, low supply is likely to continue, which means price increases and product delays.
• The increase in chip prices would unleash massive inflation on a range of products and services, including cars, phones and healthcare equipment such as ultrasounds and vital sign monitors.