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Economics and Geopolitics of Semiconductors

The COVID-19 pandemic has profoundly impacted our daily lifestyles and the global economy at a deeper level than just individual wealth and consumption.

Globalisation has its roots in supply chains integrated across the globe, and the risk of such dependency from other countries are now well-known. In 2021, authorities have also experienced first-hand how hard it is to keep forecasted recovery, in the context of intertwined markets and just-in-time productions, when a slight change in the equilibria can disrupt whole industries.

Often, supply crises have made an unaware public conscious of how strategic specific products are from both an economic and geopolitical point of view, and this time is no exception.

Various consumer habits dramatically increased demand for semiconductors, also known as chips, since these have uncountable applications in production, such as gaming devices, laptops, smartphones, house furniture, civil and military vehicles. If waiting lists for chips were already long, the situation has worsened during the COVID-19 pandemic, and, due to fluctuations in demand, several industries are now facing shortages unable to keep up with their production needs.

A few examples include Ford shutting down its production plan, Volkswagen going back to analogical displays in some of the vehicles, the two-month delayed iPhone 12 launch, and the slow roll-out of the PlayStation 5 are semiconductors' shortage consequences.

Once we realized how crucial the chip industry is, we can imagine the geopolitical importance of controlling supply chains. In this context, Taiwan plays a crucial role being home to TSMC, the leading semiconductor producer from a scale, accounting for over 50 percent of the global demand for non-proprietary developed chips, and technological point of view. Moreover, analysts forecast this position to consolidate with an ambitious 100 billion USD investment plan over the next three years.

The island's position, besides a profound impact on the Taiwanese economy -- 3% growth in 2020 -- puts it in an even more strategic alignment within the great power struggle between China and the United States. Taiwan outperforming China in supplying these technologies, strategically and otherwise, would put Chinese industrial autonomy at a disadvantage. Recognizing this possibility, China has committed over $100 billion to expedite their research and production.

It is hard to forecast in the long term, but undisputed Taiwanese semiconductor leadership in the short to medium term, on top of the public spotlight for economic growth and democratic leadership, will undoubtedly be an asset that Taipei can use as diplomatic leverage in the future.

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