Ashray Lavsi, principal with Efficio Consulting, reports on the current state of relations between China and Taiwan, and how it might affect the global supply of semiconductors.

Taiwan plays an “extremely critical” role in supplying the world with semiconductors, Lavsi notes. Taiwan Semiconductor Manufacturing Company (TSMC) provides 90% of advanced-design chips, and 60% of all types of semiconductor products. Its biggest competitors are Samsung and Intel, at a distant second and third, with market shares of 18% and 10%, respectively.

Any interruption, therefore, in the flow of semiconductors from Taiwan could have a “catastrophic” effect on global supply chains. Witness the chips shortage of 2021, which forced the automotive industry to cut back on production by 7 million units, resulting in the loss of billions of dollars of revenue.

The biggest threat at the moment concerns China’s stance on Taiwan, which it claims as part of its territory and could choose to invade the island at any time, choking off semiconductor production.

In addition, notes Lavsi, 50% of all containerships in the world move through the Taiwan Strait, so an interruption of vessel traffic there would seriously impact all trade with China. Short of an invasion by China, a blockage of that critical trade route would have a similar impact. “If anything were to happen,” he says, “with even a minor disruption, the domino effect could be massive.”

The threat has intensified in recent in recent months, with China conducting military exercises in the Taiwan Strait. Such actions have caused the U.S. and Europe to begin seeking ways to reduce their reliance on semiconductors from Taiwan, with both offering billions of dollars to companies willing to build domestic chip-fabrication plants. Those efforts are well underway, but are expected to take years to bear results. In the meantime, the stability of the global high-tech supply chain remains dependent on a highly unstable political state of affairs.