The world is dangerously dependent on Taiwan for semiconductors

Taiwan’s role in the world economy largely existed below the radar, until it came to recent prominence as the car industry suffered shortfalls in chips

By dominating the outsourcing of chip production, Taiwan is potentially ‘the most critical single point of failure in the entire semiconductor value chain’

Reading Time:5 minutes

The flags of Taiwan and chip maker Taiwan Semiconductor Manufacturing Co are displayed next to the company’s headquarters in Hsinchu, Taiwan. Photo: Reuters

Published: 3:00am, 27 Jan 2021Updated: 8:27pm, 27 Jan 2021

As China pushes the world to avoid official dealings with Taiwan, leaders across the globe are realising just how dependent they have become on the island.

Taiwan, which China regards as a province, is being courted for its capacity to make leading-edge chips. That is mostly down to Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest foundry and go-to producer of chips for Apple’s smartphones, artificial intelligence and high-performance computing.

Taiwan’s role in the world economy largely existed below the radar, until it came to recent prominence as the car industry suffered shortfalls in chips used for everything from parking sensors to reducing emissions.

With carmakers including Germany’s Volkswagen, Ford Motor Co of the US and Japan’s Toyota Motor Corp forced to halt production and idle plants, Taiwan’s importance has suddenly become too big to ignore.

US, European and Japanese carmakers are lobbying their governments for help, with Taiwan and TSMC being asked to step in. German Chancellor Angela Merkel and French President Emmanuel Macron discussed the potential for shortages last year and agreed on the need to accelerate Europe’s push to develop its own chip industry, according to a French official with knowledge of the matter.

A worker at Taiwan Semiconductor Manufacturing Co, the world’s largest chip foundry, carries wafers used for the fabrication of integrated circuits. Photo: Handout

The car industry’s pleas illustrate how TSMC’s chip-making skills have handed Taiwan political and economic leverage in a world where technology is being enlisted in the great power rivalry between the US and China – a stand-off unlikely to ease under the administration of Joe Biden.