How a war between China and Taiwan could cause product shortages

China and Taiwan are on the brink of war after a long-standing dispute over the island’s sovereignty came to a head – with potentially massive implications for consumer technology supplies. 

Taiwan is home to the world’s biggest producer of computer chips, Taiwan Semiconductor Manufacturing Company (TSMC).

TSMC’s chips are used in a wide variety of phones, including the iPhone 13; cars including the Renault Arkana SUV; gaming consoles including the Nintendo Switch and Playstation 5; and smart home devices including the Revcook smart toaster. 

Rising tensions between China and Taiwan could disrupt the production of these chips, with knock-on effects throughout the global consumer electronics industry.

TSMC’s chairman has warned that a Chinese military force or invasion would make the firm’s facilities ‘inoperable’ because it relies on ‘real-time connection’ with Europe, with Japan and the US.

Experts have told MailOnline that, if TSMC is unable to produce chips at its current rate, it could affect availability of some popular tech devices as soon as Christmas – although the biggest effects are likely to be felt next year.

TSMC – the most valuable company in Asia and the 10th most valuable company in the world – develops chips for a range of big companies, predominantly Apple, but also AMD, MediaTek, Qualcomm, Broadcom, Nvidia and more. The firm makes chips that go into iPhones, iPads and Apple’s Silicon Macs, as well as automobiles and gaming consoles, including Nintendo’s Switch and Sony’s PlayStation 5

WHAT IS TSMC? 

Founded in 1987, TSMC – the most valuable company in Asia and the 10th most valuable company in the world – develops chips for a range of huge players. 

TSMC has semiconductor fabrication plants (‘fabs’) around the island, although its main operations are located in Hsinchu in the north. 

According to the company’s website, TSMC produces more than 10,000 products for almost 500 clients worldwide.

Its biggest client is Apple, but other clients include AMD, MediaTek, Qualcomm, Broadcom, Nvidia and Marvell. 

The firm makes A-series chips that go into iPhones and iPads, as well as M-series chips for Apple’s Silicon Macs. 

TSMC chips are also in cars and gaming consoles, including Nintendo’s Switch and Sony’s PlayStation 5.  

Advertisement

Ben Barringer, equity research analyst at Quilter Cheviot, told MailOnline that China would likely aim to preserve TSMC and ‘the brain power behind it’ if it took control of the island, in order to gain an advantage over US and Korean based semiconductor manufacturers. 

‘Given its market position, the expertise it has and the complexity of the sector, TSMC is likely to remain of strategic importance to whoever governs Taiwan both now and in the future,’ Barringer said. 

However, there could be ‘non-combat interventions’ from China such as potential blockades, he suggested. 

‘While this would not prevent TSMC from operating, it would limit what it could achieve and potentially delay any technological advancements,’ he said. 

‘Clearly the threat of war in Taiwan would be very troubling for those involved and we can hope any tensions can be resolved diplomatically.’ 

Barringer also said that delays and shortages in consumer products would most likely occur next year, and that the new iPhone 14, expected to be released next month, will likely be safe because units will have already been built. 

‘The third quarter of the year is extremely important for the semiconductor industry as this is when they produce the components that go into the products that will be bought and sold at Christmas,’ he told MailOnline. 

‘If China were to invade imminently then we may see some knock-on effect, but even at this point of the year any delays and shortages would most likely occur in 2023.’ 

Home to the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip foundry, Taiwan produces more than half of the world’s semiconductors

Beijing’s People’s Liberation Army (PLA) is conducting ‘important military exercises and training activities including live-fire drills in the following maritime areas and their air space bounded by lines joining,’ according to the state Xinjua News Agency

TSMC has semiconductor fabrication plants (‘fabs’) around the island, although its main operations are located in Hsinchu in the north. Pictured are components sit on circuit boards on display at the Semicon Taiwan exhibition show in 2018

Simon Thomas, CEO of British electronics company Paragraf, said consumers will experience ‘longer waiting times and less choice for new products’ if geopolitical conflict were to escalate. 

‘As long as supply chain uncertainly continues, the impact on different product availability will become more widespread,’ he told MailOnline. 

‘We are hoping that a military invasion of Taiwan is not inevitable, with the world already going through significant turmoil this would certainly be another globally impacting crisis.’  

This week, TSMC’s chairman Mark Liu warned that a war between Taiwan and China would make ‘everybody losers’. 

Liu told CNN: ‘If you take a military force or invasion, you will render TSMC factory not operable. Because this is such a sophisticated manufacturing facility, it depends on real-time connection with the outside world, with Europe, with Japan, with US, from materials to chemicals to spare parts to engineering software and diagnosis.’

Mark Liu (pictured)is chairman of Taiwan Semiconductor Manufacturing Co. (TSMC). This week, he warned that a war between Taiwan and China would make ‘everybody losers’ by making the firm’s facilities ‘inoperable’

China’s escalating military aggression comes in the midst of a global chip shortage that goes back to 2020.

The shortage was triggered when chipmaking factories around the world were forced to shut down due to the coronavirus pandemic as part of social distancing measures, which resulted in months of no production.

It was compounded due to the rise in demand for electronics, as most people were under stay-at-home orders.

Former President Donald Trump also created more demand for TMSC chips because of his sanctions on SMIC, a chip maker based in Shanghai, as well as other Chinese firms as part of his trade war on the country. 

Another issue is severe droughts in Taiwan, as TSMC needs 156,000 tons of water every day to operate their microchip manufacturing plant – enough water to fill roughly 60 Olympic-sized swimming pools. 

The chip shortage is so severe that one major industrial conglomerate resorted to purchasing washing machines and tearing the semiconductors out for use in their own chip modules, Bloomberg previously reported. 

Nintendo’s president Shuntaro Furukawa recently said that there’s ‘no end in sight’ to the semiconductor shortage, and so the company’s Switch console will be in short supply this year. 

Images of semiconductor wafers at the Taiwan Semiconductor Manufacturing Co. (TSMC) Museum of Innovation in Hsinchu

Taiwan’s dominance in semiconductors has been referred to as a ‘Silicon Shield’, in that the US and other allies would defend it from military invasion in order to prevent its high-tech industry from falling into Chinese hands.

However, new military actions have stoked fears that this shield could be broken. 

On Tuesday, Chinese military began ‘live-fire’ exercises around the self-governing island in an attempt to intimidate its democratic neighbour.

China is also pressuring the US into dropping its support for Taiwan, as demonstrated by the visit of US House Speaker Nancy Pelosi this week. 

China’s Ministry of Foreign Affairs called the visit a ‘serious disregard of China’s strong opposition’ before effectively blockading the island with military drills.

US House of Representatives Speaker Nancy Pelosi leaves the parliament in Taipei, Taiwan on August 3, 2022

Why China set its sights on Taiwan 

China and Taiwan have a long-standing dispute over the island’s sovereignty. 

China considers Taiwan a part of its territory, more precisely a province, but many Taiwanese want the island to be independent.

From 1683 to 1895, Taiwan was ruled by China’s Qing dynasty. After Japan claimed its victory in the First Sino-Japanese War, the Qing government was forced to cede Taiwan to Japan.

The island was under the Republic of China’s ruling after World War II, with the consent of its allies, the US and UK.

The leader of the Chinese Nationalist Party, Chiang Kai-shek, fled to Taiwan in 1949 and established his government after losing the Civil War to the Communist Party and its leader Mao Zedong.

Chiang’s son continued to rule Taiwan after his father and began democratizing Taiwan.

In 1980, China put forward a policy called ‘one country, two systems,’ under which Taiwan would be given significant autonomy if it accepted Chinese reunification. Taiwan rejected the offer.

Taiwan today, with its own constitution and democratically-elected leaders, is widely accepted in the West as an independent state. But its political status remains unclear.

Advertisement