From vulnerabilities to resilience: Taiwan's semiconductor industry and geopolitical challenges

Abstract

The global semiconductor supply chain faces unprecedented risks because Taiwan plays a critical role in advanced chip manufacturing within this supply chain and geopolitical tensions in the Taiwan Strait have increasingly escalated. In the current study, we applied the tabletop exercise and scenario analysis methods and determined that if China were to attempt to take control of Taiwan, it would most likely employ a quarantine method.

We assessed the preparedness of Taiwan's semiconductor ecosystem, with a particular focus on the preparedness of the Taiwan Semiconductor Manufacturing Company, to respond to a quarantine scenario. Our analysis revealed that Taiwan's supply chain would be particularly vulnerable to a quarantine initiated before 2027. In terms of addressing this vulnerability, high relocation costs, challenges in training skilled workers, and limited natural gas reserves render diversification or stockpiling strategies impractical in the short term.

Instead, we propose the “triad” cross-platform model in which the United States and its allies implement deterrence and communication measures to reduce the likelihood of a Chinese quarantine in the short term. These multilateral and minilateral platforms could be ideal for incorporating geopolitical risk assessments into their agenda and addressing the risks in the supply chain. For long-term challenges, this cross-platform model could supplement strategies like diversification and stockpiling, consolidating resilience in global SSC.