24.12.2023 Author: Taut Bataut

Microchips and Macroeffects

Microchips and Macroeffects

The island-nation of Taiwan seems to feature much more in strategic considerations in the great game between the two superpowers of our time than its size alone would suggest. Home to less than 25 million people and a third the size of KPK in Pakistan, the country is one of the most important in the world; almost exclusively due to its position as the world’s leading manufacturer of computer chips.

The history of American support for Taiwan against China’s claims to it as part of its own territory comes as a legacy of the Cold War. Upon the rise to power in China of chairman Mao Zedong in 1949, the incumbent Chinese government under Chiang Kai-shek fled to the island of Formosa (now Taiwan), then a colony of China. Over there, they set up a government-in-exile, claiming that Taiwan was the true China. This is the modern-day distinction between the Republic of China and the People’s Republic of China, known in common terms as Taiwan and China, respectively.

America and many other countries have since supported Taiwan, and the country was able to grow rapidly from its humble origins. Today it stands as one of the most economically developed countries, one of the East Asian Tigers along with South Korea. However, China has also grown in both economic and military might, and has increasingly exerted power and influence around the world.

The risk of conflict in the South China Sea was always a possibility given the existential tensions between Taiwan and China, but it has only been exacerbated in the past few years. The increasing geopolitical tensions between the United States and China have made the waters around Taiwan heat up. China has become more belligerent in its exercise of power, sending navy fleets into the region and constructing artificial islands as bases. These activities have become a sizeable threat in the region for the United States (maybe even more so than for Taiwan), and thus the United States has strongly reaffirmed its commitment to aiding Taiwan.

The semiconductor industry in Taiwan is perhaps the single-most important contributing factor to Taiwan’s importance in the world. Just one Taiwanese firm; the Taiwan Semiconductor Manufacturing Company (TSMC) produces nearly 50% of the global supply of semiconductors, lending the country a huge edge in the market. The TSMC and other Taiwanese firms manufacture semiconductors largely on what is called the “foundry” model, a complex network of production that puts these firms essentially fabricating semiconductor chips on contract for firms that utilise semiconductors as intermediate goods in the production of their own final products. The most notable customer of the TSMC, for example, is Apple.

Semiconductors – also known as microchips – are used in virtually every modern electronic device. As such, they are central to the working of a modern society and economy. Computers, smartphones, televisions, healthcare devices and machines, transport systems, military systems and countless other things all rely on microchips to work. Furthermore, the demand for microchips is only rising as all these increase in number and in complexity, requiring increased processing capacity.

The necessity of microchips means that their sustained production and supply are central to every economy’s needs. Very few other countries in the world possess the capacity to produce microchips, and none at nearly the same level as Taiwan. Furthermore, the increased demand means that semiconductor shortages are frequent and increasingly disruptive. More significantly, since supply is so concentrated, there is a high risk of global production being “bottlenecked” by external shocks that affect the productive capacity of any one firm or country.

This is why Taiwan has become strategically important to the ‘West’ beyond just its Cold War position. With increasing trade conflict between China and the West, especially over high-tech goods heavily reliant on microchips, it is important for America and its allies to consolidate as much of the global supply of microchips as they can. It is unimaginable to risk the production capacity of Taiwan falling completely into the hands of the West’s economic rival China – or worse, the production being completely wiped out by war in the South China Sea and plunging the world into a technological dark age.

A renewed commitment to come to the aid of Taiwan, illustrated by high-profile US visits to the island amid heightened tensions in the South China Sea, is the manifestation of these geostrategic considerations. For the United States, the defense of Taiwan is central to maintaining its slim edge in the realm of global economics and politics, which is now being eroded away by China’s own growth. It is strange to imagine that something so small – and barely visible to the naked eye – can have such far-reaching ramifications, but we are now witnessing the repercussions in HD.


Taut Bataut – is a researcher and writer that publishes on South Asian geopolitics, exclusively for the online magazine  “New Eastern Outlook”.

Related articles: