Deteriorating US-China Relations: TSMC’s Crucial Implication on Global Economy
WORLD — The worsening relationship between the world’s two largest economies, the US and China, could singlehandedly dictate the direction of the global economy moving forward. Yet, by the same token, at the center of a possible grim outlook is a company most people have not even heard of: Taiwan Semiconductor Manufacturing Company Limited (TSMC).
This seemingly unassuming company has been in the shadows of the world’s biggest companies, manufacturers, and government infrastructures and has served as the backbone of advanced weaponry systems — particularly in the US military.
For the past few months, this complicated dynamic between the two major economic and military powers has been deteriorating as the self-governing island of Taiwan (where this company is located and performs most of its production) has been in the middle of intensifying territorial dispute with the Chinese Government.
This is aggravated by US high-level officials visiting the island and voicing out their unwavering “support” and “partnership” in civil, economic, and military terms with the island. With this, let’s explore the global implication of this intricate yet ambiguous situation.
The Implication of the Worst-Case Scenario
“If China would invade Taiwan, that would be the biggest impact we’ve seen on the global economy — possibly ever. This could be bigger than [the global depression] 1929,” said Glenn O’Donnell, Forrester’s vice president, and research director. This is because TSMC is the world’s biggest chipmaker; it powers everything from automotives to numerous household products and even Apple’s iPhones.
Furthermore, according to William Alan Reinsch, a senior advisor at the Center for Strategic and International Studies, a national security think tank, TSMC has grown to become an oligopoly and dominate the chipmaking industry.
“When you have a very complex, very sophisticated, and very expensive technology where barriers to entry are very high — I mean, building a fab plant is in the billions — you can’t just decide tomorrow, ‘Well, I’m going to go into that business,’” he said. “It’s not like making tea.”
Therefore, trillions of dollars’ worth of economic activity are tied to a single company. In addition, the fact that only TSMC makes the most advanced chips at an extensive scale makes industry watchers fear that a heightened confrontation between the US and China over the island will most likely pull down the global economy with it.
Hence, if TSMC is caught in the dilemma of a possible armed conflict on the island, production for everything from iPhones to Automotives could grind to a halt.
Global Economy: More Vulnerable than Ever
As the Ukraine-Russia War has demonstrated, relying on a single entity or country over a highly valuable resource (in this case, oil and wheat) could have disastrous effects. A third of the world’s supply of wheat comes from these two countries; meanwhile, most of Europe’s oil supply comes from Russia. Thus, this conflict has aggravated the adverse effects of the COVID-19 pandemic and has brought down most, if not all, economies in the world.
Now picture a world where the company which accounts for over fifty percent of the global semiconductor market and as high as 90% (by some estimates) of the global advanced processors market suddenly grinding to a halt. With our current economic condition, it could very well be the worst economic disaster in modern history.
As O’Donnell warned, “Semiconductors have become almost like the oxygen of the global economy. Without the chips, you can’t breathe.”
