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Home / Blogs / What Would Happen If China Invaded Taiwan?: China-Taiwan Semiconductor Supply Chain Risks

What Would Happen If China Invaded Taiwan?: China-Taiwan Semiconductor Supply Chain Risks

Jan 17, 2025

Resilinc Editorial Team

Geopolitical, Geopolitics, Semiconductor

One day, a group of military and defense strategy experts gathered in Washington, DC, to play a game that simulated a Chinese amphibious invasion of Taiwan in 2026. After running the game 24 times in seven hours, the group found that the United States, Taiwan, Japan, and other allies would likely defeat China and preserve Taiwan’s independence—but at enormous costs.

In this blog, we look at the potential supply chain impact of China-Taiwan tensions on semiconductors. Read on to discover how investing in high tech supply chain risk management can help your business stay agile and resilient in spite of the China-Taiwan tensions.

 

How can the US prepare for a China-Taiwan war?

Due to geopolitical tensions, a war for Taiwan has become more and more likely in recent years. “No one thought this was realistic until the last few years,” retired Air Force Brig. Gen. Paula Thornhill, one of the wargamers, told WSJ. But with China rapidly building its military capabilities, conducting live-fire exercises around Taiwan, and affirming that it would use force if necessary to reclaim Taiwan, the prospects of war seem closer than ever.

 

What are the China-Taiwan semiconductor supply chain risks?

While a war would be bad enough, the consequences for global semiconductor supply chains and the economies they support would also be disastrous because of Taiwan’s position as the largest supplier of semiconductors and source of 92% of the world’s advanced microchips. “Were China to seize Taiwan, one of two things could happen to the chip supply,” writes Jason Matheny, head of the renowned research organization Rand Corporation in an Atlantic article. “The microchip factories could end up being controlled by China, or they could be destroyed” in the war.

In the first scenario, China could cut off advanced chip sales to the U.S. and its allies, “significantly reducing American technological, economic, and military advantages,” writes Matheny. “But if the second scenario came to pass, the world could experience an economic crisis the likes of which we have not seen since the Great Depression.”

That depression would impact China as grievously as any country. According to a Resilinc special report, Navigating China-Taiwan Semiconductor Tensions and Supply Chain Risks, in the first quarter of 2024, TSMC held a 61.7% share of the global semiconductor foundry market—with many of these chips being supplied to China. One would hope that Chinese leaders are well aware of this possible outcome, and that this knowledge will serve as a deterrent to war.

 

Can the US develop its own semiconductor industry?

Meanwhile, U.S. and allied nations are looking to compensate for their vulnerability to China-Taiwan semiconductor tensions by incentivizing domestic investment. This was one of the main goals of the CHIPS Act (which also penalizes companies for investing in advanced chip manufacturing in China), and the legislation is working in some respects; GlobalWafers and Intel both stated that their planned semiconductor plants in Texas and Ohio might not have proceeded without the CHIPS incentives.

Yet Matheny contends that developing the kind of semiconductor manufacturing capacity Taiwan has developed will take decades. “The idea of replacing microchip imports with American-made products undervalues Taiwan’s 40-year head start with its microchip industry—and it took at least a decade for the island to become globally competitive. A similar lag will apply to the U.S.,” he wrote.

Learn more about challenges shaping the US semiconductor industry. Read our Spotlight on High Tech and Semiconductor Supply Chain Challenges to learn about the biggest supply chain disruptions from 2024, labor shortages, export restrictions, and more.

 

How can the US help Taiwan prepare for an invasion?

Like CSIS, Matheny argues for better arming Taiwan now to prevent an invasion—especially with HIMARS rocket launchers, drones, loitering munitions, anti-tank missiles, and other weaponry that has worked for Ukraine against Russia. He notes that providing these weapons in sufficient volume could deter Chinese aggression and safeguard the Taiwanese chip industry “for about a tenth of the cost of the CHIPS Act.”

Paradoxically, Matheny points out that a major holdup to delivering such weapons—months after $1.1 billion in military aid was promised—are bottlenecks in the semiconductor supply chains. “The problem is temporary, but it only goes to underline what a priority it is for the U.S. to ensure that Taiwan has the right defense systems to project its own security, in the most timely way possible.”

 

What does this mean for Supply Chain Managers?

Resilinc’s recommendation for Supply Chain Managers is to understand all the linkages and interdependencies within semiconductor supply chains. While there may not be much a supply chain pro can do to influence the course of geopolitics if China invaded Taiwan, there’s no substitute for being prepared and capable of responding to disasters of all types with precautionary measures like advanced buys or qualifying secondary suppliers for items from risky locations.

Want to learn more about China-Taiwan semiconductor supply chain risks? Take a deep dive into our latest special report: Navigating China-Taiwan Semiconductor Tensions and Supply Chain Risks. Inside we explore the background of China-Taiwan tensions, the multiple what-if scenarios and potential impacts, and look at how companies can decrease risks.

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