Invasion spills over globally—loss of semiconductor industry is catastrophic

Charlie Vest et al., "The Global Economic Disruptions from a Taiwan Conflict," Rhodium Group, 12-14-2022, https://rhg.com/research/taiwan-economic-disruptions/-- 嘉玮

Immense global disruptions, even under conservative assumptions

In a blockade scenario, the most significant disruption to global economic activity would come from a halt to Taiwan’s trade with the world, particularly in semiconductors. Associated disruptions to global supply chains—especially in major chip-consuming sectors such as electronics, automotive, and computing—would have grave repercussions for the world economy. Global trade with China would also decline due to a contraction in global trade financing, shocking the global economy and potentially triggering debt crises among China’s more fragile trade partners.

Disruptions from lost trade with Taiwan

Taiwan is the world’s 16th largest trading economy, having imported and exported $922 billion in goods and services in 2021. Almost all of this trade would be severely disrupted in the event of a blockade. Setting aside the value of imports that end up being re-exported and ICT-related trade that we cover below, approximately $565 billion in Taiwanese value-added trade would be at high risk of disruption from a blockade.[4]

While absolute trade values at stake are high, the most serious economic impact would come from disruptions to semiconductor supply chains and related downstream industries. Taiwan produces 92% of the world’s most advanced logic chips (at node sizes less than 10 nanometers in size), as well as a third to half of the global output for less sophisticated but nonetheless critical chips.[5] By some estimates, Taiwan’s leading chip foundry TSMC produces 35% of the world’s automotive microcontrollers and 70% of the world’s smartphone chipsets. It also dominates in the production of chips for high-end graphics processing units in PCs and servers. A rough, conservative estimate of dependence on Taiwanese chips suggests that companies in these industries could be forced to forego as much as $1.6 trillion in revenue annually in the event of a blockade.[6]

Beyond the immediate effect on corporate revenues from lost semiconductor production, the global economy would face significant second-order impacts that would likely add trillions more in economic impact. Many industries depend on the availability of goods and equipment containing Taiwanese chips. These include e-commerce, logistics, ride-hailing, entertainment, and other industries that collectively employ tens of millions of people. Spare parts and components for critical public infrastructure, such as telecommunications and medical devices, could become scarce. Ultimately, the full social and economic impacts of a chip shortage of that scale are incalculable, but they would likely be catastrophic.