Semiconductor Geopolitics: The Strategic Role of Taiwan and Global Supply Chain Tensions

The semiconductor industry is at the heart of modern technological advancements and geopolitical struggles. Two significant publications—“Taiwan, Semiconductors, and a ‘New Cold War’?” by Harvard Business School and “Geopolitics and the Global Semiconductor Industry” by Darden Business Publishing—explore how semiconductors shape global power dynamics, particularly amid rising tensions between the U.S., China, and Taiwan.

Background: The Taiwan-China Tension and the Semiconductor Factor

Taiwan, officially known as the Republic of China (ROC), has been a point of contention between the People’s Republic of China (PRC) and the broader international community for decades. Beijing considers Taiwan a breakaway province that must eventually be reunified—by force if necessary—while Taiwan views itself as a sovereign entity with its own democratic government.

This long-standing tension has become even more critical due to Taiwan’s dominance in semiconductor manufacturing. The Taiwan Semiconductor Manufacturing Company (TSMC) produces around 90% of the world’s most advanced chips, making it an indispensable part of global supply chains. The semiconductor industry plays a vital role in national security, as these chips power everything from consumer electronics to military defense systems.

China seeks to reduce its reliance on Taiwan by ramping up its domestic semiconductor capabilities, but it still lags in producing cutting-edge chips. The U.S., recognizing the strategic importance of semiconductors, has implemented policies to limit China’s access to advanced chip technology while simultaneously working to bolster domestic production. This has created a new Cold War-like standoff, where Taiwan’s semiconductor industry is a critical battleground.

Synopsis of Key Publications

“Taiwan, Semiconductors, and a ‘New Cold War’?” (Harvard Business School)

This case study examines how Taiwan’s semiconductor industry has become central to global supply chains and geopolitical rivalries. The study focuses on TSMC’s strategic importance and the risks it faces amid rising U.S.-China tensions. Key themes include:

1. Taiwan’s dominance in advanced semiconductor fabrication.
2. The strategic value of semiconductors for economic and military power.
3. The increasing pressure from both China and the U.S. on Taiwan’s chip industry.
4. Possible scenarios for Taiwan include economic decoupling, increased military threats, or diplomatic resolutions.

“Geopolitics and the Global Semiconductor Industry” (Darden Business Publishing)

This article provides an in-depth analysis of the semiconductor industry’s evolution, particularly how it moved from a vertically integrated model (where companies controlled design and manufacturing) to today’s disaggregated model, where design firms rely on overseas foundries. Key points include:

1. How reliance on offshore manufacturing (especially in Taiwan) makes global supply chains vulnerable to geopolitical shocks.
2. U.S. efforts to secure semiconductor production and limit China’s technological rise.
3. The risks and challenges of “reshoring” semiconductor manufacturing back to the U.S. or allied countries.

Analysis: The Semiconductor Industry as a Geopolitical Flashpoint

1. Taiwan as the “Silicon Shield”
   Taiwan’s semiconductor dominance serves as both an asset and a liability. On one hand, it deters full-scale military conflict because its destruction would cripple the global economy. On the other, it makes Taiwan a prime target for Chinese aggression.
2. China’s Push for Semiconductor Independence
   Despite heavy investments, China struggles to produce cutting-edge chips due to U.S. sanctions and its lag in extreme ultraviolet (EUV) lithography technology. It remains dependent on Taiwan and foreign firms like ASML (Netherlands) and TSMC.
3. U.S. Strategy to Secure Supply Chains
   The U.S. has launched initiatives like the CHIPS Act to bring semiconductor manufacturing back to American soil and reduce reliance on Taiwan. However, building new fabs takes time and immense capital.
4. Risk of Supply Chain Disruptions
   A conflict over Taiwan—whether economic or military—could halt semiconductor production, affecting everything from consumer electronics to AI and defense systems. The global economy would suffer severe disruptions.

Recommendations

For the United States:

1. Accelerate Domestic Semiconductor Manufacturing
   The CHIPS and Science Act is a step in the right direction, but more investment is needed to ensure the U.S. can produce advanced chips at scale. Public-private partnerships should be expanded.
2. Strengthen Alliances with Taiwan, Japan, and South Korea
   The U.S. should enhance defense commitments to Taiwan while working with semiconductor powerhouses like Japan and South Korea to create a more distributed, secure supply chain.
3. Continue Restricting China’s Access to Advanced Chip Technology
   Export controls on semiconductor equipment and advanced chips should remain in place to slow China’s technological advancement while strengthening allied capabilities.

For the Philippines:

1. Position Itself as a Key Player in Semiconductor Manufacturing
   The Philippines should attract semiconductor firms looking to diversify their supply chains. Tax incentives, infrastructure investments, and policy reforms can make the country a more appealing location for semiconductor assembly and packaging.
2. Develop a Skilled Workforce
   Strengthening STEM education and vocational training in semiconductor technology can create a workforce capable of supporting high-tech manufacturing and research.
3. Strengthen Ties with the U.S. and Taiwan
   The Philippines should leverage its strategic location to become a regional hub for semiconductor logistics and trade. Partnering with TSMC, U.S. semiconductor firms, and regional allies can help integrate the country into the global supply chain.

Securing Semiconductor Supply Chains

Semiconductors have become the new oil—essential to economic growth, technological supremacy, and national security. Taiwan’s semiconductor industry is both its greatest strength and its biggest vulnerability in the face of China’s growing assertiveness. The U.S. and its allies must act swiftly to secure semiconductor supply chains, while countries like the Philippines have a unique opportunity to carve out a role in this high-stakes industry.

Stay Ahead in the Semiconductor Race

The evolving semiconductor landscape presents both risks and opportunities. As geopolitical tensions shape global supply chains, businesses must adapt strategically. John Clements provides expert talent solutions to help companies navigate the complexities of the semiconductor industry. Contact us today to learn how we can support your workforce and operational needs.