GOOD MORNING FROM LONDON
US/TAIWAN TENSIONS INCREASE OVER TAIWAN DOMINANCE OF SEMICONDUCTOR MANUFACTURE
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In my China Post # 473 dated I wrote;-
“A semiconductor is a crystal matter that acts as a conductor and as an insulator. Its substance lies between the conductor and the insulator. And it controls and manages the flow of electric current in electronic equipment and devices. It is a popular component of electronic chips made for computing components.
Some examples of semiconductors are silicon, germanium, gallium arsenide. They are an essential component of electronic devices, enabling advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications. Semiconductors power our cars, airplanes and trains. Communications rely on semiconductors – factories, ordinary businesses, finance and banks. Money moves only because of these chips.
These chips are crucial and here is the point – the US no longer manufactures the most innovative chips – 7 nanometres and below. Taiwan manufactures 92% of those chips. 8% of those chips are manufactured in South Korea and none are manufactured in the US.
Originally the US economy was based on domestic production of essential products. The US was in control of its own destiny. Not now. Production has gone overseas and domestic resources are depleted. The US has never felt more vulnerable and this issue is at the heart of US/China tensions. A flare up in the South China Sea could bring semiconductor exports from Taiwan to a halt. The US would be seriously hurt – even brought to its knees. The US is that vulnerable. One example will suffice.
In 2021 and 2022 US automobile companies globally saw several hundred billion dollars in lost sales because they could not get the chips to finish their newly manufactured cars. Car lines shut down because there were not enough chips available. There was insufficient capacity in the supply chain.
That is the economics. Now the politics. The US is fighting back and has identified five cities for focus on semiconductor research and production including Phoenix Arizona It is changing its immigration laws to bring foreign scientists and experts in numbers – the current need is for 27,000 semiconductor researchers. The US is desperate. It is vulnerable. Its initial success as the world leader in semiconductors has passed. The US relies on Taiwan.
What happens if tensions in the Taiwan Strait lead to military incidents? Vessels collide or fighter planes are shot down or fishing disputes trigger the involvement of naval destroyers. Taiwan is the international flash point.
China knows all this. It understands the interplay between science and politics and China, too, is ratcheting up its research into semiconductors. But for the present the focus is on the unique vulnerability of the US. It took its eye off the ball. Today it is a follower where, yesterday, it was a leader. And shivers run through the White House, the Pentagon, West Point and the Joint Chiefs of Staff. A disruption to the flow of Taiwanese semiconductors to the US will have the most severe financial and political consequences to the US – and to the world.
Am I exaggerating the current dangers? I have done my homework and recent articles and videos from the Financial Times validate my conclusions. A flare up around Taiwan can bring the world to the brink of war. The US is that vulnerable.”
GRAHAM PERRY COMMENTS[-
Question; What has changed between October 2023 and February 2025?
Answer – President Trump.
Everything said in October 2023 remains valid. Semiconductors remain at the heart of geo-political relations and remain an acutely sensitive flashpoint in US/China tensions.
We start with US vulnerability. It remains the case that Taiwan produces approximately 90% of the world production of the product. The US is dependant on Taiwan and Trump does not like it. An interruption to the flow of semiconductors from Taiwan can bring US production to a rapid standstill. It happened in 2021 and 2022 and alarm bells rang in Washington. The problem for the US is that it cannot speedily remove its vulnerability.
Biden responded to the brief standstill in US car production – because of the lack of semiconductors – by, understandably, committing the US to a substantial investment in the domestic production of the product. But this is not a matter of turning the light switch on and hey presto the US has removed its dependency on Taiwan. It takes time. Expertise in construction of the new production facility is not readily available to convert from blueprint to a flow of product and there is not a natural fit between Taiwanese knowledge and experience and US technical information and labour skills. US dependency on Taiwan will continue long into the future.
This upsets Trump big time for a number of reasons;-
First, Trump resents the cost of military support for Taiwan. He cannot pressure the NATO countries to increase defence spending to 5% of GDP and at the same continue to underwrite Taiwan’s defence needs.
Second, Taiwan is keen to protect its 90% world dominance in semiconductor production. It knows its strength and is also aware of the long time lag in US efforts to substantially increase its domestic production of semiconductors.
Third, China knows how to exploit the rising tensions between the US and Taiwan; it can ratchet up its surveillance of Taiwan’s security knowing that this will increase pressure on Taiwan to seek additional military support from the US at the very moment in time when the US is looking to reduce the cost of underwriting Taiwan’s defence.
Trump is a transactional US President. He prefers solutions and endgames to negotiations and procrastination. He has options. He can extend the Biden approach by acquiescing to Taiwan’s request for increased military spending or he can do an about-turn and make clear to Taiwan that he will downgrade support – military and economic – and re-order US priorities in the Far East.
The mistake is to assume that Trump is all bluster. Big words but small deeds. Trump’s first term was dominated by his strong determination to win a second term. He lost but this time round he is not restrained by political sensitivities. He will be bold even brazen even to the extent of upsetting his own Republicans in the Senate and the House. He has some restraints on what he can do but far less than in his first term.
No question Trump is a danger. His personality dominated approach to politics will create the very turbulence that he seeks and make his actions difficult to anticipate. Taiwan knows this and China, too, is very aware of the inspirational nature of his political conduct.
China is quite clear. It wants the reunification of Taiwan. Secession wherever it appears be it Tibet, Xinjiang, the Sprately Islands, or the Indian border is not to be confused with expansionism. China’s borders are zealously protected but China continues to be distinguished from the US by not having even one soldier, sailor or airman stationed outside China.
Looking ahead there will be a growing pressure in Taiwan to turn away from the US and to turn towards China. There will always be Taiwanese for whom reunification with China is unacceptable but a growing rift between the US and Taiwan over semiconductors and military aid will prompt a strategic rethink in Taiwan about relations with China. Trump wants to grow the US – if necessary at the expense of Taiwan.
GRAHAM PERRY
