Facing Chinese threat, what’s at stake for Taiwan’s semiconductor industry

The leading chip factory in the world would be converted “not operable” if China invades Taiwan, said Mark Liu, chairperson of Taiwan Semiconductor Manufacturing Co (TSMC), the Apple's chip maker company.

Liu's remark in an interview to CNN comes amid the heightened tensions between Taiwan and China after US House Speaker Nancy Pelosi's visit to Taipei. A belligerent China has responded by show of strength through military exercises and numerous trade restrictions. Although it has not sanctioned the chip industry, the industry is overcasted by doom clouds.

In this digital era, semiconductors are used in almost everything, right from smartphone components to other digital devices. It is the most important component of electronic devices. The AI sector and automation industry solely depend on the semiconductor industry. This places Taiwan as a strategic economic hub as it commands the global industry for semiconductors.

Taiwan is a leading manufacturer of semiconductors along with South Korea and the Indo-Pacific countries. As per the data by TrendForce, a leading market intelligence provider, Taipei accounts for 64 percent of the global semiconductor manufacturing revenue, with TSMC alone totalling half of it.

The impact on India's semiconductor industry

Taiwan’s ‘New southbound policy’ and India’s ‘Act East policy’ have acted as catalysts in strengthening the bilateral trade relationship between both countries. Both the countries have started negotiations for a free-trade agreement and the setting up of a semiconductor manufacturing facility in India. If the deal materialises, India will be the only second country after the US to have a Taiwanese semiconductor manufacturing plant.

While talking with HT, Taipei’s de-facto ambassador Baushuan Ger reiterated the commitment, “By drawing on the strength of its hi-tech sector, Taiwan is willing and ready to partner with India in creating a resilient and sustainable global supply chain.” “… Taiwan continues to play a major role in the industrialisation and digitalisation goals in the ‘Atmanirbhar Bharat’ campaign”, he said on Thursday. Citing data, he said that bilateral trade has thrived even during the pandemic, “Despite the Covid-19 pandemic, Taiwan-India trade reached $7.7 billion in 2021, which is 64 percent higher than the year before”.

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According to the Foreign Trade Performance Analysis by the ministry of commerce and industry, India spent $6233.39 million (roughly Rs. 49,359 crore) on imports from Taiwan in the year 2021-22, registering a growth of over 54 percent from the previous year. Both the imports and exports from Taiwan have grown in 2021-22 from the previous year, with the exports from India increasing by over 70 percent. Semiconductors are the major part of Taiwan’s exports.

A report from Economist Intelligence Unit (EIU) says that Taiwan’s 61.9 per cent of the total exports in 2021 comprise machinery & electrical equipment. Semiconductors are part of this machinery & electrical equipment basket. “As India plans to take full advantage of the rise of IoT (Internet of Things) and advanced technology in the Indo-Pacific supply chain, Taiwan remains an ideal and trusted partner”, Taipei envoy said in the exclusive interview with HT.

India’s demand for semiconductors is skyrocketing. In 2020, India imported semiconductor devices worth $2.38 billion (roughly amounting to Rs.18,859 crore) . This made India the 13th largest importer of semiconductor devices in the world, data from oec.world states. India’s ambition to be self-reliant in electronics manufacturing depends a lot on its healthy trade relations with Taiwan.

Taiwan is an important partner to help India decrease its dependence on China. Like the Ukraine crisis disrupting the food market economics, this tension, if heightened, will disrupt the semiconductor market, damaging India’s prospects in the sector.

In the interview with CNN’s Fareed Zakaria, Liu linked the possible conflict in Taiwan to Russia’s invasion of Ukraine, stating that while the two conflicts are very distinct, the economic impact to other countries would be identical.