Let’s say you knew nothing about Taiwan, China and TSMC. Where to start?
You don’t really hear about Taiwanese pop music, TV, or other pop culture. Taiwanese food exists, but except possibly for bubble tea, most Americans probably wouldn’t recognize it.
https://noahpinion.substack.com/p/taiwan-is-a-civilization
This seems like something that ought to change. Most importantly, because Taiwan seems really cool. But also because it’s geopolitically important, because it’s probably the most likely flashpoint for great-power war.
Flashpoint for a great power war? Unfortunately, yes:
Taiwanese President Tsai Ing-wen’s election in January 2016 upended Beijing’s plans for reconciliation with the Nationalists. Tsai, whose Democratic Progressive Party was founded on the promise of independence, refused to accept Ma’s position that both sides belong to “One China.” Beijing responded by cutting off communication, curbing travel and resuming efforts to lure away Taiwan’s few remaining diplomatic partners. Beijing has also withdrawn its support for Taipei’s participation in global bodies such as the World Health Assembly and pressured airlines, retailers and other multinationals to revise policies that treat Taiwan as a country. More recently, the People’s Liberation Army has stepped up exercises around the island, including “encirclement patrols” and incursions into Taiwan’s air defense identification zone.
https://www.bloomberg.com/news/articles/2021-01-27/why-taiwan-is-the-biggest-risk-for-a-u-s-china-clash-quicktake
Ok, so that would be worrying, but a great power war? Because of chips. Microchips, to be more precise. And manufactured by a firm that you may not have read of: TSMC. Don’t blame yourself if you haven’t heard of it – and even if you have heard of it, this chart will still be informative:
I don’t know about you, but I was amazed by that chart.
From that same article, here is additional information about the firm:
The most important firm in this critical business is Taiwan Semiconductor Manufacturing Company (TSMC). It controls 84% of the market of chips with the smallest, most efficient circuits on which the world’s biggest technology brands, from Apple in America to Alibaba in China, rely to make their snazzy products and services possible. As demand for the most sophisticated chips surges thanks to the expansion of fast communication networks and cloud computing, TSMC is pouring vast additional sums of money into expanding its dominance of the cutting edge.
https://www.economist.com/business/2021/04/26/how-tsmc-has-mastered-the-geopolitics-of-chipmaking
By the way, the story of the founder is fascinating in its own right:
Read the whole thread, of course, but also note that you should also really read… and stop me if you have heard this from me before… How Asia Works by Joe Studwell.
Now, about China and the TSMC:
First, read this article for some useful background. Second:
Some experts claim that China now has the military capacity to quickly overwhelm Taiwan. Even if this is correct, invasion remains a high-risk endeavor that, even if successful, would still entail major negative ramifications for China. It can be expected only in conditions under which China’s leaders see the immediate political stakes outweighing the military risks, implying a narrow range of scenarios.
https://thediplomat.com/2020/12/would-china-invade-taiwan-for-tsmc/
The rest of the article goes on to explain the supply chain considerations in light of a war. And they’re very real indeed!
On January 13th Honda, a Japanese carmaker, said it had to shut its factory in Swindon, a town in southern England, for a while. Not because of Brexit, or workers sick with covid-19. The reason was a shortage of microchips. Other car firms are suffering, too. Volkswagen, which produces more vehicles than any other firm, has said it will make 100,000 fewer this quarter as a result. Like just about everything else these days—from banks to combine harvesters—cars cannot run without computers.
https://www.economist.com/business/2021/01/23/chipmaking-is-being-redesigned-effects-will-be-far-reaching
Finally, read this for further details. (Long, but very detailed, and therefore very interesting)
If you are a student of economics in 2021, this is one story you want to keep an eye on, apart from the other, obvious ones.