China - Taiwan Tensions: How a Chinese Invasion of Taiwan Would Impact the Semiconductor Industry and the U.S. & Global Economies

Abstract

Dating back to the initial separation of Taiwan from China in 1949, China has continuously claimed Taiwan to be part of Chinese territory. Over the decades, and in more recent times, the threat of China looking to physically reclaim Taiwan has grown exponentially. China has exercised and increased its presence of military planes in the Taiwan Air Defense Identification Zone, ramped up production of amphibious vehicles, been seen conducting amphibious invasion drills, had spies detained for spying on Taiwan’s military, and even launched missiles near the Taiwan coast. Collectively, these efforts have sparked a common fear around the world that China is preparing for a forceful invasion of Taiwan. More specifically, U.S. military officials have even voiced their concerns that a Chinese invasion of Taiwan could occur in the near future. While there are many concerns that coincide with a Chinese invasion of Taiwan, one of the most prominent concerns is how the global supply of semiconductors would be impacted and its impact upon worldwide economies.

This paper evaluates the possible outcomes a Chinese invasion of Taiwan would have on the semiconductor industry as a whole, and thus how the U.S. and global economies would be impacted. In an effort to answer this question, semiconductors have been identified as a commodity. This has allowed for side-by-side comparisons to be made between semiconductors and four of the most common commodities (oil, steel, wheat, and eggs), which will allow for educated assumptions to help determine what plausible outcomes could entail. While each of the respective commodities chosen for this paper differ vastly from a semiconductor, many parallels can still be made. As a result, historic trends in each of the four commodities are able to indicate various outcomes for semiconductors.

According to the research conducted in this thesis, the outcome is alarming and justifies the growing concerns that are heard in the media and across the globe. Historic trends in oil signal that a U.S. or global recession are imminent. Historic pricing trends in wheat, eggs, and steel have demonstrated that a like scenario would play out with semiconductors causing a significant price increase, followed by a semiconductor price bubble. It is likely that such various scenarios would not only play out in the U.S., but globally. My research further demonstrates that other countries, if not worldwide economies would be at risk. With the potential for numerous individual countries to face dramatic economic downturns, the collective outcome of a Chinese invasion of Taiwan could result in some form of a Global Financial Crisis.

It is evident that a Chinese invasion of Taiwan would impact the U.S. and world economies significantly. There are a number of specific actions the U.S. can take today and going forward to help alleviate some of the impacts. The most important form of preparation would be increased government funding and support for the U.S. semiconductor industry. An increased support system will allow the U.S. to focus on three objectives: build more semiconductor manufacturing facilities, invest in more advanced and necessary semiconductor technology, and increase education in the required fields for the semiconductor industry. While these efforts may not prevent a Chinese invasion of Taiwan, they will certainly reduce the impacts upon the U.S. and world economies.