Taiwan's Economy
The Economics of Cross-Strait Risk
Why a conflict or blockade around Taiwan would have enormous global economic costs due to its chip dominance, and how companies and governments are hedging.
Tensions between China and Taiwan pose major economic risks.
Chip concentration
Most advanced chips come from Taiwan. A disruption would affect phones, cars, computers and AI worldwide.
Estimates
Analysts, such as Bloomberg Economics, have estimated a war over Taiwan could cost the world economy around 10 percent of GDP, larger than the 2008 crisis or the pandemic.
Silicon shield
Some argue Taiwan’s chip importance acts as a “silicon shield”, deterring conflict because everyone depends on it.
Hedging
- TSMC is building fabs in the US (Arizona), Japan and Germany.
- The US CHIPS Act encouraged domestic production.
- Companies diversify suppliers.
India’s opportunity
India seeks to attract chip and electronics investment as part of diversification.
Lesson
Concentration of critical production in one place creates systemic risk.
The 2021 chip shortage halted car production worldwide. A disruption in Taiwan could be far worse.
A Taiwan crisis would hit the whole world economy.
- Most advanced chips come from Taiwan.
- A conflict could cost around 10 percent of world GDP.
- TSMC is building fabs abroad.
- Concentration creates systemic risk.
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