Updated: February 23, 2021 8:53:17 am
As Taiwan’s security situation worsens amidst mounting economic, political and military pressure from China, one countervailing factor appears to be preventing the crisis from boiling over into a full-scale war that could draw the US and Japan into it. It is Taiwan’s so-called “silicon shield”.
That a silicon shield protects Taiwan from China was first articulated by a business journalist, Craig Addison, in a book published in 2001. Addison suggested that Taiwan’s dominance in the production of semiconductors deters China from trying to occupy the island. On the face of it, China’s enormous military power can easily crush Taiwan’s independent existence, but the collapse of Taipei’s semiconductor industry will pose a major economic and national security threat to the US. Besides many American civilian industries, the US armed forces and their military equipment run on Taiwanese chips. Any Chinese attack on Taiwan that disrupts the flow of semiconductors would produce significant challenges not only for the US but also China that relies on semiconductor supplies from Taiwan.
Taiwan is the world’s leading producer of semiconductors and other electronic components. The global division of labour in the age of electronics has seen a significant concentration of chip production in Taiwan. China has been the factory for the global economy, Taiwan is the world’s foundry for semiconductors. The Taiwan Semiconductor Manufacturing Company (TMSC) has more than 55 per cent of the global market share in the production of high-end custom-made chips.
As chip-making becomes more expensive in terms of upfront investment, complex in terms of design and a continuous pressure to innovate, many traditional producers of chips have gone down. Of the two rival companies that have survived, US-based Intel is in trouble and Korea’s Samsung has challenges of its own.
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It is fashionable these days to declare “data as the new oil”. But there will be no generation of data without the semiconductors that are the forgotten physical basis of our ever-expanding digital economy. It might be more accurate to say that “semiconductors are the new oil” and their production is increasingly dominated by Taiwan and the TMSC.
China, which imports nearly $300 billion worth of chips annually, has big plans to become self-reliant. Despite massive investments, China might not be able to catch up quickly on advanced chip production. As part of its strategy to promote domestic manufacturing, the Joe Biden Administration wants to revive chip production in the US. Washington knows that complete self-reliance is not possible; its preference is to rebuild digital supply chains away from China and with reliable partners. Taiwan is central to this strategy, and Taipei’s special position in the global production of semiconductors is unlikely to diminish in the near future.
Taiwan’s preeminence in semiconductor production seemed a mere curiosity in the era of globalisation. It had little political meaning so long as China let Taiwan be. Washington got along with Beijing and the interdependence between the US and China deepened. All three conditions are now being reversed.
As its economic heft and political salience rose in the 21st century, China has ratcheted up pressure on countries that have diplomatic relations with Taiwan. It has also compelled international organisations to push Taiwan out of their activities, even when Taiwan had much to contribute. For example, the World Health Organisation has been unwilling to engage Taipei, despite its impressive performance in coping with the COVID-19 crisis and its potential to contribute to the global management of the pandemic. Beyond the diplomatic, the PLA’s aggressive tactics in and around Taiwan have been routinely probing the latter’s defences. This is widely seen as reflecting President Xi Jinping’s ambition to rush Taiwan’s reunification — which could secure his legacy in modern Chinese history.
Amidst the deterioration of US-China relations in recent years, President Donald Trump was far more supportive of Taiwan than his recent predecessors. Trump stepped up arms sales to Taiwan, lifted restrictions on contact between officials, and encouraged allies to upgrade ties with Taipei.
In the run-up to the US presidential election last November, there were deep apprehensions in Washington and Taipei — and hope in Beijing — that a Biden presidency could go back to the Obama-era deference to China on Taiwan-related issues. But in the last few weeks, the Biden team has signalled continuity with Trump’s Taiwan policies. The White House invited Taiwan’s representative in Washington to join Biden’s inauguration ceremony. The US Defence Secretary Lloyd Austin told the US Senate that his Administration’s commitment to Taiwan’s security is “rock solid”. The State Department has publicised direct contact with Taiwan officials.
More broadly, Biden has not rejected Trump’s questioning of the deep economic and technological interdependence on China. His administration has undertaken a systematic review of the issues involved. All indications are that Washington will continue to seek some technological decoupling and diversification of sensitive supplies away from China. Taiwan will inevitably be the key element in the American quest for resilient supply chains in the digital domain.
Taiwan’s position as a semiconductor superpower opens the door for more intensive strategic-economic cooperation between Delhi and Taipei. In the first decades after independence, Delhi deliberately avoided contact with Taiwan in the name of upholding the position that the PRC is the sole representative of the Chinese people. Although many countries stood by the one-China principle, they did not avoid cooperation with Taiwan. Delhi, however, was rather rigid.
This changed in the early 1990s, when it began to engage with Taiwan, but the policy remained a restricted one. In the last few years, though, there has been a steady expansion of bilateral engagement. Trade has increased from about $1 billion in 2001 to about $7 billion in 2018.
The NDA government has made a special effort to woo Taiwanese companies that are moving some of their production away from China to other destinations in Asia. While there has been some progress, Delhi is yet to tap into the full range of commercial and technological opportunities possibilities with Taiwan. This is particularly true of semiconductor production.
Part of the problem is that India’s strategic community continues to view Taiwan as an adjunct to India’s “One-China policy” — oscillating between keeping needless distance with Taipei when ties with Beijing are warm and remembering it when Sino-Indian ties enter a freeze.
Delhi must begin to deal with Taiwan as a weighty entity in its own right that offers so much to advance India’s prosperity. Delhi does not have to discard its “One-China policy” to recognise that Taiwan is once again becoming — after many decades of relative quiet — the lightning rod in US-China tensions. As Taiwan becomes the world’s most dangerous flashpoint, the geopolitical consequences for Asia are real. Although Delhi has embraced the Indo-Pacific maritime construct, it is yet to come to terms with Taiwan’s critical role in shaping the strategic future of Asia’s waters.
This article first appeared in the print edition on February 23, 2021 under the title ‘The Taiwan flashpoint’. The writer is director, Institute of South Asian Studies, National University of Singapore and contributing editor on international affairs for The Indian Express
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