A Discussion on Geopolitical Risk of Taiwan Semiconductor Industry

• In Event: Global Supply Chains

Abstract

Is the semiconductor industry in Taiwan the “Silicon Shield” to deterrence the potential military conflict? This concept is widely believed among business elites and general public. The idea of “Silicon Shield” comes from two aspects: first, since China depends on chip supply from Taiwan for its economic growth, it is too costly to wage a war on Taiwan strait. Second, the US and her allies rely on chip supplies from Taiwan as well, therefore, they would deterrence any potential geopolitical risks by any means. However, the idea of “Silicon Shield” is defective. The first flaw of the “Silicon Shield” is that neither liberalist nor realist theory assures the casual relationship between interdependence and peace. Liberalist ignores realist’s concern on vulnerability issues, while realist downplay the force of aggressiveness restraint from international trade. The second flaw is the naive expectation of balancing. To bust the myth, I review Copeland’s (2015) “trade expectation theory” and hedging strategy from Southeast Asian studies. The author argues that despite the US and China shares tight linkage on semiconductor value chain, the negative expectation of trade war and further technology restriction may result the militarized conflict. Furthermore, hedging studies tells us that states without immediate security threat may offset potential risks rather than hard balancing. The US and allies build their own domestic foundry rather than risk their boys’ life. The “trade expectation theory” and hedging studies told us that expectation of the idea of “Silicon Shield” is over optimistic. Moreover, the sudden trade cutoff on semiconductor product from the US may lead to militarized conflict on Taiwan Strait.

Author

• Kuan-chu Chou, Academia Sinica