US Warns Of Economic Damage If China Invades Taiwan

The scale of the financial shock to the global economy if China invaded Taiwan, with the likely resulting semiconductor production shutdown, has been estimated by the US.

The US Director of National Intelligence Avril Haines, speaking before the Senate Armed Services Committee, was quoted by Reuters as saying that a Chinese invasion of Taiwan could potentially halt production by the world’s largest advanced semiconductor chip maker (i.e. TSMC).

This could reportedly wipe out up to $1 trillion from the global economy per year in the first few years, the top US intelligence official said on Thursday.

Taiwan invasion

This is what Avril Haines called a “general estimate” of the financial impact of an invasion of Taiwan.

According to Reuters, she also noted that the advanced semiconductor chips produced by Taiwan Semiconductor Manufacturing Company Ltd (TSMC) are used in 90 percent of “almost every category of electronic device around the world.”

If a Chinese invasion stopped TSMC from producing those chips, “it will have an enormous global financial impact that I think runs somewhere between $600 billion to $1 trillion on an annual basis for the first few years,” she was quoted as saying during her testimony.

“It will also have an impact on our (US) GDP if there was such an invasion of Taiwan and that (TSMC’s production) was blocked,” Haines continued.

“It would also have an impact, if they stopped making chips, on China’s economy,” she reportedly added.

Last month a Taiwanese government minister had sought to reassure local citizens about TSMC, amid a military standoff between the island and communist China’s forces.

Taiwan’s Economy Minister Wang Mei-hua reportedly that TSMC had not changed the investment plan for its new chip factory in the island’s southern city of Kaohsiung, in response to a media report of the chipmaker slowing down expansion at home amid invasion fears.

Strategic issue

The issue of TSMC is of strategic importance considering the vital role that Taiwan plays in the global supply chain for semiconductors. TSMC is also Asia’s most valuable listed company.

In March this year the retired founder of TSMC, Morris Chang reportedly said he supported US efforts to slow China’s advances in the semiconductor industry.

It came after TSMC chairman Mark Liu last August warned about the likely impact on the world’s supply of semiconductors, if China were to invade Taiwan.

If China were to invade Taiwan, the most-advanced chip factory in the world would be rendered “not operable,” Liu said at the time.

Last October Liu admitted that tensions between Taiwan and the US with China poses “serious challenges” for chip industry.

Western nations are concerned about the fate of chip fabs on Taiwan’s western coast, which produce the majority of the world’s most advanced chips, if China blockades or attacks the island.

That said, TSMC is expanding its global production footprint, even as it keeps its most advanced technology in Taiwan.

Late last year, TSMC began construction of a second chip factory in Arizona which will start production in 2026, using advanced 3nm technology. The company’s total investment in the US project amounts to $40 billion.

It is also building a chip factory in Japan.

China moves

Meanwhile, the Chinese government continues to plough billions into bolstering its domestic chip sector, but TSMC’s Chang said China’s chip manufacturing technology lags that of Taiwan by “at least five or six years.”

China’s President Xi Jinping recently said his country must reach tech independence, and must resolve issues in key technological fields from the bottom up.

This is not the first time that President Xi has issued a rallying call to Chinese firms.

In October 2022 President Xi called for his country to “win the battle” on strategically important technologies, days after the US dramatically expanded trade sanctions aimed at crippling China’s tech initiatives.