Looming Taiwan chip disaster

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2026/02/24/technology/taiwan-china-chips-silicon-valley-tsmc.html

The Looming Taiwan Chip Disaster That Silicon Valley Has Long Ignored

If China invades Taiwan and cuts off its chip exports to American companies, the tech industry and the U.S. economy would be crippled.

By Tripp Mickle

Tripp Mickle reviewed documents, visited chip plants and interviewed more than 60 people across the government and the tech industry.

The New York Times, Feb. 24, 2026

Federal officials have for years tried to wean Silicon Valley from its dependence on Taiwan, an island democracy roughly the size of Maryland that makes 90 percent of the world’s high-end computer chips.

In secret briefings held in Washington and Silicon Valley, national security officials warned executives from companies like Apple, Advanced Micro Devices and Qualcomm that China was making plans to retake Taiwan, which Beijing has long considered a breakaway territory. A Chinese blockade of Taiwan, the officials said, could choke the supply of computer chips made on the island and bring the U.S. tech industry to its knees…

Those worries, drawn into focus by recent live-fire drills conducted by the Chinese military in waters surrounding Taiwan, have prompted dire warnings from White House officials…

A confidential report commissioned in 2022 by the Semiconductor Industry Association for its members, which include the largest U.S. chip companies, said cutting the supply of chips from Taiwan would lead to the largest economic crisis since the Great Depression. U.S. economic output would plunge 11 percent, twice as much as the 2008 recession. … [end quote]

TSMC is a foundry that does work that no other company can do at this time. Their chips are cheaper than comparable chips from the U.S. would be (even if they could be made here, which they can’t at this point). Electronics manufacturers won’t switch to more expensive chips so there’s no incentive to build expensive fabs in the U.S. It’s a Catch-22.

https://www.wsj.com/tech/inside-apples-push-to-build-an-all-american-chip-0cf39c16?mod=hp_lead_pos7

Inside Apple’s Push to Build an All-American Chip

The iPhone maker wants more supply based in U.S., which remains years behind Asia

By Rolfe Winkler, The Wall Street Journal, Feb. 23, 2026

…
The world’s largest chip maker, Taiwan Semiconductor Manufacturing, or TSMC, is building the chip manufacturing site in Phoenix, planning to spend $165 billion to build six chip plants and more, making it one of the largest construction projects in the U.S.

Under pressure from the Trump administration, Apple vowed last year to invest $600 billion in the U.S. over four years. Much of that spending isn’t related to manufacturing. It counts all spending in the U.S. including salaries for tens of thousands of Apple employees and retail staff…

The effort is modest relative to the global chip supply chain. And Apple’s purchases from the factory represent a small percentage of its total demand for chips, the key components that power its devices… [end quote]

China wants to take over Taiwan. Period. It’s been one of their primary goals since the KMT government fled there after World War 2.

Hopefully, the Chinese will take over Taiwan without sparking World War 3 and without crashing the world economy. I think they are too smart to cut off their nose to spite their face, but who knows?

Wendy

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I started work at Texas Instruments in 1989. This was a time when Japan was dumping the world with cheap DRAM. TI was the last American producer of those chips. They did it at a loss because they believed that was how important this market was and that a domestic supplier was needed. It was valiant and I was proud of that. But they eventually had to stop.

Then I go to work at Motorola in semiconductor. This is when they first started going into the Chinese market. I questioned why they’d do that, knowing the history of the Chinese government and companies to steal Western technology. The answer was if we don’t, our competitor will. And if it gets bad enough, that is what Washington is for.

Companies only look at the direct financial ramifications. Any possible future issue is just fiction to them. Not something worth spending money on, that is for sure. And besides, the American government has proven time and time again to be willing to bail out companies, either with money or the military, when necessary. Privatized rewards, socialized risk. It’s the new American version of capitalism.

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Sure, sometimes. Didn’t help McDonald’s when they had to pull out of Russia and abandon their storefronts, distribution chains, and everything else. Also affected: Pepsi, Coke, Apple, Ford, And I (vaguely) recall big write downs blamed on the Ukraine invasion by Boeing, Exxon, and AmEx.

I’ve been yelling about the Taiwan vulnerability - and the consequent danger to our entire tech sector for at least a half dozen years. And given that it takes almost that long to set up an advanced chip fab these days, we’ve wasted a lot of time getting in a position of strength. If China decides on Taiwan, we’re @#$%%&^R!. There’s no realistic way to stop it from happening, in my view. It’s either a wide sector war or a humiliating defeat, neither of which seems a particularly good outcome.

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AI Overview

Yes, Taiwan-based TSMC (Taiwan Semiconductor Manufacturing Company) is currently building a massive, multi-billion dollar chip manufacturing complex in Phoenix, Arizona, with investments pledged up to $165 billion. The site, known as TSMC Arizona, is expected to operate six fabs by the end of the decade, with the first, Fab 21, already producing 4nm chips and supporting advanced AI production.

Key details about the TSMC investment:

Production Status: The first Arizona fab is operational, and mass production of advanced semiconductors began in late 2024.
Expansion Plans: TSMC plans to build up to six, or possibly more, fabs by the end of the decade.
Advanced Nodes: The project will produce 4nm, 3nm, and 2nm chips.
Government Support: The project is supported by the U.S. CHIPS and Science Act, receiving $6.6 billion in federal grants.
Economic Impact: The investment is one of the largest foreign direct investments in U.S. history, creating thousands of jobs and strengthening the domestic supply chain for AI and high-performance computing.
Sustainability: The facility is implementing advanced water recycling, aiming for 90% water reclamation.

This, along with other potential investments in the sector, reflects a major, ongoing effort to secure the U.S. semiconductor supply chain, with TSMC, as a primary partner, playing a key role in producing chips “made in America”.

The Captain

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Yup, thank goodness for that legislation that was passed almost four years ago. CHIPS and Science Act - Wikipedia

Still, while one chip is in production, it looks like at least another few years before the project is fully realized. Maybe China won’t take over Taiwan until we complete it…

Pete

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True. But….um….why would we consider this potential disaster to be, now, “looming”?

China’s wanted to do this for decades, but the reason they haven’t is because they know it would provoke a massive response from other countries. Which makes it not worth taking over Taiwan. And that’s a situation that’s likely to continue for so long as the U.S. depends on Taiwan for chips.

As long as we need Taiwan for chips, China’s going to be very reticent to take it over. So…why is this now a “looming” threat?

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Because Xi has told the PLA to be ready to take back Taiwan in 2027, the 100th anniversary of the PLA? That doesn’t mean they will, but it’s certainly an indication that something is on his mind.

Not to mention the increasingly Taiwan centric war games that China keeps escalating.

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Sure - but is there any reason to believe that the PLA is going to be capable of mounting such an operation by 2027, much less that China could ever find it to be in their best interests to do so? Taking Taiwan would be orders of magnitude more difficult than taking Normandy - at least, without bombing the island into oblivion.

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Not to mention the potential damage/destruction of the facilities on Taiwan. IIRC, a third of TSM’s sales are to the PRC.

DB2

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Do we really know this? Certainly with his purging of the top of the command structure it is less likely they are able to attempt this any time soon.

JimA

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Couldn’t disagree more. Taking Taiwan for China would be trivially easy. It’s 100 miles off China’s coast, it’s over 6,000 miles from ours. In a world where we’re already being warned that a brief war with Iran would “deplete our supplies”, how are we gonna conduct a war where everything is 6,000 miles away with an Army half the size of China’s? (Recall that we are primarily Europe/Middle Eastern faced, so it’s really more like 1/4th or 1/5th the size. China has few other distractions should it choose to go after Taiwan.)

Likewise, a power broker (bully) like the current WH occupant would probably let it go without too much fight, given the inequity of the starting line simply because of the short odds of success of defending such a remote place so far away. Look how quickly he/we gave up on Ukraine given the “too hard” issue.

There are multiple strategies China could use, the simple blockade wold probably suffice; if it turned into a shooting war, well, it’s in their backyard, and what are we going to do? Nukes? Invade the mainland?

Frankly I see the outcome as almost inevitable. And it isn’t happy for the DPP.

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Nope. It would be insanely difficult for them.

Imagine D-Day - except the Germans know that the invasion is landing in Normandy. Nowhere else in France, nowhere else in Europe - it will be in Normandy. So instead of a fraction of their troops there, they have all their troops there. And Normandy has not suffered from years of bombardment and military attacks. Oh, and only a tiny portion of Normandy is approachable, and the shallow sea depth extends out about a mile - so all of your blue water ships have to stay that far off shore.

Now imagine that in a world where satellites exist, so there’s no element of surprise even then. They’ll be able to spot with certainty when you start marshalling the hundreds of thousands of troops and countless vessels needed to traverse the Straits. Oh, and now the defenders have missiles that are accurate out to a thousand miles. Where there’s about 450,000 soldiers in that area the size of Normandy - and they’ve spent decades building up fortifications and anti-ship defenses along that coast. And they have a bunch of defenses on islands they control (no analog in the English Channel). And the naval conditions in the Straits of Taiwan are much worse than the Channel.

Etc. For a nice overview of why China would have an enormously difficult time launching an amphibious invasion of Taiwan, see below (EDIT to provide a second link for why invading Taiwan is a much higher degree of difficulty than the largest such operation in the history of warfare):

Why China Would Struggle to Invade Taiwan

Why a Taiwan Invasion Would Look Nothing Like D-Day – The Diplomat

We would do what we did to Russia, which is basically exile them from the world economic system. Which China, to a vastly greater degree than Russia, simply cannot afford to have happen.

A Chinese Economic Blockade of Taiwan Would Fail or Launch a War

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And I image the Taiwanese military is good at making drones…

DB2

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I agree with albaby1 while (rare for me) I disagree with goofyhoofy.

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We are politically unstable and heading into default. We will be less wealthy and more politically unstable.

It would not provoke much of a response for more than two weeks.

We would destroy TSM’s plants. We’d be at a loss and so would China, but China would get what it wants.

Institutional money plays the long game. While China and the US would have losses the only way out is to stop fighting within two weeks. China would take Taiwan. China can now do that.

Both the US and China would come back. China would still be a bit player in the Chip market. The Taiwanese elite are transporting themselves and the plants to the US.

We need Greenland for heavy RRE. We got the Danish parliament to overrule the government of Greenland, allowing us to mine.

I think we can get to RRE processing equality with China quickly over the next few years. Perhaps 5 or 6 years. China may wait that long to stabilize the economic order.

At some point in the next few years when we are secure with where this is going, we may negotiate Taiwan away. The English gave up Hong Kong. China will wait.

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Yogi Berra would say:

  • Goody: theory
  • Albaby: practice

The Captain

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This is pre-2025 thinking. Even when the U.S. had friends and allies, it would have been incredibly difficult to effectively sanction China. But that world is gone. U.S. moral authority and leadership has been abandoned in favor of corruption, bullying and transactional relationships.

I’m not even confident that Donald would oppose such an invasion if Xi offered a big trade deal with lots of freebies for Donald and his family.

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Sanctions are always difficult. However, even if only the US and Japan went along, those two countries alone represent 20% of China’s exports. China would go into a deep recession (along with the rest of the world).

DB2

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This!

And this! This is why I think it would be “easy”, because the moral suasion, or even ability to cut off China from the rest of the world (nearly impossible now) has evaporated. Not to mention that our ability (and wont) to defend a tiny and economically important but militarily non-strategic isle is low, as is the preference of our political leaders to engage in foreign war - of any reasonable size. Extracting a dictator or throwing a few bombs at Iran is one thing. Getting into a protracted conflict with a new superpower is quite another.

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Worth repeating. While I would love to believe albaby’s viewpoint, it looks increasingly like goofy’s. Or, to recalibrate Captain’s terms, it may be:

Yogi Berra would say:

  • Albaby: theory
  • Goofy: practice

Pete

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