Amid concerns over a potential Chinese military invasion of Taiwan, one of the biggest blows to the global economy could be China's seizure of semiconductor manufacturing facilities. TSMC's most advanced facilities exist only in Taiwan, and although the company has equipped its facilities with disabling switches in preparation for a Taiwan contingency, production would still be halted, which is expected to have a major impact on many smartphones, including the iPhone, PCs, and more.
In preparation for such threats, TSMC reportedly discussed relocating factories outside of Taiwan in the past, including with customers, but abandoned the idea due to the many difficulties involved.
Factories Cannot Be Relocated Outside Taiwan
TSMC CEO C.C. Wei stated at the company's annual shareholders meeting that when China conducted military exercises around the island, the company discussed with "some customers" the possibility of relocating its factories in preparation for a worst-case scenario of an invasion of Taiwan. However, TSMC concluded that relocating its semiconductor factories outside the island was impossible, since 80-90% of its production capacity is located in Taiwan.
This customer is likely Apple, arguably TSMC's most important customer.
In recent years, concerns have grown that Russia's invasion of Ukraine—where the world's nations were unable to impose decisive sanctions, inadvertently highlighting the advantages of military conquest—might embolden China's ambitions to invade Taiwan.
Security agencies in the US and UK later issued an "unprecedented warning" that this is a realistic possibility. These concerns have led to speculation that China's actual practice of military blockades of Taiwan may be positioned as an initial step toward invasion, and concerns intensified further when China announced plans to reach new military heights by 2027, the 100th anniversary of the People's Liberation Army.
General Mark Milley, Chairman of the US Joint Chiefs of Staff, stated that Beijing may want to be prepared to invade Taiwan by that year.
China's recent trend of stockpiling gold reserves and repeatedly setting new records has also fueled speculation, suggesting the country may be plotting a move away from the dollar in preparation for sanctions related to a military invasion.
Should an invasion of Taiwan actually occur, the damage to the global economy would be immeasurable. Commerce Secretary Gina Raimondo stated last month that if China were to take control of Taiwan, the effects would be "absolutely devastating."
"I'm not going to comment on whether, how, or when that might happen, but what I can say now is that the United States currently purchases 92% of its most advanced chips from TSMC in Taiwan," Raimondo told the House Appropriations Committee.
Although TSMC is also building manufacturing facilities in other countries such as the US and Japan, Wei stated that Taiwan remains the company's top priority in both production and technology.
"The first priority is Taiwan, the second priority is Taiwan, and the third priority is Taiwan. We will keep all of our leading-edge chip production in Taiwan, ensure smooth production here first, and only then consider using that technology for overseas production," Wei said.
"The instability of the Taiwan Strait is certainly something to consider for the supply chain, but we never want a war to happen."
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