The earthquake in Taiwan causes the global economy to tremble

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The global economy is heavily dependent on semiconductor chips from Taiwan. The earthquake on April 3 was a stark reminder of that vulnerability. Yet little has changed, even though the uncertainties are growing – and not just because of China's threats to annex Taiwan.

The earthquake claimed the lives of at least nine people and is believed to have injured more than a thousand.It also raised fears among many companies around the world that supplies of key semiconductor chips could become unavailable or much more expensive. Taiwanese companies produce a significant portion of all chips sold worldwide.

A very severe earthquake in Taiwan could have a large impact on the global economy; the prolonged chip shortage three years ago, which was an indirect consequence of the coronavirus pandemic, provided a foretaste.

An analysis by Christof Windeck

Christof Windeck is a senior editor in c't's hardware department. The electrical engineer has been writing about processors, PC components, servers, data centers, embedded systems, firmware and security since 1999. Christof Windeck (ciw) is also responsible for c't's Bit-Rauschen column and the associated podcast.

With regard to the earthquake on April 3, 2024, Taiwanese chip manufacturers have already given the all-clear: the damage will be limited.

However, an attack by China on Taiwan would have more extreme consequences for the chip supply chain. Bloomberg experts estimate the potential damage at up to 10 trillion euros, or around 10 percent of gross world product.

Such a crisis would likely lead to mass unemployment and many other serious consequences in Europe. Not only would supply chains collapse, but so would exports to China and Taiwan. German car manufacturers sell more than a third of their new vehicles in China. Despite this threat, dependence on Taiwanese chip companies has not yet been significantly decreased. And there are other risks.

Chip dominance in Taiwan & Korea

Taiwan is home to TSMC (Taiwan Semiconductor Manufacturing Company), by far the market-leading contract manufacturer for semiconductor components. TSMC is the most important supplier for US global chip market leaders such as Nvidia, AMD, Qualcomm and Broadcom, as well as Apple. Intel also orders many chips from there. UMC is another major chip contract manufacturer (foundry) based in Taiwan, and there are also several fabs for DRAM memory chips.

The second leading Asian chip nation is South Korea, mainly because of Samsung Semiconductor / Foundry and SK Hynix. Samsung is the world's second largest chip foundry and also the market leader in DRAM and NAND flash memory chips, while SK Hynix is the number two in memory chips ahead of Micron from the USA.

The chip dominance of Taiwan and Korea is no coincidence, but the result of decades of state support, including high subsidies.

At least in Taiwan, the chip focus is also explicitly aimed at binding the USA and other Western nations to the country as protective powers. Taiwan's giant neighbor China sees the island state as a renegade part of itself and repeatedly threatens to invade. South Korea, on the other hand, has the threatening neighbor North Korea. Due to the importance of chips for the global market, but also because of the geopolitical situation of both countries, the USA has a strong interest in protecting them.

China itself does not play a major role as a supplier of chips for the global market in terms of turnover. Although there is considerable production capacity there, it mainly serves the local market. Nevertheless, electronics from China are essential for the world: a large proportion of the cheaper, simpler components, such as simple resistors, capacitors and microcontrollers, come from there. Shortages of these components are also disrupting the supply chain, as has been shown on several occasions. And China is using its market dominance strategically, which is not a pipe dream either.