ROI Calculator
One day in August 2022, a group of military and defense strategy experts gathered in Washington, DC, to play a game that simulated a Chinese amphibious invasion of Taiwan in 2026. After running the game 24 times in seven hours, the group found that the United States, Taiwan, Japan, and other allies would likely defeat China and preserve Taiwan’s independence—but at enormous costs.
Other players arrived at similar outcomes on what would happen if China invaded Taiwan on different days, and after running the wargame 22 times, the Center for Strategic and International Studies concluded that the U.S. and its allies would win while losing “dozens of ships, hundreds of aircraft, and tens of thousands of service members.” Moreover, the losses would damage “the U.S. global position for many years” and devastate Taiwan’s economy. But China would fare even worse, with “its navy in shambles … tens of thousands of soldiers” held as prisoners of war, and domestic turmoil so severe that it would threaten the Chinese Communist Party’s hold on power.
How can the US prepare for a China-Taiwan war?
Given these consequences, “Victory is therefore not enough,” wrote CSIS in its report, “The United States needs to strengthen deterrence.” According to the report, this consists of expanding bases in Japan and Guam, deploying more submarines and small “survivable” ships instead of cruisers and aircraft carriers—which sunk by the dozens in the games—and a host of other moves, as well as preparing the country to accept that soldiers, sailors, and pilots will die in defense of Taiwan.
Due to geopolitical tensions, a war for Taiwan and the horrific consequences outlined above have become more and more likely in recent years. “No one thought this was realistic until the last few years,” retired Air Force Brig. Gen. Paula Thornhill, one of the wargamers, told WSJ. But with China rapidly building its military capabilities, conducting live-fire exercises around Taiwan, and affirming that it would use force if necessary to reclaim Taiwan, the prospects of war seem closer than ever.
What woud happen to semiconductors if China invaded Taiwan?
While a war would be bad enough, the consequences for global supply chains and the economies they support would also be disastrous because of Taiwan’s position as the largest supplier of semiconductors and source of 92% of the world’s advanced microchips. “Were China to seize Taiwan, one of two things could happen to the chip supply,” writes Jason Matheny, head of the renowned research organization Rand Corporation in an Atlantic article. “The microchip factories could end up being controlled by China, or they could be destroyed” in the war.
In the first scenario, China could cut off advanced chip sales to the U.S. and its allies, “significantly reducing American technological, economic, and military advantages,” writes Matheny. “But if the second scenario came to pass, the world could experience an economic crisis the likes of which we have not seen since the Great Depression.”
That depression would impact China as grievously as any country. According to a Resilinc special report, China-Taiwan Risks to the Global Semiconductor Industry, China accounts for 60% of global chip demand – 90% of which foreign firms supply, those in Taiwan most significantly. One would hope that Chinese leaders are well aware of this possible outcome, and that this knowledge will serve as a deterrent to war.
Can the US develop its own semiconductor industry?
Meanwhile, U.S. and allied nations are looking to compensate for their vulnerability to a disruption in Taiwanese semiconductor supplies by incentivizing domestic investment. This was one of the main goals of the CHIPS Act (which also penalizes companies for investing in advanced chip manufacturing in China), and the legislation is working in some respects; GlobalWafers and Intel both stated that their planned semiconductor plants in Texas and Ohio might not have proceeded without the CHIPS incentives.
Yet Rand’s Matheny contends that developing the kind of semiconductor manufacturing capacity Taiwan has developed will take decades. “The idea of replacing microchip imports with American-made products undervalues Taiwan’s 40-year head start with its microchip industry—and it took at least a decade for the island to become globally competitive. A similar lag will apply to the U.S.,” he wrote.
How can the US help Taiwan prepare for an invasion?
Like CSIS, Matheny argues for better arming Taiwan now to prevent an invasion—especially with HIMARS rocket launchers, drones, loitering munitions, anti-tank missiles, and other weaponry that has worked for Ukraine against Russia. He notes that providing these weapons in sufficient volume could deter Chinese aggression and safeguard the Taiwanese chip industry “for about a tenth of the cost of the CHIPS Act.”
Paradoxically, Matheny points out that a major holdup to delivering such weapons—months after $1.1 billion in military aid was promised—are bottlenecks in the semiconductor supply chains. “The problem is temporary, but it only goes to underline what a priority it is for the U.S. to ensure that Taiwan has the right defense systems to project its own security, in the most timely way possible.”
What does this mean for supply chain managers?
While chip supplies are indeed rebalancing after the epic shortages of 2020-2022, largely due to the economic downturn, such “temporary” shortages can be sure to recur, as well as price volatility. Hence Resilinc’s recommendation for supply chain managers to to understand all the linkages and interdependencies therein. While there may not be much a supply chain pro can do to influence the course of geopolitics if China invaded Taiwan, there’s no substitute for being prepared and capable of responding to disasters of all types with precautionary measures like advanced buys or qualifying secondary suppliers for items from risky locations.
