US Would Face ‘Deep and Immediate Recession’ If Chips from Taiwan Stop Flowing, Warns Commerce Secretary

MediaTek chips are seen on a development board at the MediaTek booth during the 2015 Computex exhibition in Taipei, Taiwan, on June 3, 2015. Pichi Chuang/Reuters

The United States would face a “deep and immediate recession” if access to Taiwan’s computer chips plants are cut off, said Commerce Secretary Gina Raimondo on July 21 to CNBC.

The secretary’s comments come as Congress is gathering key votes on a bill to fund semiconductor manufacturing at home, called the CHIPS Act.

The Senate voted 64-34 on July 20, to advance the $50 billion bill through a procedural hurdle aimed at boosting U.S. domestic chip production.

Although many of the chips used are designed domestically, American companies, the government, and the military buy 90 percent of the leading-edge semiconductor chips in use from Taiwan, mostly from the Taiwan Semiconductor Manufacturing Company, the world’s largest chip company.

The United States has outsourced most of its production to the vulnerable island nation, posing a national security risk, as the chips are used in a wide range of applications, from cars, smartphones, medical tech, and the military.

“If you allow yourself to think about a scenario where the United States no longer had access to the chips currently being made in Taiwan, it’s a scary scenario,” said Raimondo.

“It’s an inability to protect ourselves by making military equipment. We need to make this in America,” she said.

“We need a manufacturing base that produces these chips, at least enough of these chips, here on our shores because otherwise, we'll just be too dependent on other countries.”

Commerce Secretary Gina Raimondo testifies before the Senate Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies during a hearing on expanding broadband access on Capitol Hill in Washington on Feb. 1, 2022. Sarah Silbiger/Pool via Reuters

Raimondo said that foreign dependence on key supplies and components is creating a national security risk, especially regarding the tense relations with Russia and China.

“You can’t have biotech industry, or artificial intelligence, or quantum computing, or really any innovation without semiconductors,” Raimondo continued.

“Semiconductors are a cornerstone technology necessary to underpin every other innovation-based industry.”

Sino-American Relations

The communist regime in Beijing is currently raising tensions over its endless claims over Taiwan as a “breakaway” province and has not ruled out the use of military force to annex the island.

President Joe Biden is dealing with one of the worse periods in Sino-American relations after he announced in May that the United States would militarily defend the island if China attacked.

This comes as the American economy is facing a recession due to skyrocketing inflation rates, Federal Reserve’s interest rate hikes, and a supply chain crisis that is affecting items like electronics and cars.

CHIPS Act

The CHIPS Act will help subsidize the creation of semiconductor manufacturing plants in the United States and bring vital production home.

After clearing the Senate committee, the bill, which has support on both sides of the aisle, must now pass both Congressional chambers.

After some lawmakers questioned the need to subsidize companies that have allegedly engaged in stock buybacks, a prohibition was added on using the funds for buybacks or dividends.

American semiconductor firms like Intel, warned lawmakers on the Hill that any delay to its $20 billion planned manufacturing plant in Ohio, would be endangered by further stalling from Congress.

Raimondo blasted criticism of the semiconductor bill, by calling the chips “a cornerstone technology necessary to underpin every other innovation-based industry.”

The secretary emphasized the importance of incentivizing chip companies to expand domestic manufacturing, rather than move to other countries that offer attractive benefits.