Taiwan Says It Will Comply With Latest US-Issued Chip Export Rules Aimed at China

Expert says China is more dependent on Taiwan than the other way around

A factory of Taiwanese semiconductors manufacturer TSMC at Central Taiwan Science Park in Taichung, Taiwan, on March 25, 2021. Sam Yeh/AFP via Getty Images

On Oct. 7, the U.S. Department of Commerce announced sweeping new export controls that will cut China off from certain semiconductor chips that are made with U.S. technologies, regardless of whether the chips were manufactured in the United States.

In response to the new move, Taiwan’s Economy Ministry on Oct. 8 said that Taiwanese firms would comply with the latest measures put forth by the United States.

“Taiwan’s semiconductor industry has long served global customers and attaches great importance to compliance with laws,” the ministry said, according to Reuters.

The new move is the Biden administration’s latest effort to hamstring the military modernization of an increasingly hostile China.

Although Taiwan’s economy remains reliant on trade with China, experts believe that it is the other way around—that China has an overall greater dependence on Taiwan for its semiconductors. And that any Chinese hostility toward the island could inflict critical injuries on the Chinese economy.

‘Any Chinese Aggression Could Backfire’

A recent Bloomberg report published on Oct. 7 said that the United States “would consider evacuating Taiwan’s highly skilled chip engineers” in the worst case if China invades, citing people familiar with the Biden administration’s deliberations.

In response to the topic, Taiwan’s Ministry of Economic Affairs said on Oct. 8 that the international community, including the Chinese government, should understand that Taiwan’s economy is heavily intertwined with the world’s economy, including China’s. And that for the world, peace and security in the Taiwan Strait are in all parties’ best interests.

The ministry added that instability in the Taiwan Strait would inevitably endanger the security of the Asia-Pacific region, especially Japan and South Korea, which are also part of the critical semiconductor supply chains.

In a recent interview with the Japanese newspaper Yomiuri Shimbun, Taiwan Economic Minister Wang Mei-Hua said China heavily depends on Taiwan for its semiconductor imports. And that any incident in the Taiwan Strait will disrupt the supply chain and severely impact the Chinese economy.

She added that if Beijing uses Taiwan-made semiconductors in a way that threatens Taiwan’s security, their exports will be restricted or controlled under international rules and regulations.

High Dependence on Taiwan-Made Chips

On Oct. 5, the Taiwanese think tank Economic Democracy Union (EDU) held a forum analyzing Taiwan’s geopolitical risks and the role of its semiconductor industry.

During the forum, Wu Jieh-min, a researcher at Taiwan’s national academy Academia Sinica, and Li Pao-wen, a professor at National Sun Yat-sen University’s Institute of China and Asia-Pacific Studies, also pointed to China’s high degree of dependence on Taiwan’s semiconductor supply chain.

He said according to Taiwan’s foreign trade bureau, the total semiconductor exports from Taiwan to China and Hong Kong was about $68.36 billion in 2021, accounting for 60.4 percent of the total exported to the global markets.

Additionally, in the same year, Taiwan’s total semiconductor exports to China and Hong Kong accounted for 49.4 percent of Taiwan’s total exports (of all goods and services) to China and Hong Kong.

Wu explained that although Taiwan seemingly exports a  massive volume of semiconductor products to China, most are only there for the assembly process and are later exported to other countries.

He said that China is not the final consumer market while estimating that more than two-thirds are re-exported worldwide. Therefore, Taiwan’s dependence on the Chinese market is “partly overestimated,” adding that future exports from Taiwan to China are expected to decline as China loses its world factory status, and the production supply chain gradually shifts to Southeast Asia.

Wu also mentioned that the Chinese Communist Party (CCP) uses what’s called a “military-civilian integration scheme” to obtain more chips from Taiwan amid heavy U.S. sanctions. He said Chinese companies would place chip orders for “non-military [civilian] use” as a front but later use them for military purposes.

‘Taiwan Is Too Important to Lose’

Wu said according to TrendForce, a leading semiconductor market data provider, Taiwan Semiconductor Company (TSMC) accounted for 55 percent of the global foundry market in 2020, United Microelectronics Corp. (UMC) accounted for seven percent, Powerchip Semiconductor Manufacturing Corp. (PSMC) accounted for two percent, and Vanguard International Semiconductor Corp. (VIS) accounted for one percent.

All of the companies mentioned are headquartered in Taiwan. Therefore, Taiwanese chipmakers alone account for 65 percent of the global foundry business.

Among them, TSMC produces 92 percent of the world’s advanced chips with process nodes below 10 nanometers, Wu said, adding that this reason alone put the United States and the international community on high alert over any potential Chinese aggression toward the island.

Wu said that some market participants believe that Samsung could potentially compete with TSMC, but his opinion differs. He said Samsung is not ideal in terms of yield, but TSMC has a very high yield, which makes it the world leader in wafer manufacturing.

He added that the total contribution (and added value) of Taiwan’s semiconductor-related industries would account for about 13 percent of Taiwan’s GDP in 2022, an increase of 2 percent from 11 percent in 2021. In addition, the market cap of TSMC accounts for roughly 26 percent of Taiwan’s total market capitalization, showing the great importance of Taiwan’s semiconductor industry.

On the other hand, Li Pao-wen, the other speaker at the event and a professor at National Sun Yat-sen University’s Institute of China and Asia-Pacific Studies believes that Taiwan is currently “an asset rather than a burden” to the United States in the U.S.–China strategic rivalry.

He said nearly 80 percent of the chips in the United States come from Taiwan, and the two countries have deep commercial and economic links as well as shared democratic values and goals, and he added that the United States and the international community are unlikely to abandon Taiwan in the face of Chinese threats.