Taiwan is the largest semiconductor manufacturer in the world, making about 92% of the world’s most advanced semiconductors. Without semiconductors, the world as we know it would not operate. The computer I wrote this article on is probably powered by a Taiwanese microchip. It is likely that the device you are using right now to read this uses one too.

To this day, the CCP has continued to lay claim over Taiwan, but post-war ideas about preserving democracy and self-determination, combined with outside pressure from the US and other Western powers, has resulted in China’s authoritarian government holding off on annexation.

Lai Ching-te (also known as William Lai), who became the new president of Taiwan in May 2024, is a strong advocate for his country’s self-determination. This has sparked backlash from the other side of the Strait, with China launching threatening “military exercises” (including as recently as mid-October) and Chinese president Xi Jinping’s rhetoric becoming increasingly aggressive.

Semiconductors, often referred to as microchips or integrated circuits (ICs), may be tiny, but they are essential to technological industries such as healthcare, telecommunications, transportation, banking, security, and manufacturing.

The Taiwan Semiconductor Manufacturing Company (TSMC), based in Hsinchu, a city on the east coast of the island, manufactures an astonishing 55% of all microchips, including 90% of the most advanced ones. To put the importance of the TSMC into perspective, OPEC (Organization of the Petroleum Exporting Countries) produces only 40% of the world’s crude oil.

War in the Taiwan Strait has the possibility of hugely disrupting the trade that it facilitates, a great loss that will be suffered by important sectors in the global economy and by ordinary people. The consequences are difficult to imagine, but entirely plausible. This piece explores the consequences of such a crisis.

Technology companies

Three major technology companies – Apple, NVIDIA, and Qualcomm – rely on TSMC microchips.

Conflict in the Taiwan Strait would result in massive price hikes for products. In addition, shipping delays and supply chain disruptions could make it very difficult for products to be delivered in any reasonable time frame. Even this is an optimistic point of view, as war, or indeed Taiwanese self-destruction, could destroy TSMC factories altogether.

Yet another threat is the slowing or halting of technological advances and innovations, depended upon by much of society.

Automobile industry

The semiconductor supply chain was disrupted just a few years ago by the COVID-19 pandemic. This decrease in supply with continual demand led to the average price of cars to increase by over 15% in less than two years. Disruptions in the Taiwan Strait from a war would certainly create another semiconductor shortage, possibly much worse than the past.

As many Gen Z-ers are getting ready to purchase their first car or just learning how to drive, a war over Taiwan would directly affect their ability to afford a car. One can look at the principles of supply and demand to understand this. If the production of Taiwanese semiconductors stagnates, the supply of automobiles will decrease by a great degree while demand stays constant. As a result, prices will soar.

Along with the fact that cars depreciate in value very quickly, more and more Gen Z-ers are becoming ‘car poor,’ which is when one falls into debt due to car payments that make up to half of their income. With people putting larger slices of their salaries into paying for a car, they have less to pay for their house, buy food, and pay for other commodities.

Global economy

China is the world’s largest export economy, with exports in 2022 valued at $3.59tn, almost twice as much as the United States, the next largest at $2.06tn. Taiwan is the world’s 11th export economy, most notably exporting microchips. With the additional fact that 50% of global commercial container traffic passes through the Taiwan Strait daily, there is no doubt that a war in the Taiwan Strait will halt much of the flourishing trade that the Strait facilitates.

In addition, the US already has steep tariffs on Chinese electric vehicles, solar cells, and electrical vehicle batteries. A war with China may worsen trading and diplomatic relations between the US and China. While the US and its allies in East Asia have remained largely strategically ambiguous in the past, refraining from publicly choosing sides, escalation to conflict would make the strategy of ambivalence untenable.

Bloomberg predicts that a military engagement over Taiwan would have a catastrophic effect, leading to a drop in the global GDP by about 10% and cost about $10tn.

The best and most simple, yet not simple, solution

While the US is able to take a stance against China while remaining economically stable, because China is the largest export economy and many others rely on its goods, it may be difficult for most countries to pick a side. Meanwhile, with the world technologically advancing at a fast rate, the possibility of a ‘Taiwan crisis’ is a pressing issue.

While it seems simple, in order to preserve global supply chains and the balance of international relations, a war in the Taiwan Strait must be prevented.

Due to ideological and economic clashes, this is much easier said than done. As this situation in Taiwan continues to shift and change, constructive dialogue is the key to preserving peace and stability in the Strait, and also the wellbeing of the global economy.