The Battle Over Semiconductors Is Endangering Taiwan

TSMC is an economic boon, but its success makes China covet the industry while its natural resource consumption reduces resilience.

By , a Danish freelance journalist based in Taiwan.
A closeup of a silicon wafer on display at Taiwan Semiconductor Research Institution on September 16, 2022 in Hsinchu, Taiwan.
A closeup of a silicon wafer on display at Taiwan Semiconductor Research Institution on September 16, 2022 in Hsinchu, Taiwan.
A closeup of a silicon wafer on display at Taiwan Semiconductor Research Institution on September 16, 2022 in Hsinchu, Taiwan. Annabelle Chih/Getty Images

The U.S.-China relationship continues its freefall.

The U.S.-China relationship continues its freefall.

The rivalry between the two powers has most recently burst fully into the technological sphere with the U.S. Congress passing the CHIPS and Science Act in August, which was reinforced with additional moves by the Biden administration in early October. The aim of these measures is to secure stable U.S. access to advanced semiconductors in the future and deny the Chinese the same by restricting the export to China of equipment and designs necessary to develop and produce advanced microchips.

Microchips are ubiquitous in modern electronics, from innocuous products like refrigerators and electric toothbrushes to less innocuous ones like cruise missiles and fighter jets. As electronics and technologies continue to advance, the semiconductor components within them must advance as well, and those that wish to be at the forefront of technological advancements must have access to advanced semiconductors.

That is why the United States’ political steps in August and October were groundbreaking. They did not constitute limited symbolic trade tariffs. Rather, they have the potential to be debilitating and stall China’s technological development for decades since China is dependent on U.S. technology to access high-end microchips. Washington seems to have definitively moved into a new era in which the focus on fostering trade ties that defined previous decades has been firmly replaced by a Cold War-style containment strategy.

As U.S.-China jostling intensifies, Taiwan finds itself squeezed between the clashing giants. Indeed, in today’s global economy, it is impossible to talk about semiconductor supply chains without mentioning Taiwan. The country produces the majority of the world’s semiconductors and the vast majority of advanced chips. And no company in Taiwan is more preeminent in this field than the Taiwan Semiconductor Manufacturing Company (TSMC). The company is a behemoth in the semiconductor industry not just in Taiwan but in the world. The company sits on a staggering 53.4 percent of the global semiconductor production market and provides 92 percent of the advanced chips used in modern electronics.

The TSMC’s market dominance has catapulted it into the ranks of the most profitable companies in the world, overtaking Tencent last year as the most valuable company by market capitalization in Asia. TSMC is such a colossus that it together with the rest of the semiconductor industry constitutes about 15 percent of Taiwan’s GDP, and the company makes up about one-third of the value on the Taiwanese stock market.

The indispensable role that TSMC plays in the global supply chains of modern electronics has brought a lot of money into Taiwan. Because of it, the island state was able to maintain growth rates even during the height of the pandemic when other nations were fighting to prevent total economic collapse.

But with the semiconductor industry having been hurled into a geopolitical struggle between the United States and China as well as the strain on the island nation’s resources caused by semiconductor production, Taiwan’s semiconductor dream may be turning into a nightmare.


So far, the narrative surrounding Taiwan’s semiconductor industry and TSMC has been a positive one. TSMC’s central role in global semiconductor supply chains has been described as enough reason for any U.S. administration to intervene should China attempt to invade Taiwan. As a result, observers have referred to TSMC as a “silicon shield” for Taiwan while many Taiwanese refer to the company as the “sacred mountain” that protects the nation—akin to how the peaks in central Taiwan protect the urban centers in the western lowlands against the worst devastation of incoming typhoons.

However, new U.S. legislation might one day lead to the establishment of an American semiconductor industry capable of producing advanced microchips. Even if it’s decades away, that could secure the U.S. semiconductor supply chain and leave Washington less dependent on an island that might one day fall victim to Chinese irredentism. For TSMC and Taiwan, such a development would result in the loss of the currently essential role both hold in the American supply chain today. Cracks would appear in the silicon shield.

Following increased attention around Chinese plans for Taiwan and TSMC, rumors started to brew in October that the Americans and Taiwanese were working on a plan to evacuate TSMC engineers and scuttle the chip plants should China invade Taiwan. However, these stories were rejected by Taiwanese officials. And it is hard to imagine that the Taiwanese would destroy some of their most priceless assets even in the event of a Chinese invasion.

Even so, according to political scientist Jieh-min Wu at Academia Sinica, the export restrictions directed at the Chinese semiconductor industry that have followed recent legislation means that TSMC is no longer a protective mountain. On the contrary, should China grow increasingly desperate in its mission to secure its own technological development in the semiconductor field in the face of U.S. containment, it will look with increased desire across the Taiwan Strait.

“In the current scenario, TSMC’s position makes China covet Taiwan even more,” Jieh-min said.


Although these semiconductor developments of recent months have pushed Taiwan closer to the center of the geopolitical stage in East Asia, on the home front, the costs of semiconductor dominance have been compounding for years—and the environmental impact of the industry could have strategic consequences.

“TSMC and the semiconductor industry enjoys a special position in Taiwan both among people in government and among people on the street,” said Tsai Chung-yueh, who works for Citizens of the Earth, Taiwan, where he focuses on the semiconductor industry. “What TSMC needs, TSMC gets.”

And TSMC needs energy. Lots of it.

“With the company’s current growth trajectory, it is expected to consume 10 percent of Taiwan’s electricity output by 2030,” Tsai said.

But under pressure from customers like Apple, TSMC needs its supply to come from renewable sources. The company has committed to achieving net-zero emissions by 2050, but in Taiwan, renewable energy is hard to come by, with green sources set to deliver only 8 percent of the country’s energy mix this year.

TSMC has therefore been a driver in pushing both the national and local governments to fast-track renewable energy projects.

Although Tsai recognizes TSMC’s efforts to push Taiwan toward reducing its fossil fuel dependency faster, the company’s involvement also worries him.

“We see that TSMC exerts a lot of pressure on officials to speed up the approval process of renewable energy projects, and I fear that this will hamper the due diligence process required to make sure that future wind farms and solar parks do not adversely affect nearby residents and the environment,” he explained.

The semiconductor industry is pushing Taiwan toward resource scarcity unless profound and rapid changes can be made to the country’s water consumption and energy use.

So, TSMC’s energy needs risk pushing Taiwan’s energy expansion faster than its people and environment can cope.

To make matters worse, TSMC also needs huge amounts of water.

Producing semiconductors is a water-intensive process. As the demand for microchips spiked from 2015 to 2019, TSMC’s water consumption rose by 70 percent to more than 156,000 tons of water per day across three industrial parks in Taiwan. That is enough water to fill 60 Olympic-sized swimming pools every day.

In 2020, the planned expansion of TSMC’s activities in the Hsinchu Science Park would require the company to lay claim to 85 percent of the science park’s water consumption, up from 40 percent. In Kaohsiung, Taiwan’s third largest city, TSMC got the green light to begin construction on a chip plant that is expected to consume 7 percent of the city’s water. Although the semiconductor industry has improved recycling and reusing of water resources, its efforts have not been enough to meet demand.

The water consumption problem became acutely evident last year during a drought that hit southern Taiwan particularly hard. Several of TSMC’s fabrication plants are in the southern city of Tainan, and to keep them running, water had to be trucked in from other parts of the country. A desalination plant for the Hsinchu Science Park was completed last year to secure the water supply of the semiconductor production plants in case of water shortages. But desalination is itself an energy-intensive process, particularly if the water is set to be used to produce microchips since several stages in the process require water of very high purity.

Desalination might prove unavoidable, however, as Taiwan is expected to experience drier stretches due to climate change, according to the National Science and Technology Center for Disaster Reduction. Rainfall is predicted to decrease by around 10 percent during the island’s dry season by 2050.

The semiconductor industry’s water demands combined with the effects of climate change are pushing southern Taiwan toward a water deficit of around 390,000 metric tons a day, according to Taiwan’s Water Resources Agency.

This deficit could have major economic and security implications, and nowhere is that more evident than in the country’s agricultural sector.

“Agriculture has always been an underinvested sector in Taiwan,” said Leann Lai, who also works at Citizens of the Earth, Taiwan, where she specializes in Taiwan’s agricultural sector.

The state of Taiwan’s agricultural sector as well as its food policy has resulted in the country importing more than 70 percent of its food products from abroad, which is the highest level of food imports of any country in the region.

This lack of basic self-sufficiency means that China might not need to go as far as invading Taiwan to bring the country to its knees. Simply blockading the island for an extended period of time, and thus denying it access to imports, might prove enough to turn Taiwan’s lack of agricultural investments into a widespread food scarcity crisis.

As such, both in terms of energy and water use, the semiconductor industry is pushing Taiwan toward resource scarcity unless profound and rapid changes can be made to the country’s water consumption and energy use. (Some Taiwanese lawmakers seem to have taken notice and have recently highlighted the need to ensure energy reserves and supply adequacy.) Such changes are all the more necessary to ensure that Taiwan not only has the military capabilities but also the energy and resource resilience it needs to deter and resist a Chinese invasion.

Yet, the clear prioritization of sectors like the semiconductor industry in the pursuit of profits without regard for long-term economic and security consequences is hurting the country’s resilience and thus its ability to face an irredentist China that could grow increasingly desperate to secure its semiconductor future.

Recent U.S. curbs on China’s high-end semiconductor access, coupled with years of semiconductor favoritism in Taiwan, has left the island nation exposed. What was considered a silicon shield that was raking in huge profits is arguably now incentivizing a Chinese move on Taiwan, and the energy and water deficit it creates has left the island less resilient if such an onslaught does come.

Frederik Kelter is a Danish freelance journalist based in Taiwan.

Join the Conversation

Commenting on this and other recent articles is just one benefit of a Foreign Policy subscription.

Already a subscriber? .

Join the Conversation

Join the conversation on this and other recent Foreign Policy articles when you subscribe now.

Not your account?

Join the Conversation

Please follow our comment guidelines, stay on topic, and be civil, courteous, and respectful of others’ beliefs.

You are commenting as .

More from Foreign Policy

Residents evacuated from Shebekino and other Russian towns near the border with Ukraine are seen in a temporary shelter in Belgorod, Russia, on June 2.
Residents evacuated from Shebekino and other Russian towns near the border with Ukraine are seen in a temporary shelter in Belgorod, Russia, on June 2.

Russians Are Unraveling Before Our Eyes

A wave of fresh humiliations has the Kremlin struggling to control the narrative.

Chinese President Xi Jinping (R) and Brazilian President Luiz Inácio Lula da Silva shake hands in Beijing.
Chinese President Xi Jinping (R) and Brazilian President Luiz Inácio Lula da Silva shake hands in Beijing.

A BRICS Currency Could Shake the Dollar’s Dominance

De-dollarization’s moment might finally be here.

Keri Russell as Kate Wyler in an episode of The Diplomat
Keri Russell as Kate Wyler in an episode of The Diplomat

Is Netflix’s ‘The Diplomat’ Factual or Farcical?

A former U.S. ambassador, an Iran expert, a Libya expert, and a former U.K. Conservative Party advisor weigh in.

An illustration shows the faces of Chinese President Xi Jinping and Russian President Vladimir Putin interrupted by wavy lines of a fragmented map of Europe and Asia.
An illustration shows the faces of Chinese President Xi Jinping and Russian President Vladimir Putin interrupted by wavy lines of a fragmented map of Europe and Asia.

The Battle for Eurasia

China, Russia, and their autocratic friends are leading another epic clash over the world’s largest landmass.