As geopolitical tensions continue to simmer across the Taiwan Strait, the global community remains dangerously underprepared for the economic shockwaves that would follow a full-scale Chinese invasion of Taiwan. The island may seem like a small piece of land in the vast expanse of the Pacific to many in the West, but its significance to the modern global economy is disproportionately large - thanks to one thing: semiconductors.

Taiwan is the beating heart of the global semiconductor supply chain. It is home to the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s most advanced and dominant chipmaker. TSMC alone accounts for over 60% of global chip manufacturing capacity and more than 90% of the world’s most advanced semiconductor production, including the 3-nanometre chips that power smartphones, artificial intelligence, data centres, and military technology.

If China were to launch an invasion of Taiwan, it would not just risk lives and regional peace - it would effectively strike at the core of the world’s digital infrastructure. This is not just Taiwan’s problem. It is a threat to every economy that depends on chips - from Silicon Valley giants like Apple and Nvidia to automakers in Germany, medical device companies in Japan, and defence contractors in the United States. No country would be left unaffected.

Supply chain built around a single island

Over the past three decades, as global supply chains have grown more specialised and interconnected, few industries illustrate this better than semiconductors. But manufacturing leading-edge chips is one of the most complex and capital-intensive processes in the world, requiring extreme precision, rare expertise, and coordination between a small number of players across continents.

While the US dominates in semiconductor design, and countries like the Netherlands and Japan are leaders in equipment and materials, Taiwan is the lynchpin of advanced manufacturing. No other nation comes close to replicating its capacity or technological sophistication.

Even a short-term disruption to TSMC’s operations would have profound consequences. During the global chip shortage during the COVID-19 pandemic: car factories ground to a halt, smartphone launches were delayed, and prices for everything from TVs to washing machines surged. Yet this was caused only by temporary capacity mismatches, not physical destruction of supply chains.

A scenario in which TSMC’s leading plants in Hsinchu or Tainan are damaged in conflict or forced offline due to a blockade would prove disastrous. This would not be a supply "hiccup" - it would be a global catastrophe of the sort not yet seen in the computer age.

Economic shockwaves

To this end, woth semiconductors the oil of the digital age, if Taiwan’s chip exports were cut off due to war or sanctions, the global economy would arguably spiral into recession.

Entire industries would face shutdowns within weeks. The automotive sector, which uses less advanced but high-volume chips, could face renewed delays and inventory shortages. The smartphone and computer industries would see prices skyrocket. Even more worrying, cloud computing infrastructure and AI development - already under immense demand pressure - would grind to a halt.

Estimates from various think tanks and research institutions suggest that a sudden halt in Taiwanese chip exports could cost the global economy more than $1 trillion. Financial markets would crater, inflation would spike, and unemployment could rise as manufacturers scramble for alternatives that just don’t exist.

In the defence realm, the consequences are even more sobering. Western militaries rely on TSMC-manufactured chips for critical systems. From F-35 fighter jets to missile guidance systems, these chips are not just high-tech luxuries - they are strategic necessities.

Rebuilding would take years – or more

Much has been made in recent years of the “de-risking” or “reshoring” of semiconductor production. The US CHIPS Act, European investment initiatives, and Japanese subsidies are all aimed at reducing dependence on a single supplier - especially one in such a politically sensitive region. But these efforts, while commendable, are still many years from fruition.

Building an advanced semiconductor fabrication plant (fab) can cost upwards of $20bn and take 3 to 5 years to become operational - assuming all the skilled labour, materials, and equipment are available in the first place. Moreover, few other companies besides TSMC and Samsung have the know-how to produce leading-edge chips at scale.

Even with Intel’s resurgence and TSMC’s own investments in Arizona, no alternative foundry currently matches the Taiwanese giant’s scale, efficiency, and technological edge. A sudden loss of Taiwan’s capacity would leave a void that could not be filled quickly, if at all. If ever.

Chinese miscalculation

Because of this, while from China’s perspective, taking control of Taiwan’s chipmaking prowess may seem like a strategic victory - a way to achieve technological self-sufficiency and deprive rivals of critical components, this logic is deeply flawed.

Chips are not barrels of oil. They are not stored in warehouses, nor are they easily transported or exploited by those unfamiliar with the process. TSMC’s facilities rely on constant collaboration with global partners, real-time updates, software support, and a tightly managed ecosystem of engineers, suppliers, and designers.

If war were to erupt, much of this human infrastructure would flee or fall apart. The fabs would not keep running. TSMC chairman Mark Liu has openly warned that if China were to invade, the company’s facilities would be rendered “not operable” – comments some see as a direct warning to the PLA that rather than let Taiwan’s chipmaking fall into the hands of enemy forces, they would be be put out of action.

Moreover, any aggressive move by Beijing would invite a barrage of sanctions, trade restrictions, and military responses. The long-term damage to China’s own economy - heavily reliant on imported chips, foreign technology and resulting exports would be profound.

Taiwan is already too big to bomb

Taiwan’s semiconductor dominance is not just a commercial asset - it is a strategic stabiliser. It serves as a global keystone and a reason for restraint amid rising tensions.

The world must acknowledge the staggering risk a war over Taiwan poses not just to peace in Asia, but to the digital arteries of the global economy. Diplomacy, deterrence, and international cooperation are the only viable path forward. The alternative is not just a local war - it is a global tech blackout.