A Nightmare Scenario
Lacking natural resources, Taiwan managed to make its microchips nearly indispensable to both friend and foe. Yet Taiwan's critical weakness is its energy supply, leaving it vulnerable to blockade.
Let’s talk viruses for a moment. Viruses are tiny, unbelievably small and invisible to the naked human eye. To measure just how big- or how small- a virus is, scientists use nanometers. One nanometer is one billionth of a meter and a typical virus is roughly 20 - 500 nanometers in diameter.
The ‘brains’ of today’s modern technology, from iPhones to gaming consoles, and from military hardware to aircraft controls, have one thing in common: they are run by microchips. And the most modern, powerful microchips are made with billions of tiny transistors etched onto silicone, transistors that measure as small as 10, 5, or now even 2 nanometers.
To understand just how far we’ve come, let’s look back to the 1940s. During World War 2, the US Military wanted a faster, more accurate way to calculate the flight trajectory of artillery rounds. So, the US government set about to design and develop a giant, 50 -by- 30-foot (15-9 meter) machine known as ENIAC or Electronic Numerical Integrator and Computer. While not the first ‘computer’ to be made, ENIAC claimed the title as the world’s first programable digital computer. The behemoth ran on approximately 17,000 vacuum tubes and could crunch up to 5000 additions per a second.
Since that time, vacuum tubes were replaced with transistors, and then transistors were layered onto thin pieces of silicone. This sparked a microchips race for smaller and smaller transistors.
The logic is pretty simple: the smaller the transistor, the more you can pack onto a microchip. And the more transistors, the more powerful it is while using less electricity, leading to say, a longer battery life for a smartphone and higher performance.
As the Semiconductor Industry Association put it:
“ Semiconductors- the tiny chip powering modern electronics- have enabled breathtaking innovation in virtually all areas of society, fundamentally shifting the boundary between the possible and the impossible. Today’s semiconductors are so advanced they can contain more than 100 billion transistors on a single piece of silicon - so many that it would take a person more than 1,000 years to count each one aloud.”
Let’s put 100 billion into perspective. A million seconds equals roughly 11 & 1/2 days. A billion seconds is equal to roughly 31.7 years, and 100 billion seconds would be roughly equal to 3168.8 years. If we went back that far into history, it would predate the founding of Rome.
And yet, the most advanced microchips can contain 100 billion plus transistors in an area the size of a human fingertip.
None of that would be possible without the heavily capital-intensive and insanely complex fabrication plants (fabs) that have the ability to layer microscopic pieces of material onto extremely thin layers of silicone.
And no one does it better than Taiwan Semiconductor Manufacturing Corporation (TSMC).
The government of Taiwan used to be considered the legitimate government of China. From the 1920s to the 1940s, China was embroiled in a civil war between the communists and the nationalists. The US, along with much of the world, recognized the nationalists as the legitimate government, even after the nationalists lost control of mainland China and were forced to find refuge on the Island that became known as Taiwan.
However, China is much larger and a much more lucrative trading partner. During the 1970s, the US withdrew its nuclear weapons stationed in Taiwan and officially recognized the communist government as the legitimate government of China. And in 1980, the US terminated the US-Taiwan mutual defense treaty.
Of course, China never recognized Taiwan as an independent nation, and still considers Taiwan to be a break-away province. China’s President Xi Jinping publicly called for a ‘reunification” and the Chinese military has conducted live-fire military exercises and increased pressure on Taiwan.
Taiwan did something clever: the small island found a way to make the world dependent on it and interested in its survival. And it didn’t compete with chip makers, it collaborated with the dominate businesses. At that time, many dominate chip companies did the design, development, manufacturing, and marketing of their own chips. Of course, the ‘boring’ part was the tedious manufacturing, consuming enormous amounts of capital and time. Taiwan took a different route: they would only manufacture other companies’ chips. It seemed like a win-win, major US firms wouldn’t have to spend gobs of money on the extremely expensive chip manufacturing sites but they could still design and market the chips under their own brand names.
Taiwan’s rise was very deliberate. After decades of experience at Texas Instruments, Morris Chang was tapped by the Taiwan government to lead the Industrial Technology Research Institute in the 1980s. Within a few years, the Taiwan government offered direct funding and pressured … “asked”… others to invest, giving Chang a ‘blank check’ to start the Taiwan Semiconductor Manufacturing Corporation (TSMC).
Instead of doing everything, TSMC focused solely on one crucial piece of the supply chain- the foundry business- and did it extremely well. And the bet paid off. To this day, many household names - Apple, Nvidia, Qualcomm, etc.- design and market their own microchips, but those companies lack the ability to actually make chips that small, with transistors as small as 2 to 4 nanometers. Instead, they rely on TSMC to make their chips. Even Intel, the vaunted American chip manufacture, struggles to keep up with TSMC. Few chipmakers are left on the bleeding edge as it gets more and more difficult to make smaller and smaller transistors. The Council on Foreign Relations put it this way:
“It is difficult to overstate the critical role that Taiwan plays in the global semiconductor market. Taiwanese companies hold a 68 percent market share in the manufacture of semiconductors. Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest contract chipmaker and produces around 90 percent of the world’s leading-edge semiconductors that are used for artificial intelligence (AI) and quantum computing applications. No other company can produce chips at scale as sophisticated as those manufactured by TSMC uses of high-performance chips.”
This crucial position in the supply chain has been dubbed Taiwan’s “Silicone Shield” with both US and Chinese technology dependent on Taiwan’s manufacturing capacity, despite recent efforts by the US to re-shore much of this critical capacity.
The world got a small taste of how reliant we are on those tiny chips. During the supply chain disruptions in 2021, it was estimated that the chip shortage cost the US economy somewhere in the ballpark of $240billion in 2021 alone.
Even with this ‘shield,’ Taiwan has a massive weak link. As an island with few natural resources, Taiwan depends on imports for a whopping 97% of its energy. Imported energy is truly the Island’s life-line, and dependence on foreign imports has only grown over the years.
Taiwan used to be an up-and-coming nuclear powerhouse, building 3 nuclear power stations that generated roughly 52.4% of Taiwan’s electricity by 1985. In the late 1990s, Taiwan started construction of a 4th nuclear power plant to keep up with rapid growth.
However, nuclear power was linked with Taiwan’s Kuomintang (KMT) political party. After Chiang Kai-shek’s defeat during the Chinese Civil War, the KMT established martial law in Taiwan from the 1940s until the reforms in the 1980s and the first free presidential election in 1996. During that first election, the KMT maintained power.
Yet by 2000, the political winds changed. A left-wing presidential candidate, Chen, won a plurality of the vote. Once in power, he halted construction of the 4th nuclear power plant. Yet a year later, the government reversed its cancellation, and construction resumed on the power plant. By 2011, the plant was undergoing pre-operating testing on one of its two new reactors.
Yet things couldn’t be that simple. Protests and concerns over safety during earthquakes pushed Taiwan’s government to, once again, pull the plug on the partially completed plant. Taiwan’s government went further, promising to ween Taiwan off of both nuclear power and coal, setting a 20/30/50 target by 2050: 20 % of electricity from renewables, 30% from coal, and 50% from natural gas. To implement its goal, Taiwan started closing some of its existing nuclear reactors, starting in 2017.
Over the past few years, Taiwan has suffered massive blackouts impacting millions of households in 2017, 2021, and 2022 blamed on negligence, aging infrastructure, and ***cough*** not enough generating capacity. Today, Taiwan’s nuclear power provides under 10% of its electricity, with natural gas providing 43% and coal approx. 38%.
If you don’t have it, you can’t use it: you cannot generate power with empty promises. It’s a basic truism in energy. If you’re dependent on just-in-time delivery or intermittent resources such as wind and sun, there’s no guarantee you’ll have it. It doesn’t matter what your supplier promised if it doesn’t get delivered. Coal, nuclear, and oil have one enormous advantage: you can store them on site and use those supplies to ride out snags in the supply chain or changes in weather. Natural gas can be stored on site too, but it’s much harder and more complex to store than a simple pile of coal at a power plant.
Taiwan’s storage of coal typically sits at 40-45 days and the island is reported to have roughly 6 months of oil in storage.
While Taiwan’s government is understandably vague on how much natural gas storage capacity it has, Taiwan’s government publishes targets. As of 2022, Taiwan targets 16 days of storage capacity and at least 8 days of gas in storage. As mentioned above, natural gas supplies 43% of Taiwan’s electricity, the largest share.
And it gets more precarious: Taiwan has only 2 Liquified Natural Gas (LNG) import facilities and one additional receiving terminal under construction near Taipei. All three are on the western side- the side closest to China. The eastern side, away from China, is more mountainous and less populated. It also lacks natural gas import capacity. The farthest south LNG port is only about 180 miles from the mainland, well within reach of a full suite of various China’s anti-ship missiles, making resupply under war-time conditions extremely challenging.
So what happens if China decides to ‘reunify’ with Taiwan? While no one knows exactly what that would look like or even IF it happens, we can look at recent Chinese military drills to get a clue.
In 2022 former speaker of the House Nancy Pelosi visited Taiwan and in 2023, the now former speaker McCarthy also traveled to the Island. Both times, the Chinese military responded with large scale drills around Taiwan, simulating ‘sealing off’ Taiwan with a naval and air blockade, involving dozens, if not hundreds, of aircraft and warships.
There’s a big mismatch in military hardware between Taiwan and China, according to the 2022 China Military Power Report by the US Department of Defense. And with China’s aggressive military building program, the gap is all but guaranteed to widen in the coming years. On its own, its highly doubtful that Taiwan has the military capacity to break a Chinese blockade.
And if China ‘only’ imposes a blockade without an outright invasion, does the US have the political will to risk a shooting war with a nuclear armed rival to lift a blockade?
This wouldn’t just be a naval blockade. Since Taiwan’s main ports are on the Chinese side of Taiwan, China could also use its longer-range anti-ship missiles, including the YJ-12 with a range of up to 280-290 miles. These missiles are capable of being launched from aircraft, meaning that China could blockade the west side of Taiwan, including all 3 LNG ports, from the safety of Chinese airspace over mainland China and its exclusive economic zone. Its aircraft could easily dip in and out of Chinese airspace, effectively doing hit-and-run operations while quickly retreating to the safety over mainland China. This would greatly complicate any US efforts to break the blockade without attacking Chinese military bases on Chinese soil, risking a massive escalation.
Perhaps more importantly, does China perceive that the US is willing to risk its ships and aircraft, sailors and pilots, to fight a direct matchup between the US and Chinese naval and air forces to lift a blockade? Especially in light of the disastrous US withdrawal from Afghanistan, grumblings and polling showing a solid portion of Americans opposing continued financial support to Ukraine, a year and a half after Putin’s invasion. Add now to the mix the horrific Hamas-led terrorists attacks on October 7, and Israel’s military response which has divided the West’s attention from both Ukraine and Taiwan.
It may be impossible to predict IF or WHEN China will launch an invasion or a blockade of Taiwan. And we should all certainly hope for continued peace in Taiwan. While ‘experts’ can debate just how damaging a blockade would be to the US and what an appropriate response should be, one thing is clear: Taiwan’s energy supply is critically vulnerable. Within a matter of weeks, if not days, Taiwan would likely struggle to keep the lights on, sending its economy and chip manufacturing into a downward spiral that would likely ripple across the world.
As always, thanks for reading!
Thank you for the excellent overview.
In concept, the " Silicon Shield " makes sense, but China may not ultimately care and go in, especially with our current President on their payroll and the USA tied up with Ukraine of whom also have the goods on him.
Nice article about the relationship between energy and national security. Fortunately, Mainland China is almost as vulnerable Taiwan. The combination of heavy dependence on oil from the Persian Gulf and a navy without the range to protect oil tankers means that the US could use a tit-for-tat strategy that China will lose.