Future of TSMC becomes pawn in China-US tensions

Future of TSMC becomes pawn in China-US tensions
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The US needs to threaten to destroy TSMC to deter a Chinese takeover of Taiwan say two academics.
By Nick Flaherty

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Chip foundry TSMC is being drawn directly into the rising tensions between China and the US over Taiwan 

A recent paper by two US academics includes the threat of destroying the facilities of Taiwan Semiconductor Manufacturing Co. Ltd. on the island. This would have such an economic impact on Taiwan and China as to strike at the governability of Greater China, according to Jared McKinney and Peter Harris, writing in the US Army War College Quaterly called Parameters (“Broken Nest: Deterring China from Invading Taiwan,” Parameters 51, no. 4 (2021): pages 23 to 36).

“Unless US leaders are truly willing to fight World War III in defence of Taiwan, they would do well to consider strategies of deterrence that do not rely upon the threat of a military reprisal,” the authors state. The authors argue that “Deterring a Chinese invasion of Taiwan without recklessly threatening a great-power war is both possible and necessary through a tailored deterrence package that goes beyond either fighting over Taiwan or abandoning it.”

In the 20th century the US enjoyed a clear military superiority to China and so a policy of “deterrence by denial” was credible. That is no longer the case and therefore a policy of making Taiwan an expensive liability and ‘unwantable’ was necessary.  This is described in the paper as “deterrence by punishment.”

The paper quotes a Chinese analyst with connections in the Chinese Navy saying that the expectation is that the People’s Liberation Army would expect to over-run Taiwan within 14 hours while it would take the United States and Japan 24 hours to respond.

However, if TSMC’s facilities went permanently offline as soon as China invaded, companies around the world would find it difficult to continue operations. While this would be burdensome for many it would hit China hardest and be preferable to an escalating war between super-powers, the authors argue.

China’s high-tech industries would be halted at exactly the time the country was involved in a war effort. Even after its acquisition of Taiwan, the destruction of the semiconductor ecosystem would likely reverse China’s sustained economic growth. This is in turn would create problems for the Chinese Communist Party (CCP).

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The authors’ view is that CCP is allowed to rule by the Chinese people because in return the CCP provides an ever-rising standard of living. An interruption to the rise in the standard of living could promote civil unrest within mainland China, and would be a most effective deterrent, according to McKinney and Harris.

Broken nest refers to the Chinese proverb: How can there be any whole eggs beneath a broken nest?”

McKinney and Harris conclude that there are few ways to deter a Chinese invasion of Taiwan without the risk of conflict. “For the next decade or so, the best way to deter Chinese aggression while lowering the chance of a great-power conflict is to follow the path outlined above: if war, a broken nest; if peace, a tolerable status quo.”

“Broken Nest: Deterring China from Invading Taiwan,”

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