China is likely to try to take control of Taiwan this year, 2023. Why? It would provide a substantial increase to China’s political, economic, and military power. [Note that this is not an eschatological prediction, just an evaluation of the current circumstances.]

1. The U.S. has been preventing China from obtaining cutting edge lithography machines (which make chips) as well as advanced microprocessors (chips used in computers, phones, and military equpment).

The reason for this intervention by the U.S. is to prevent China from outcompeting the U.S. economically and militarily. Advanced chips can be used in supercomputers, to design advanced weapons, including nuclear weapons. Advanced chips can also be used to provide the extensive computing power needed for China’s attempts to surveil and control its population. Keeping lithography machines and advanced chips from China hobbles these attempts by that nation. Then computer chips are also needed by militaries around the world, including China. And China has been building up their military and advancing their military equipment to try to compete with the U.S. and NATO. Advanced chips are important to this goal.

Most U.S. and NATO military equipment (communication devices, surveillance devices, missiles, smart bombs, smart artillery shells, planes, tanks, troop carriers, ships, subs, anti-tank weapons, drones, advanced radar, satellites, and the Army’s new computerized rifle scope) all require microprocessors. The U.S. DoD buys over 2 BILLION microprocessors per year for defense of the nation. U.S. fabs cannot manufacture anywhere near to that number of chips. In particular, the U.S. has a very limited capacity for manufacture of advanced chips for the military. A shortage of chips means a shortage of new military equipment.

The U.S. has succeeded in convincing the Netherlands to deny China the most advanced lithography machines in the world (from ASML) and in convincing Taiwan not to provide advanced chips to China or any company in China. This limitation is a serious obstacle to China’s economic and military goals.

UPDATE: The Biden Administration has decided to extend this denial of technology from the most advanced lithography machines (EUV) to the prior generation of machines (DUV). The Netherlands (ASML) and Japan (Nikon, Canon) are the only nations making these machines, and they seem ready to cooperate. This will greatly increase the restrictions on China’s ability to make chips for government, military, and economic purposes.

2. If China takes control of Taiwan, will this provide China with the chip-making capability it seeks?

Taiwan makes 90% of the advanced (5 nm or less) chips in the world. This fact was stated by President Biden as one reason for the recently passed CHIPS and Science act. That law offers 52 billion dollars in subsidies to companies setting up new chip fabs (fabrication plants) in the U.S., while the price tag for the entire act is about 280 billion dollars total. Already TSMC, Intel, Samsung, SK Hynix, Micron, and Global Foundries are taking advantage of this offer. But those fabs will not see volume production until 2024 or 2025 or later.

Taiwan also has 53% of the overall dedicated chip manufacturing capability (pure-play fabs — making chips designed by other companies) in the world. Adding China’s own older chip making ability to that of Taiwan provides about 70% of the world’s chip making capability.

If China can take control of Taiwan, without a war that damages Taiwan’s chip industry, it would seem that China would be able to make all the chips it desires for its economic and military ambitions. In addition, China would see a sharp jump in political power. They would control the chip industry worldwide, as their denial of chips to the U.S., E.U. or any other nation or region would entail severe economic and military harm. The U.S. is able to deny lithography machines and advanced chips to China by threatening other nations with a denial of access to U.S. technology and to U.S. company products and services. But unification of China and Taiwan would give the combination the ability to use a similar tactic on any and all advanced nations.

However, TSMC (Taiwan Semiconductor) has stated publicly that if China takes control of Taiwan, they will be unable to continue production of any chips. The basis for this claim is the assumption that the global supply chain, which TSMC relies upon to feed their chip fabs with materials and services, would stop doing business with a Chinese-controlled Taiwan.

That is a false assumption. Other nations, including the U.S., would be likely to attempt such a denial of goods, so as to continue disrupting China’s economic and military ambitions. But without Taiwan’s chip-making, the world will fall into a very severe chip shortage that will have severe effects on the U.S. economy and the U.S. military’s ability to resupply and repair its weapons systems. The mere announcement that Taiwan is under China’s control would likely crash or shutdown stock markets around the world. The economic implications would be staggering.

Any refusal to provide Taiwan companies (after a China takeover) with chip making supplies would likely prompt “microprocessor sanctions” against nations refusing to do business with China/Taiwan, and thereby causing a severe chip shortage in those nations. Such a scenario would present an imminent danger to the military security of the U.S. and other advanced nations, as well as a danger of global economic collapse. Thus, the U.S. and other developed nations would have NO CHOICE but to require companies to continue to do business with Taiwan chip companies AND to lift the restrictions on doing business with China and Taiwan’s chip industry.

3. The result would be effective control of the microprocessor industry worldwide by the Chinese government. Taiwan would likely be offered status as a semi-autonomous region (like Hong Kong and Macau), with the Chinese government controlling the military and the islands’ economic policies (including exports of chips).

China could then force nations such as South Korea, Japan, and Malaysia to join them in any microprocessor sanctions against other nations. Refusal would result in sanctions against those nations, wrecking havoc with their economies. Such a move would strengthen Chinese control over the global microprocessor economy, giving China a sharp increase in political power.

Despite U.S. efforts, China still makes a large percentage of less-advanced computer chips (i.e. microprocessors), for which demand is high. Taiwan makes 90% of cutting edge computer chips, as well as a large percentage of less-advanced chips (~53% of total world production of all chips). If China is able to annex Taiwan, without a war, then China will control 90% of advanced chip manufacture and a combined total of about 70% of all computer chip manufacture, worldwide. This position will give China a sudden increase in political power, as withholding the export of these chips from the U.S., the E.U., or any other nation or region would be devastating to their economies and militaries.

Will U.S. ships continue to sail through disputed waters, claimed by China but considered international by most of the world? Not if the U.S. military wants to be able to make new anything-with-chips-in-it. Will the U.S. have the same influence over other nations in the region as before? Not with China holding all the chip-making-cards. If China decides (unlikely) that the U.S. and E.U. should stop supporting Ukraine in the war, the threat of withholding chips might cause these Allies to comply. Foreign policy worldwide would need to take account of China’s wishes and demands. And if the U.S. or other nations do not evaluate the risks and benefits of this new situation correctly, they could be subject to severe economic harm until they change their policies.

If China gains control of Taiwan’s economy and foreign policy, China could withhold chips from the U.S. This would slow the pace of manufacture of military equipment and weapons to a crawl, leaving the nation unable to produce enough weapons for a major war. If so, then the U.S. would unfortunately have no choice but to withhold any further shipments of weapons to Ukraine and other allies. Control of Taiwan gives China the ability to hobble the militaries of other nations, while building up their own military equipment with the most modern chips available. Control of Taiwan would turn the tables on U.S. efforts to limit Chinese military development by limiting access to advanced chips.

4. Control of Taiwan by China might occur by a Fait Accompli

The current National Defense Authorization Act (NDAA), passed by Congress and recently signed by President Biden (in late 2022), offers $10 billion in weapons for the defense of Taiwan. The law also asserts that Taiwan must be treated — and the language used is very cautious — almost like an independent nation in world affairs. This represents a large step back from past “one China” language by the U.S. The passage of the NDAA may provoke a response from China. (One response already happened. China sent an aircraft carrier group to sail very close to the U.S. base on Guam.) The combination of the U.S. giving Taiwan billions for weapons, undermining the “one China” policy in the NDAA, and preventing China from obtaining advanced chips may have the effect of pushing China to act sooner, rather than later, on unification with Taiwan.

China could take control of Taiwan by a “fait accompli”, that is, by a swift sequence of actions, with or without violence, before the U.S. could intervene. This possibility is explicitly mentioned in the NDAA, with Congress instructing government agencies to take whatever actions are possible to prevent such a scenario.

But in reality, nothing much can be done to prevent a fait accompli. China could offer Taiwan two choices: 1) a brief war which China will certainly win, but which will also destroy much of Taiwan’s chip making ability, with the consequent economic and military effects around the world, or, 2) status as a semi-autonomous region in China, leaving Taiwan free to hold elections and benefit from its successful economy. There is no real choice there; the second option is the only rational path for Taiwan.

No matter how much support the U.S. military gives Taiwan, its small size compared to mainland China and its proximity (less than 200 miles) to the mainland make a determined attack by China all but certain to succeed. Even if Taiwan somehow “wins” such a war, with China discontinuing military attacks, Taiwan’s economy would be devastated, and its ability to manufacture computer chips could be destroyed permanently. (ASML and other makers of lithography machines would be literally unable to supply Taiwan with enough equipment to rebuild their microprocessor industry, no matter how much money Taiwan might have to spend. ASML is the only company building advanced lithography machines, and they make only a few dozen per year.)

In addition, all the military materiel that the U.S. has supplied to Taiwan would fall into Chinese hands. They could study and reverse engineer U.S. military tech, allowing their military to advance more rapidly in sophisticated military tech. The $10 billion in U.S. military aid to Taiwan will likely end up in Chinese government hands, sooner or not-much-later.

Any war between China and Taiwan would turn the current global chip shortage into a catastrophic collapse, causing severe harm to the U.S. economy and the U.S. military. Chip manufacture machinery requires an absence of vibrations along with an absolutely clean environment. Slight damage in warfare to a chip fab in Taiwan would shutter that fab for months, at a minimum. Cleaning a clean room that has suffered even very limited damage from war might be impossible. But if China directly targets Taiwan’s chip industry in war, Taiwan would certainly cease to be a source of microprocessors of any type for the world. The resultant catastrophic collapse of the global chip supply would devastate the world economy and the ability of the U.S. and NATO to engage in warfare anywhere. By comparison, China would retain its ability to make less-advanced chips for its military and economy.

5. For all these reasons, the United States must prevent a violent takeover of Taiwan by China at all costs. If China demands that Taiwan accept unification with a semi-autonomous status, the U.S. would literally have no other viable choice but to pressure Taiwan to accept the offer. So, unfortunately, I have to conclude that unification of China and Taiwan is inevitable, and will likely occur soon. (Ideally, Taiwan should remain an independent nation. But politics is never ideal.) The longer that China waits to take control of Taiwan, the more the U.S. and the E.U. will develop their own chip making ability, lessening the advantages to China of such a takeover.

Ronald L. Conte Jr.

More Reading:
* Business Insider: The fate of the world economy may depend on what happens to a company most Americans have never heard of
* CNN: War game suggests Chinese invasion of Taiwan would fail at a huge cost to US, Chinese and Taiwanese militaries