SEMICONDUCTORS AT STAKE

Firstly, it is impossible to predict how a Taiwan contingency would unfold, which complicates any assessment of its economic impact. In such a contingency situation, disruptions would be felt immediately across the globe and would be difficult to reverse. The potential conflict between China and Taiwan would impact global trade and investment, and no country would be untouched. A contingency could take many forms, varying in duration, scale and those involved. 

Second, while discussing semiconductors, one must consider critical raw minerals (CRM). The most serious economic impact of a contingency would come from disruptions to semiconductor supply chains and related downstream industries. CRMs are vital for chip production, the two are vital for the transition to renewable energy and digitization. 

Third, China is a dominant global player in the mining, refining and processing of CRMs. China produces 86 percent of the world’s rare earth elements. The European Union (EU) imports 98 percent of rare earths and 93 percent of its magnesium from China, 98 percent of its borate from Turkey and 85 percent of its niobium from Brazil. Clearly, the EU is highly dependent on other countries for these raw materials. Cobalt is crucial for batteries, wind generators and digital technologies. The Democratic Republic of Congo (DRC) accounts for over 70 percent of the global supply chain and China in turn owns 70 percent of Congo’s mining industry. Cobalt from DRC is refined in China and then sold to battery makers around the world. This illustrates the complexity of the CRM supply chains. 

Fourth, Taiwan is the world’s 16th largest economy and produces 92 percent of the world’s most advanced chips. Yet, the success of Taiwan’s semiconductor industry relies on American, European and Japanese collaboration. By nature, chip manufacturing is the product of international cooperation. No single company can produce it alone, and no single county can own an entire semiconductor supply chain. Besides its prominence in the semiconductor sector, Taiwan also has a vital geostrategic location, at the center of the First Island Chain – any disruption would impact global shipping and logistics.

Finally, the EU is trying to catch up with the impact of this geostrategic competition. Europe is worried that the PRC’s growing military capabilities and declining confidence in its ability to achieve peaceful unification will push China to attempt a takeover by force. Europe is taking measures to address its strategic dependencies, particularly on China. Central to these efforts is reliable international cooperation. The EU has signed strategic partnerships on CRM value chains with Canada, Ukraine, Kazakhstan, Namibia, Argentina, Chile, DRC and Zambia. Europe’s Chips Act committed EUR 45 billion for its chips industry to increase chip production, reduce supply vulnerabilities and increase EU’s global market share from 10 to 20 percent. But catching up is not just about state aid and factories, it is about creating an entire ecosystem that relies on talent. The EU semiconductor sector faces a shortage of 30,000 skilled workers, a significant challenge that the EU seems to focus less on. The bloc is also facing opposition from the private sector in how to address its vulnerabilities, while some countries can afford subsidies, and others cannot. 

These remarks were presented by Dr. Zsuzsa Anna Ferenczy at the Global Conference for New Sinology (GCNS), 2024.