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Taiwan’s Presidential Election: Caught Between China and the Semiconductor Industry



We live in a time of rapidly changing technology and geopolitics. As such, the tech relationships relating to trade, power, and research between nations are also developing at breakneck speed. There is a nexus between the domestic development of nations and the growing power of global tech industries, and it has become a topic of serious concern in Taiwan.

 

The 2024 Taiwan Presidential election saw the ruling Democratic Progressive Party’s (DPP) Lai Ching-te win the election but lose their majority. The DPP represents a US aligned status quo that keeps China at arm’s length. However, the connection between politics on the island and the Taiwan-China tech ties cannot be ignored. 

 

Taiwan’s ever growing relationship with the US has become an area of concern for China who have described the DPP as a ”serious threat”. Beijing is keen to have a friendly government on the island as this would allow them to proceed with a peaceful unification with Mainland China. Regardless, Taipei remains close to Washington.

 

China’s historical claim over Taiwan and its goal of reunification, either using peaceful or military means, of course impacts Taiwanese politics. Over the years, despite many crises in the Taiwan Strait, both nations have been able to foster a healthy bilateral trade relationship because of China’s need for Taiwanese made computer chips. China has become dependence on Taiwan for semiconductors. But what is a semiconductor?

 

A semiconductor is a vital component to electronic devices as it helps to control the flow of electric current. Semiconductors are fundamental to the manufacture of contemporary computers and other electronic devices. Today, it has become a key strategic tool in managing the ongoing geopolitical tensions between the US and China, as Taiwan is dominant in the industry. The global semiconductor market depends upon multiple countries working in tandem to provide materials, research and design. A development in any one country can impact the global supply chain. 

 

Despite the enormous rise in China’s economic power partnered with increasing research and development capacities, China is reliant on their US aligned neighbour. The semiconductor is critical to advanced technologies from civil to military applications. In recent years China has improved its semiconductor manufacturing capacity but the reliance on Taiwanese chips remains. 

 

Whilst China improves its semiconductor capacity and critical technologies, Taiwan is working both individually and with like-minded countries, like Japan and the Netherlands, to keep such tech out of China’s reach. With information warfare and tech dominance becoming top priority for many nations including China, securing the supply chain of semiconductors has brought the US and Taiwan closer. Now, Taiwan is working in coordination with the US to develop its technological, military, and developmental capabilities under the auspice of a pro-US government, which has set off alarms in Beijing.

 

This all means that Beijing’s hunt for reunification is confused by a tripartite economic relationship in which Taiwan provides key tech to China which in turn China sells on to the US market. 

 

However, the chip industry is susceptible to jolts caused by conflict. The Russia-Ukraine war led to a global shortage in chips, as Ukraine provides a vital part in the fabrication process. According to Reuters somewhere between 45% to 54% of the world's semiconductor-grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies.The global supply chain is only now coming back on track.

 

If the island moves further away from the current status quo it could produce a serious jolt to chip manufacturing, like that caused by the conflict in Ukraine. As such, the Taiwanese election boasted enormous geopolitical implications. The ever-growing military presence of the US in the East China and South China Seas alongside Taiwan’s western focus have created greater tension between Taipei and Beijing. China failed to win a Chinese-friendly President on the island and have yet to address their dependence on their unfriendly neighbours advanced semiconductor industry.

 

The DPP’s continuation brings the US and Taiwan only closer and raises questions about Taiwan and China’s economic ties. Not to mention what that relationship could look like if China continues to push for the development of their own chip industry.

 

As China watches the DPP push the island further out to the proverbial sea for a third term the prospect of direct confrontation between both nations bubbles beneath the surface feeling almost inevitable.  Taiwan walks a fine line avoiding angering China whilst backing the expansion of American military power in the region. 

 

In January 2023, the United Nations sounded an alarm saying that the world is facing the highest number of violent conflicts since the end of the Second World War. Seeing the Taiwan-China relationship sour in recent times weighs a heavy question: is this our next breaking point? The prospect of improving relations in 2024 remains bleak. With China's economy going through a rough patch, the tech trade between Beijing and Taipei will remain strong as China will need to continue to import semiconductors in the coming years. Despite there being a distinct possibility of economic retaliation to the Taiwanese election, China cannot impose sanctions on semiconductor industries. 

 

Despite the election and possibility of economic punishment, the trade relationship between the two will not change quickly for China does not want to undermine it. Taiwan dominates manufacturing of advanced chips, accounting for more than 90 percent of the global production capacity. Whilst China produces 36% of all global electronics and so, for now, is completely reliant on Taiwan.  Chips have become, in some way, the oil of our latest phase of global economy and although China wants a piece, Taiwan is at the helm backed by the United States. 

 

Taipei has a strategic imperative to protect the semiconductor industry as it allows them to engage and collaborate with international partners providing significant leverage. Furthermore, it grants them the power to deal with China whilst reassuring their global allies that semiconductor production in Taiwan is safe and sustainable.

 

The DPP will continue to run Taiwan with this in mind. Military and political developments in the Taiwan strait, the global semiconductor industry and the China-Taiwan tech relationship will remain the same for now. Only by invading Taiwan can China change the established order.



Image: Shutterstock/via South China Morning Post

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