Why threats to Taiwan are a nightmare for tech

Driving the news:

• Just this week, the U.S. military warned that China could be accelerating its longstanding efforts to regain control of Taiwan.
• A global semiconductor shortage has highlighted the world's dependence on chips, as well as the increasingly vital role that Taiwan Semiconductor Manufacturing Co. (TSMC) plays in the industry.
• That's because most companies that design chips today — Qualcomm, Nvidia and Apple among them — don''t actually do the manufacturing, instead relying on companies like TSMC.

What they're saying: “This is the most important 14,000-square-mile island in the world,” says Stephen Ezell, VP of global innovation policy at the Information Technology and Innovation Foundation.

Catch up quick: Ever since China's Nationalists were defeated by the Communists in 1949 and fled to Taiwan, Beijing has viewed the island as part of China's sovereign territory. But it operates independently, with its own elections, military, and currency.

• Around a dozen countries have formal diplomatic relations with Taipei and many others, including the U.S., maintain informal relations.
• The U.S. consumed more than $63 billion worth of Taiwanese tech exports throughout the first eight months of last year, or 32 percent of the island's output. China accounted for 30% and Europe about 22%, per Taiwan's Industrial Technology Research Institute.
• If Taiwan's chip production were permanently disrupted, the Semiconductor Industry Association estimates it would take three years and $350 billion in investment to build enough capacity to replace it.

The big picture: Foreign policy experts and tech trade groups have been sounding alarms about the consequences if Taiwan were to come under tighter Chinese control.

• “The threat is manifest during this decade — in fact, in the next six years,” Admiral Philip Davidson, the top military leader in the Asia-Pacific region, told a Senate hearing last month, per AP.

Between the lines: The recent crackdown in Hong Kong following passage of a strict "national security law" is seen as a wake-up call with regards to Taiwan.

• "Until Beijing changes its current policy, it’s critical to point out that the PRC’s formula for unification with Taiwan is still based on 'One Country, Two Systems' — the model that it applies to Hong Kong," says Russell Hsiao, executive director of the Global Taiwan Institute. "And it’s clear as day for people to see how that’s going for the people of Hong Kong."

That's why many in the industry are calling for the U.S. to be clearer about its support for Taiwan and, at the same time, to encourage investment in domestic chip production.

• "I think that Taiwan needs to be the center point of the Biden Administration national security economic strategy in the Pacific and Asia," Ezell said.
• "China is in the process of testing this administration. It is going to continue to exert pressure on Taiwan on the U.S.-Taiwan relationship."