The 7.4 earthquake in Taiwan will have repercussions all around the globe. Here’s why.
Taiwan, formally known as the Republic of China, was deeply shaken today by a 7.4 magnitude earthquake that hit Hualien on Wednesday. This was the country’s most dramatic earthquake in 25 years, with several injuries and at least nine killed.
Taiwan Semiconductor Manufacturing Corp. (TSMC), the world’s largest chipmaker, was forced to evacuate sections of some factories, halting several production lines. The earthquake will likely have large repercussions on the global semiconductor industry, a $544.78 billion market.
Semiconductors are crucial components in every modern digital device. Microchips are a vital part of the global economy, from smartphones to fridges to PCs to modern military equipment.
TSMC and competitor United Microelectronics Corp. (UMC) produce the relative majority of the world’s semiconductors and make 92% of the most cutting-edge chips. These include less than 5nm-wide chips, currently available only from Taiwan’s factories.
For its very nature, precision is the key component of microchip manufacturing. The geographic position of the island, very much prone to seismic activity, is a concerning mix that puts in danger the production and development of products from smartphones to cars.
Its semiconductor manufacturing also allowed Taiwan to deter China from launching a naval invasion against the island. Beijing considers Taiwan a rebel province and threatened direct invasion several times over the last decade.
A changing industry
The earthquake was a sober reminder of Taiwan’s semiconductor industry’s fragility amid geopolitical tensions and a shifting global economy.
TSMC announced the opening of new semiconductor factories, colloquially called “fabs”, outside of Taiwan. This is part of a risk-management strategy, striving away from the geologically and geopolitically dangerous island.
At the same time, the United States wishes to re-shore their fabs, pulling them away from such a boiling geopolitical hotspot. Under Joe Biden’s CHIPS Act, the US government granted Intel a $20 billion loan to build new fabs in Arizona, Ohio, and Delaware.
But building a new fab is a challenging feat, especially as the semiconductor industry’s innovation rate remains fast. China, which also tried building fabs domestically, is roughly 5 to 10 years behind TSMC according to some studies.
Moreover, some manufacturing processes remain a closely guarded secret, given the immense stakes at play in the semiconductor industry. It helps that TSMC simply makes semiconductors using American designs from companies such as Apple and Nvidia.
In any case, the earthquake added another issue to a highly problematic industry, one that quite literally drives the modern world.
