Supply Chain Interdependence and Geopolitical Vulnerability

Semiconductors have become an integral part of nearly every industry in advanced economies. The production of these semiconductors is largely centered in the western Pacific region and, for the highest-end semiconductors, exists almost entirely in Taiwan. To assess the geopolitical implications of Taiwan's semiconductor dominance, the authors conducted a tabletop exercise (TTX) with representatives from the executive and legislative branches of the U.S. government and a variety of industries that rely on semiconductors. The exercise revealed that there are generally no good short-term options for responding to the disruption to the global semiconductor supply chain that would result if China attempted to unify with Taiwan. The importance of semiconductors in the broader economy means that strategic competition should be framed more broadly than its potential effect on military or political outcomes. The countries that can most easily withstand disruptions to semiconductor capacity in Taiwan have an upper hand in strategic competition. If the United States and its allies have this advantage, it could be a powerful deterrent to Chinese action against Taiwan. If China has the advantage, it could act against Taiwan with reduced likelihood of interference from the United States and its allies to mitigate its global economic risk. In the TTX, the United States never gained an advantage and faced unfavorable outcomes in both peaceful and contested unification scenarios. This should be a call to action for the United States to assess options to increase semiconductor fabrication capacity.