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  • Writer's pictureThe Financial Literacy Cell


Recently the demand for microchips and Integrated Circuits in the automobile sector has raced up because of its use in everything ranging from parking sensors to reducing emissions. Car makers like European Volkswagen and Japanese Toyota Motors are struggling to meet their requirements. In present scenario the prominence of Taiwan, the producer of most advanced micro chips in the world, has risen. This small island democracy is already functioning under a complex state of Geopolitics and Techno-politics, adding to its woes, the stir caused by US-China Trade war has considerably disturbed Taiwan’s exports of semiconductors.

If you have the slightest idea of its post-World war history, you would be wondering how a primitive nation dependent on the mercy of US aids came such a long way to 21st century becoming the rope of tug of war between world’s most powerful rivals.

TAIWAN, the country name is on the lips of the present generation because of its extremely popular Made in Taiwan Electronic Goods whether it’s Asus or Acer. It’s the dawn of the IT Industry worldwide. But interestingly, in 1950s there was no trace of technology on the island. Its economy was based on agricultural sector, exporting cheap low quality agro-products. It was only in the next decade that shifts towards industrial growth dominated by production advanced devices began.

The fourth Industrial Revolution revolves around Internet, robotics, Artificial Intelligence and quantum computing. Our daily lives are surrounded by devices made up of Intel, AMD and Qualcomm. But have you ever thought how these processors are made. Semiconductors form the basic functional unit of these processors. These are the elements whose capacity to convey electrons is between that of conductors and insulators. Taipei soon realized setting up the Silicon industry and for fulfilling this goal, Taiwan Semiconductor Manufacturing Company was incorporated in 1987.It came up with the innovative fabless foundry model of making ICs and is one of the world’s largest producers of advanced ICs.

Now the next question triggered at this point is about the contradictory economic and political relations between China and Taiwan. China considers Taiwan as a breakaway province and states in its favor, the history of rule of China’s Ching Dynasty over Taiwan in the 18th and 19th centuries. During the Communist revolution of 1949, the millions of supporters of Kuomintang fled to the island and started dominating its politics. The Chinese government claims Taiwan to be a part of its territory alike Hongkong.

It’s interesting to know here that US had recognized Republic of China (Taiwan) as the mainland China and given it place in UN General Assembly. As the situation changed in 1970s, US could not escape from accepting the existence of People’s Republic of China. Taiwan was forced to leave all international forums where China had strong presence. But this did not hinder the economic confidence of Taiwanese people. For successive decades its economy soared at not less than 7-9%.


Technology remains undisputedly the major nail of rivalry between China and US often hard hitting the big techs. The manufacturing equipment used in world’s semiconductor plants is mostly American. Last year in an attempt to break the neck of its opponent industry, former President Trump imposed sanctions on Chinese companies such as Huawei. He even restricted other foreign players like TSMC from supplying to its biggest customer.

Taiwan’s advanced technology provides it a peculiar leverage in world politics. Almost 30% of its exports are directed towards China, making it a relevant trade partner irrespective of the controversial political relations.

TSMC is becoming more and more dominant; this is something everybody in the chip industry must find a way to deal with, said Kazumi Nishikawa, an official at Economy Ministry of Japan. China is hoping to build an indigenous chip industry and its latest five-year plan has apportioned around $1.4 trillion for the same. But the glitter of money cannot compensate the need for Taiwan. Chinese chip industry is directly influenced by Taipei as a number of its corporate officials have been a part of TSMC in the past.


Putting it in simpler terms, China has a fat hand in development of Taiwan’s chip industries. In case of an invasion by Chinese forces, the retaliation will cause a grave damage to its collateral on the island. Therefore, irrespective of the fact that Taiwan has a high strategic value in global supply chains, it’s also a reason for China to stay away. This rationale has coined a popular term “Silicon Shield”.

The story of Taiwan makes it clear that conflicting interests can force even superpowers to mend their ways. It’s an example of how a small island can become so prominent in the game of geopolitics. Its economic progress leads the way for others to follow.

By Abhishek Yadav

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