31 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE being merely a large oil customer. China could leverage this power to pressure Middle Eastern countries to restrict oil exports to Taiwan. While the US, Canada, or other sources could provide oil, Taiwan’s refineries are designed for oil with a specific composition. Middle Eastern oil contains more sulfur than oil from other regions of the world (Huang, 2008), and Taiwan’s refineries are optimized to process this high-sulfur oil. Taiwan could potentially source high-sulfur oil from Canada via the US (U.S. Energy Information Administration, 2022). Canada has demonstrated resistance to Chinese pressures, as evidenced by the arrest in Vancouver in 2018 of the major Chinese firm Huawei’s chief financial officer (who is the company founder’s daughter) (Morris, 2021). Taiwan fulfills another 61% of its oil supply from members of the Organization for Petroleum Exporting Countries (OPEC), including Saudi Arabia, Kuwait, the United Arab Emirates, and Iraq (Webster, 2023). While oil contributes minimally to Taiwan’s electricity production, it remains essential for other energy needs, military operations, and nonenergy industrial uses. OPEC is notorious for price manipulation. A cartel accounting for over half of oil imports is a threat to a stable energy availability and leaves Taiwan vulnerable to diplomatic exploitation. This vulnerability to price increases or supply disruptions outside its own sphere resembles Germany’s situation when Russia used natural gas as a key tool of foreign policy. Russia decreased shipments at the start of the Russia–Ukraine war, damaging German productivity (Chen et al., 2023). In short, Taiwan’s geopolitical position as highly energy dependent embodies dual vulnerabilities: directly through potential Chinese aggression and indirectly through foreign price manipulation by nations vulnerable to Chinese coercion. China leverages this energy dependence by influencing the very nations Taiwan relies on for energy security. Political implications in reference to TSMC TSMC plays a vital role in Taiwan’s industrial sector and provides a level of protection for the island. TSMC manufactures ~65% of the world’s semiconductors and ~90% of the most advanced chips (Hilton, 2024). Combined, Taiwan’s chip manufacturing companies hold 68% of the global market. This dominance means the global technology supply chain has a vested interest in peace across the Taiwan Strait to protect a reliable stream of chips. This global dependency on Taiwan for semiconductors and, especially, advanced chips creates what is known as the “silicon shield.” A Chinese invasion would disrupt fabrication plants, harming China’s own economy, while the US would refuse to let the critical chip manufacturing fall under Chinese control (Wu, 2024). In addition, TSMC contributes approximately 15% of Taiwan’s GDP. Unreliable or expensive energy could undermine TSMC’s global competitiveness, weakening both the integrity of the silicon shield and the larger economy. The manufacturing sector, including TSMC, is both energy intensive and highly sensitive to energy disruptions and price increases. Rising energy costs are already having an impact on industry profitability. Electricity accounts for 22.4% of expenses across the 37 industrial sectors, and, after a 15% electricity price hike in 2022 (Bureau of Economic and Business Affairs, 2023), energy costs will only increase for industry (Wu et al., 2018). The high and growing energy consumption rate by TSMC and the rest of the manufacturing sector will cause significant challenges when almost a quarter of expenses already go to energy, threatening global competitiveness—a cornerstone of Taiwan’s export-oriented economy. The Cross-Strait Economic Cooperation Framework Agreement (ECFA) is a bilateral trade agreement between Taiwan and China. If relations continue to deteriorate, China could terminate the ECFA to economically pressure Taiwan. However, the growth of Taiwan’s semiconductor industry has weakened this leverage. In 2022, Taiwan’s electronic exports to India grew 72% while exports to Southeast Asia increased 21% (Chiang, 2023), in contrast with a decline in electronic exports to China and Hong Kong that same year. This shift in electronic exports is an indication that Taiwan is successfully diversifying its economic partnerships and reducing Chinese economic impact. If Taiwan can manage energy costs to sustain the global competitiveness of its semiconductor sector, it may be able to continue to dilute the leverage China has through the ECFA. However, this necessitates retaining global dominance in electronics, specifically chip manufacturing, by safeguarding low, reliable energy prices, which in turn requires stabilizing the currently unreliable supply of imported energy. The Taiwanese government has used Taipower’s stateowned status to subsidize rising energy prices and protect economic development. As Taipower’s losses mount, the government has been forced to loosen energy price controls, potentially harming economic performance (Jhou & Liao, 2013). Despite weakened ECFA authority, China could still restrict energy imports through its global network as economic
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