53 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE threshold used to gauge a point at which an economy becomes overreliant on a particular industry or company, there are data that portray higher dependence negatively. Network-related business intelligence algorithms indicate that industries with significant GDP contributions can pose systemic risks, especially when they are highly interconnected (Balland et al., 2022), as in the case of Taiwan’s semiconductor industry and TSMC. Thailand exemplifies the repercussions of economic overdependence. In the 1980s, its exports were heavily dominated by agricultural raw materials, making the country susceptible to global market fluctuations. Thailand’s lack of diverse exports led to economic instability during periods of declining commodity prices (Kohpaiboon & Jongwanich, 2021). So too, if Taiwan continues to concentrate its exports on semiconductor products, its fate may be similar, if the global desire for semiconductors fluctuates. Moreover, Taiwan has made headlines within the past several years for supply chain instability, for instance, shortages of rare earth metals required to produce semiconductors—a significant concern because China controls ~90% of the supply of those metals (Soong, 2024). The semiconductor supply chain is also highly vulnerable to global disruptions. During the COVID-19 pandemic in 2020, the production capacity of semiconductor giants such as TSMC and Samsung could not handle the sudden rise in demand for chips, resulting in lost sales for both companies; notably, TSMC shares fell 8% in 2020. That same year, for just one hour, a power outage occurred at a memory chip fabrication plant, impacting 10% of the global supply of dynamic random-access memory, a type of semiconductor data storage used in computing devices (Ochonogor et al., 2023). Additionally, the Russia-Ukraine conflict led to energy supply shortages and increased prices of necessary materials, such as neon and palladium (Clark & Jones, 2022). Political issues Overdependence on the semiconductor market makes Taiwan extremely susceptible to economic disarray, which could be aggravated by rising political tensions with China. In the event of a Chinese blockade, access to global trade could be lost, putting its survival at risk. The conflict between Taiwan and China traces back to the 1949 retreat of Chiang Kai-shek’s Nationalist Party to Taiwan after their overthrow by Mao Zedong’s People’s Liberation Army in mainland China after the long and intermittent Chinese Civil War that began in the late 1920s (Bush, 2005). From the 1950s to 1980s, competing ideologies between Mao’s desire to liberate the island and Chiang’s desire to retake the mainland persisted, eventually morphing into the present-day tensions between China and Taiwan (Bush, 2005). Specifically, China views Taiwan as part of the nation to be reunified, while Taiwan views itself as independent. Those tensions have been exacerbated by restrictions placed on China by foreign interests, particularly by the Semiconductor Industry Association, which represents 95% of the US semiconductor industry (e.g., Intel, IBM, AMD, and Texas Instruments) as well as major global semiconductor producers (e.g., TSMC, Samsung, and MediaTek) (Shattuck, 2021). Due to new US regulations, TSMC terminated relations with the Chinese technology corporation Huawei in mid-September 2020. Because of its dependence on TSMC, Huawei was forced to halt production, a stark blow to China (Shattuck, 2021). Much of China’s backlash against foreign involvement in Taiwan stems from deepening US-Taiwan relations. In August 2022, former US Speaker of the House Nancy Pelosi visited Taiwan. This visit led the People’s Liberation Army Air Force, representing China and its Communist Party, to fly more than 430 sorties into Taiwan’s Air Defense Identification Zone. Similar activity by the People’s Liberation Army remained high for the following months (Keegan & Churchman, 2023). The US presence is tied to TSMC, which signed a US$14B agreement with the US in 2019 to produce four-nanometer chips at a new TSMC semiconductor factory in Arizona. The US contributed US$24B to building an additional TSMC fabrication facility for more powerful three-nanometer chips, with production expected for 2026 (Keegan & Churchman, 2023). This foreign direct investment is one of the largest in US history, bringing critical capabilities and manufacturing back to the US. The agreements come with consequences: If Taiwan refuses to restrict its semiconductor sales to China, the US could limit Taiwan’s permission to manufacture and its access to advanced technologies. Heavy involvement has forced Taiwan to repeatedly choose semiconductor trade with the US over that with major customer China, which currently comprises ~60% of Taiwan’s total semiconductor exports (Keegan & Churchman, 2023). Current strengths and future alternatives Given the high stakes and geopolitical tensions in the semiconductor industry, there is a natural desire to diversify the economy to reduce dependence on semiconductor manufacturing. To counter possible blockades by China, it would be advantageous for Taiwan to develop the intangible and digital products indus-
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