As Tensions Escalate in East Asia Chinese sanctions at the expense Taiwan a vivid reminder of how addicted European Union from the island, and especially from the tiny electronic chips it makes.

Machinery and equipment account for almost 60% of EU imports. from Taiwan last year. The biggest concern for European businesses will be the sudden reduction in the supply of electronic chips produced by the world’s largest semiconductor company: Taiwan Semiconductor Manufacturing Co (TSMC).

The company holds more than half of the semiconductor market from foreign suppliers and is rumored to have customers including Apple and Qualcomm.

The problem is that Europe has been building dependency relationships with Taiwan for years, meaning that further escalation of tensions with China could be devastating to a vital supply chain.

“Traps” for Europe

First, the bloc lacks the experience that Taiwan has attracted. TSMC was founded in the late eighties by Morris Chang, a former engineer at the American company Texas Instruments. Chang is a prime example of how Western tech companies have lost the expertise associated with a specialized process.

Taiwan’s flexible employment culture also means chipmakers can more easily hire and fire workers to adjust to fluctuating levels of demand, according to Ludo Deferma, executive vice president of Imec’s semiconductor research center in Leuven, Belgium.

The second problem is related to the special shape of TSMC chips. The company isn’t just playing a key role in electronics, it’s already making better chips, such as those as small as five nanometers or smaller, that will be critical for autonomous driving.

The EU, of course, knows the pitfalls. “Chip production takes place in a global and complex supply chain,” said an EU official, among other things.

Why does Taiwan need Europe?

Now tensions between China and Taiwan are raising the question of how Beijing and Brussels will act.

TSMC’s critical role has not gone unnoticed in China. In a sensational speech in June, a leading Chinese economist openly called on Beijing to “grab” the company.

Some Western observers, however, doubt that this threat will materialize, noting that it is simply not in China’s interest as TSMC relies on equipment supplies from other companies such as Dutch firm ASML.

This was stated by the head of TSMC in an interview with CNN, warning that his company will not be able to function if China invades Taiwan.

Herman Hauser, entrepreneur and founder of Acorn Computers, told POLITICO that this gives strength to the EU: “We have a trump card, like Europe.” “No one in the world can make chips smaller than five nanometers without the tools that ASML makes.”

However, the thought of an extreme scenario of a complete shutdown of Taiwanese chips will surely force European policy makers and businesses to accelerate their existing plans to bring chip manufacturing back to Europe and double their market share in the global semiconductor value chain.

^{Source: Politico}