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The Taiwan kill switch

4 Jul 2024

There have been some interesting articles published recently with details of exactly how Taiwan's TSMC would respond to an attack by China.

As most readers will know, TSMC is now the world's leading manufacturer of semiconductors using 5nm or smaller architecture. This means that most of the leading CPUs, GPUs and NPUs come from the TSMC fab plants in Taiwan.

China has a long-standing goal of reclaiming the Island nation and physically asserting its claim to ownership, using military might if necessary.

Although most commentators believe that this is simply rhetoric and sabre-rattling on China's part, there is still the very real possibility that we may wake up one morning to discover that Taiwan has been annexed and is suddenly under the full control of the CCP.

What would be the effect on global economies and on our technology supply chains if this were to happen?

Well the outcome would be anything but good.

Apparently, according to the stories I've read, TSMC would flip a "kill switch" before Taiwan was overrun by the Chinese military.

This switch would disable the fab plants in a way that meant they would be useless to any invading force.

No details as to exactly what this kill switch would do but given that there are only a few elements of the process which are secret-squirrel stuff I suspect there would be a mass-erasure of the software that controls those machines and perhaps even some physical damage inflicted. This would prevent China from simply walking in and taking over production, then holding the world to ransom for the much sought-after devices that it produces.

I doubt the intention is to deprive China itself of this tech because those in the know believe that it's only a matter of time before that country is itself able to fabricate sub 10nm parts due to a huge amount of investment by the Chinese government in home-grown silicon fabrication technology.

The real risk here is that the rest of the world would suddenly face a huge shortage of components that are critical to modern-day computer systems.

Can you imagine how expensive a mid to top end graphics card would become if the source of the chips on which they're based dried up overnight. It would make the crypto-driven price spike look like a blip by comparison. These things would become more valuable than gold.

Also, AI development and roll-out would be halted in its tracks.

A huge number of private and institutional investors would go to the wall, thanks to high levels of NVIDIA and TSMC stock holdings. The value of these companies (currently US$767 billion for TSMC and US$3.1 trillion for NVIDIA) would fall by hundreds of billions of dollars and that's a shock that would have far reaching implications for the entire global economy.

It is perhaps for the above reason that China is unlikely to engage in a military invasion.

China knows that if it were to inflict such a devastating blow to the global economy, its own export sales would dry up almost overnight as a very deep and potentially long-lasting global financial crisis engulfed the world.

For this reason the plan to have TSMC build fabs in the USA may not be as smart as one might first think. You'd expect that the US government's US$6.6 billion assistance package to help TSMC build plants on US soil would provide some mitigation against the loss of Taiwan but perhaps it simply increases the risks of such an invasion. If China's annexation of Taiwan would no longer throw the world into economic crisis, it's far more likely to happen.

Ah well, we *do* live in interesting times.

Carpe Diem folks!

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