'TSMC Chotohwa Strategy' Growing Geopolitical Risks Amid US-China Conflict [Taiwan Chip News]

Colby, U.S. Deputy Secretary of Defense Nominee, Mentions
"Military Perspective" Agreement Repeatedly Expressed
Industry Concerns Over Increased Instability Amid Short-Term Positive Factors

The intensifying technological hegemony competition between the United States and China is elevating the status of Taiwan's TSMC while simultaneously increasing geopolitical risks.

The Trump administration recently nominated former Deputy Undersecretary of Defense Elbridge Colby as the next Deputy Secretary of Defense for Policy, marking the beginning of a serious military perspective on the Taiwan issue. The UK IT specialist magazine Data Center Dynamics reported that Colby has repeatedly argued that "if China invades Taiwan, the TSMC semiconductor factories in Taiwan should be preemptively destroyed."

A large Taiwanese flag fluttering in front of the Taipei Presidential Office. Photo by EPA·Yonhap News

This scorched-earth strategy was first proposed in the January 2022 issue of the U.S. Army War College journal Parameters in the paper titled "Broken Nest: Deterring China's Invasion of Taiwan." The paper argues that the U.S. and Taiwan should adopt a scorched-earth policy, using Taiwan's semiconductor industry as a bargaining chip, threatening that "if China invades Taiwan, TSMC should be destroyed and China's major semiconductor supply chains disrupted." This paper was the most downloaded article in Parameters throughout 2021.

Colby has expressed agreement with the "scorched-earth policy" multiple times on social media. In May last year, he posted on X (formerly Twitter), "If we hand over TSMC intact to China, we can only be considered insane," adding, "This is not just Taiwan's decision. It is an issue too important for all of us." He also warned, "If Taiwan does not express willingness to destroy TSMC in the event of a Chinese attack, it will signal a lack of resolve to China and actually increase the likelihood of invasion," calling it "an unwise choice from Taiwan's perspective." In February this year, he argued that "if China occupies Taiwan, destroying or paralyzing TSMC will be a bargaining chip," urging Taiwan to increase its defense budget and adopt a more proactive defense posture.

In May, Elbridge Colby, the next Deputy Assistant Secretary of Defense of the United States, was interviewed by Yonhap News at his think tank office in Washington DC, USA. Photo by Yonhap News

The U.S. is escalating its semiconductor offensive against China. The Biden administration recently announced an investigation under Section 301 of the Trade Act into Chinese-made legacy (general-purpose) process semiconductors. This investigation also targets silicon carbide (SiC) substrates and wafer production used in semiconductor manufacturing in China. Section 301 grants the U.S. Trade Representative (USTR) the authority to conduct investigations to determine whether Chinese measures are "unreasonable" or involve "discriminatory treatment," and whether they impose additional burdens on U.S. commercial activities. If such allegations are confirmed, the next administration may impose retaliatory tariffs, restrict imports, or recommend further actions to the president and Congress. Since the investigation will take several months, the final decision will be made by the Trump administration.

Shares of Taiwanese wafer manufacturers surged. The day after the announcement, major Taiwanese companies such as Jiajing (嘉晶), Hejing (合晶), and Episil recorded limit-up gains, expected to benefit from China's reduction of subsidy policies and weakened price competitiveness. Industry analysts predict that once the investigation begins, Chinese legacy wafer foundries will no longer enjoy subsidy benefits and will find it difficult to secure orders amid price-cutting competition.

However, despite these short-term positive effects, if military conflict materializes, the structural instability of the semiconductor supply chain concentrated in Taiwan is expected to worsen. While TSMC holds a critical position in the global semiconductor market, if the scorched-earth strategy mentioned by Colby is implemented, semiconductor production capacity could collapse, causing catastrophic disruption to the global supply chain.

Taiwan Economic Daily News = Yang Lingyuan & Lu Sulun / Translation = Asia Economy