Wednesday, July 13, 2005

Taiwan's Silicon Shield

Two months back Business Week had an article entitled "Why Taiwan Matters" (Hat Tip: The View From Taiwan).
A shooting war between Taiwan and China would be catastrophic in human terms. And for the Western companies that have built their fortunes around Taiwan, the damage would be a direct hit to the global economy and the Digital Age. "It would be the equivalent of a nuclear bomb going off," says a top executive at a U.S. high-tech giant. Couldn't U.S. industry develop sources of IT supply that don't involve the Taiwanese? "That's like asking, 'What's the second source for Mideast oil?' says this exec. "You might find it, but it's going to cost you." Insiders estimate that it would take a year and a half to even begin to replace the vast web of design shops and mainland factories the Taiwanese have built. "The IT model is not one built on second-sourcing," says Ken Wirt, a top executive for the handheld business of palmOne Inc.
A few years back, Craig Addison wrote an article and book claiming that a 'Silicon Shield' protects the beautiful island from attack. From the article:
Silicon-based products, such as computers and networking systems, form the basis of the digital economies in the United States, Japan and other developed nations. In the past decade, Taiwan has become the third-largest information technology hardware producer after the United States and Japan. Military aggression by China against Taiwan would cut off a large portion of the world's supply of these products. Suddenly the global information technology economy - dependent on silicon and software - would be threatened with disruption.
Such a development would wipe trillions of dollars off the market value of technology companies listed in the United States, Japan and Europe. Chinese attempts to damage the factories or supply lines of Taiwan companies like Acer, Quanta Computer and Taiwan Semiconductor Manufacturing would be an indirect but potentially lethal hit against giant U.S. firms, including IBM, Dell Computer, Hewlett-Packard and Cisco Systems, that rely on Taiwan for manufacturing services and components.
Addison also made the comparison to the Middle East and oil:
Any U.S. moves to protect its supply of information technology products from Chinese aggression would have some parallels to the Gulf War. While the U.S.-led United Nations forces were ostensibly stepping in to protect a democratic Kuwait from attack by Saddam Hussein's military dictatorship, the motives had more to do with protecting the supply of Kuwaiti oil to the rest of the world. In the case of Taiwan, it would be to protect the supply chains to U.S. and Japanese technology companies.
In 2002, Huang Tien-lin warned in the Taipei Times that the 'Silicon Shield' was in danger:
Deplorably, Taiwan's secret weapon, the silicon shield, is now being handed over to China by Taiwanese businesses. Chinese leaders have sensed the power of Taiwan's production capacity, the importance of which has surpassed Middle Eastern oil in recent years. Silicon products have become fundamental materials indispensable for advanced countries. How to disarm Taiwan's industry has become part of Beijing's grand strategy, as well as the main reason behind China's all-out efforts to lure Taiwan's high-tech industry during the past few years.

In light of recent discussions in the blogosphere as to whether or not the US would defend Taiwan from an attack (see this LGM post for a good example), I ask: What role do Taiwan's high-tech industries play in defending the island from attack or in securing American (and/or Japanese) support in a conflict with China?