How the computer chip shortage could incite a US conflict with China

WASHINGTON (NYTIMES) - The war game scenario conducted by a Washington think tank began with a sudden failure at three Taiwanese semiconductor foundries that make high-end computer chips used in such items as smartphones, cars and military equipment.

The halt in production raised questions of whether a cyberattack by Beijing was responsible - touching off an international crisis between China and the United States that the researchers said could grind the global economy to a halt and incite a military confrontation.

The war game and study by the Centre for a New American Security, which is set to be released on Thursday (Jan 27), illustrate how dependent the world is on Taiwanese computer chips - and how that dependence could draw the US and China into various kinds of conflict.

The report comes as Congress has put new energy into bills to increase domestic production of semiconductors in the US. Diversifying the global supply chain for computer chips is a key recommendation in the report.

Last week, President Joe Biden urged Congress to pass those bills and promised he would work to bring production of semiconductor chips back to the US.

"Today we barely produce 10 per cent of the computer chips, despite being the leader in chip design and research," Mr Biden said. "And we don't have the ability to make the most advanced chips now - right now. But today, 75 per cent of production takes place in East Asia. Ninety per cent of the most advanced chips are made in Taiwan. China is doing everything it can to take over the global market so they can try to outcompete the rest of us and have a lot of applications - including military applications."

Even if Congress approves new government investments in America's microchip production capacities, matching Taiwanese expertise is years away, if it is even possible, the report's authors say. The US is already more dependent on Taiwan's high-end microchips than it was on Middle Eastern oil in decades past, the report said.

China, the war game predicts, could use economic coercion, cyberoperations and hybrid tactics to try to seize or harm Taiwan's semiconductor industry - and the US must become better able to identify and counter Chinese tactics that could threaten the microchip supply.

War games like this one involve current and former officials, academics and other experts sitting around a table playing various roles. After an initial scenario is presented, the teams take turns making strategic decisions. Such exercises are supposed to yield insights about how different players would act and lay plain what sort of moves each group might make.

Ms Becca Wasser, who helped design and lead the scenario, said while many war games were conducted to study China, most focus on conventional military threats, giving short shrift to the many ways China could exert pressure on Taiwan.

And countering those pressure points is difficult, especially if the US and Taiwan are at odds over the best strategy. In the scenario, the US team presumed the Taiwan team would go along with its strategies to counter China. But Taiwan's interest sometimes led it to cross-purposes. For example, when the US wanted to bring semiconductor engineers to the safety of America, Taiwan resisted, worried about a brain drain.

"Whatever the United States tried to do by itself in the game really fell flat," Ms Wasser said. "We have seen a variety of examples of that in real life."

As a result, multilateral responses and global efforts to build resiliency in the supply chain for computer chips are most likely the best strategy, the report said.

Taiwan accounts for half of the overall production of microchips that are critical to the functioning of mobile phones, consumer electronics, cars, military equipment and more. South Korea, the nearest competitor, has about 17 per cent of the overall market. But Taiwanese chips are the smallest and fastest, and its foundries account for 92 per cent of the most advanced designs.

"It's almost impossible to duplicate Taiwan's manufacturing capability of high-end chips, of low-end chips," said Mr Dan Blumenthal, a scholar at the American Enterprise Institute. "It's just the manufacturing hub of the world."

Although the US and Europe are trying to boost their own domestic design and production of semiconductors, they do not have the abilities to mass produce the most advanced designs that the Taiwan Semiconductor Manufacturing Company can make.

"If the semiconductor supply chain is infringed upon by China in some way, all of the sudden the things that Americans look to in their daily lives, to get to and from work, to call their loved ones, to do a variety of different things, those disappear," Ms Wasser said.

Other experts said it would be an overstatement to say that the US would be dragged into a war over microchips. China would decide what kinds of coercive measures it would take against the Taiwanese based on the perceived threat to its sovereignty and the expected international backlog, said Ms Bonny Lin of the Centre for Strategic and International Studies.

"China is not going to base their Taiwan policy, or any decision to use force against Taiwan, based on chips," Ms Lin said. "China thinks about the costs of an invasion of Taiwan - there are significant political and military costs. That is why I don't think chips would figure among the top three factors of using military force against Taiwan."