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Why A Potential Invasion of Taiwan Could Destroy The United States Economy

Written by Andrew Hermann

Edited by Annika Lilja

Source: Politico

In 1990, the United States produced 37 percent of the world's semiconductors but today, that number has dwindled to a mere 12 percent. Meanwhile, Taiwan has taken charge and now produces 36 percent of the world’s semiconductors, including a dominant 92 percent of all advanced microchips globally, a market worth over 430 billion dollars. Microchips have become necessities in our everyday life; they are present in items such as refrigerators, cell phones, automobiles, and fighter jets. The importance of semiconductors in modern American society cannot be overstated.

However, the United States is not the only country that is seeking dominance in this market. Countries such as South Korea, Japan, and The Netherlands have all ramped up research investments in semiconductors, making the competition fierce.

The conflict between China and Taiwan has been ongoing for many years and is rooted in complex historical, political, and cultural factors. China considers Taiwan to be a part of its territory and claims that the island has been a part of China since ancient times. This view is based on a variety of historical and cultural factors, including the fact that Taiwan previously was ruled by Chinese dynasties and that many of its residents are of Chinese ancestry.

On the other hand, Taiwan has claimed independence since the end of World War II. Following the defeat of Japan, which had occupied Taiwan since 1895, the Republic of China took control of the island. However, in 1949, following a civil war, the Chinese Communist Party (CCP) established the People's Republic of China on the mainland, and the former government fled to Taiwan. Since then, Taiwan has effectively functioned as an independent state, with its own government, military, and economy. However, China has continued to view Taiwan as a renegade province that must be reunified with the mainland.

The current US policy regarding Taiwan is based on the Taiwan Relations Act, which was passed by Congress in 1979. This act states that the US will provide Taiwan with defensive weapons and support in the event of an attack by China. Additionally, the US maintains unofficial diplomatic relations with Taiwan, despite officially recognizing the PRC as the sole legitimate government of China.

The recent warnings from high-ranking US military officials and statements from Secretary of State Antony J. Blinken indicate growing concern about the possibility of China invading Taiwan. Blinken recently stated that China is “determined to pursue reunification or regain of [Taiwan] on a much faster timeline” after concluding the status quo was “no longer acceptable.” Additionally, high-ranking military officials such as Admiral Mike Gilday, Chief of Naval Operations, and Admiral Philip Davidson, the former Commander of US Indo-Pacific Command, both warned that the United States must be prepared for an invasion of Taiwan by China before 2027 and even potentially in 2023. This could have significant implications for regional stability and global security. As the situation continues to evolve, it will be important for all parties involved to seek peaceful solutions to this longstanding conflict.

An invasion of Taiwan by China would have far-reaching consequences for the United States. For reference, even though when compared to Taiwan, Ukraine has a minimal economic impact on the United States, the United States' annualized GDP decreased by 1.4 percent and inflation drastically increased when Russia invaded Ukraine. A successful invasion of Taiwan by China would effectively put the United States' economy in their hands, which would undoubtedly be detrimental to the United States. It would allow China to make demands against the United States, which could cause the U.S. to dip into a depression at a level unseen since The Great Depression. Additionally, the United States could be pressured to declare war on China, causing both sides to suffer major quantitative and qualitative military consequences.

To mitigate our dependency on Taiwan, the United States has taken steps to invest in semiconductor research and production, particularly with the objective to domesticate advanced microchips, including passing the bipartisan CHIPS Act. The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act is investing $280 billion to increase the production of semiconductors in the US, establishing regional high-tech centers, and developing a larger, more diverse STEM workforce. Despite the CHIPS Act and its large semiconductor research and development budget, when compared to other countries' recent investments to protect their global interests, the U.S. investment doesn’t seem particularly competitive. For comparison, recently, the European Union invested 300 billion euros to get rid of their dependencies on Russian oil and gas during the Ukrainian invasion. In addition, China made a $1.4 trillion investment with the sole objective to gain control over the United States' dominant technological research.

The potential invasion of Taiwan by China could have devastating consequences for the United States economy. The United States must prioritize investment in semiconductor research and development to reduce its reliance on Taiwan and ensure its economic and technological security.



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