A recent above the fold, front-page headline at the New York Times asserted that “Reliance on Taiwan Chips Endangers U.S. Economy.” The article’s subhead added that “Big Tech Has Done Little to Heed Warnings of Disaster if China Attacks Island.” The author of the report, Tripp Mickle, could perhaps be convinced that the subhead discredits the headline.
That's because the only closed economy is the world economy (HT: Robert Mundell). Mickle’s analysis implies that China would somehow benefit from economic implosion in the U.S., and that China could easily crush the U.S. economy by dropping bombs on Taiwan. Mickle is correct about the second part, but fails to take what he’s correct about to its logical endpoint.
To see why, what Mickle knows should be noted: so intricate are Taiwan Semiconductor’s (TSMC) fabrication plants that a bomb dropped anywhere in Taiwan, even if it shook the “fabs” in the most minute, undetectable of ways, would destabilize them. And what destabilizes TSMC would quickly slow the U.S. economy.
Which leads to a question: if China’s intent is to bring great harm to the U.S., why doesn’t it just bomb Taiwan? Better yet, why not just bomb a remote, population free part of Taiwan to wreck the U.S. and its economy, but without expending any blood or treasure in the process?
Assuming China were to do just this, it’s not just that a bombing of Taiwan would halt the operations of TSMC while throwing what Mickle indicates would be a disastrous wrench in the U.S. economy. It should be added that in bringing great harm to the U.S. economy, China would reduce the ability of U.S. military forces to hit back militarily. War is expensive, and with the U.S. economy sagging based on a TSMC-destabilizing strike in remote Taiwan, the U.S. would have reduced resources with which to fight back.
Again, it all sounds so neat but for the fact that the “only closed economy is the world economy.” For China to crush U.S. output through a strike in Taiwan would be for China to crush its own economy. Easily forgotten is that U.S. producers are the world’s most voracious consumers, and China’s economy is mighty precisely due to the previous truth. Even more important is a more easily forgotten truth: American finance powers China’s economy, particularly its technology economy, to a substantial degree. Which is a long way of saying that a Chinese strike on Taiwan represents an enormous blow to China’s economy exactly because it would be so damaging to the U.S.’s.
All of which suggests Americans should think more deeply about calls to limit the sale of advanced U.S. technology inside China. Nvidia CEO Jensen Huang has had to endure a lot of public shaming stateside for pushing back on governmental limits to sales in China. The critics should be cheering Huang.
For the same reason that the location of TSMC protects Taiwan from military attack, the location of so much technological know-how for the rest of the world renders the U.S. safer by the day. Think about it. We hear all the time about the risks of Taiwan being attacked owing to TSMC, but what about the location of the world’s greatest technological companies that give so much sustenance to the global economy, including to TSMC inside Taiwan?
Which is the point, or it should be. Trade is the greatest foreign policy mankind ever conceived precisely because it makes war so crushingly expensive.
Contra Mickle, keep the U.S. reliant on Taiwan. We’re all safer this way.
