Taiwan Earthquake Displays Vulnerability of Chip Giant TSMC

• Taiwan’s worst earthquake in 25 years disrupted operations of Taiwan Semiconductor Manufacturing.
• The disaster shows the vulnerability of TSMC, the world’s top chipmaker, to natural or geopolitical events.
• TSMC is diversifying with new plants in Arizona, Japan, and Germany to mitigate future disruptions.

Taiwan experienced its worst earthquake in 25 years on Wednesday morning, disrupting the operations of companies including Taiwan Semiconductor Manufacturing, or TSMC.

TSMC, which is based in the Taiwanese city of Hsinchu, told Business Insider that some of its fabs — microchip manufacturing plants — were evacuated for preventive measures, but that all its personnel were safe.

Those who were evacuated were also starting to return to work as of Wednesday afternoon, the spokesperson said. However, work at some sites has been suspended and will only resume after inspections.

“The company is currently confirming the details of the impact,” said the TSMC spokesperson. They added that initial inspections show the construction sites are “normal.”

The event highlights the vulnerability of the global microchip supply chain and of TSMC, one of the most important chip makers in the world.

After all, TSMC isn’t just any chipmaker. It’s the world’s largest chipmaker and is, by some estimates, the producer of 90% of the world’s most advanced processor chips.

Taiwan is also home to smaller chip producers, so the island plays an outsized role in supplying semiconductors to companies around the world.

If a big earthquake can disrupt TSMC, a more devastating event — such as a Chinese invasion of Taiwan, which Beijing claims as its own — would be far more damaging to already tight global supply chains.

US GDP could take a 6.7% hit in the first year of conflict if Washington were to get drawn into a China-Taiwan war, according to a Bloomberg Economics analysis. In the case of a Chinese blockade of the island, the US could see 3.3% shaved off its GDP in the first year, Bloomberg estimated.

Overall, a war over Taiwan could hit the world’s economy to the tune of $10 trillion — or about 10% of global GDP — Bloomberg forecast.

To be sure, TSMC is diversifying production with a second facility in Arizona, and upcoming new plants in Japan and Germany. But facilities will take time to come online.

The US is also taking steps to boost chip manufacturing at home, with the CHIPS Act, which provides $52 billion in subsidies for production, research, and workforce development.

TSMC’s shares on the Taiwan Stock Exchange closed 1.3% lower on Wednesday.