Taiwan Chip Invasion: Samsung's Tech Shortage Causes World's Greatest Economic Crisis, US Report Finds

Taiwan Chip Invasion: Samsung's Tech Shortage Causes World's Greatest Economic Crisis, US Report Finds

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The global economy is facing its greatest crisis due to the Chinese invasion of Taiwanese chips, and Samsung is facing a technology shortage and the shunning of technology companies, according to a confidential US semiconductor report.

A confidential report commissioned by the Semiconductor Industry Association for its members, including the largest US semiconductor companies, in 2022 stated, "A cutoff of Taiwan's chip supply would trigger the greatest economic crisis since the Great Depression." It stated, "US economic output would plummet by 11%, double the size of the 2008 recession, while China's collapse would be even more severe, with a 16% drop."

 

Brandon Nispel, an analyst at the US investment firm KeyBank, said in a report on the 23rd, "Securing memory chips is almost like a war," adding, "With the 'Rammageddon' phenomenon unfolding, the surge in memory prices isn't necessarily good for Samsung Electronics. They may have to double the prices of their mobile phones." 

Bloomberg reported that "Rammageddon" on Wall Street is a portmanteau of RAM and Armageddon (the final battle). It's a neologism coined to describe the "madness" that led to the memory chip shortage that led to the sharp rise in stock prices in Samsung and South Korea.
Korea's short-term stock market surge strategy capitalized on the rapid economic recovery driven by foundries (contract manufacturing) and memory semiconductors, exposing the entire Korean economy to slowing demand.
Last year, memory chips accounted for 77.7% of semiconductor exports, while system semiconductors accounted for 19.6%. Fabless sales, which reflect design capabilities in the global market, amounted to $3.4 billion, representing 1.2%.
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The confidential report, first published by The New York Times, begins with a map of Taiwan and condenses it into 20 pages, stating that the immediate impact of the shutdown of Taiwan's TSMC plant would be immediate.

"The economy will contract," the report stated, adding, "China's GDP would fall by $2.8 trillion. The US is projected to see a $2.5 trillion drop." A New York Times article covering the report revealed the Biden administration's countermeasures, including chip legislation.

The Times reported, "Intel and Samsung promised to expand production, but made no commitments. Their technology lagged behind TSMC, and the industry doubted they could catch up. Commerce Secretary Raymondo and his staff struggled to persuade the US to buy chips from Intel or Samsung."

The Times continued, "Without these factories, the US would fall short of the administration's goal of reaching 20% of global semiconductor production by 2030." "A frustrated Commerce Secretary Raymondo reportedly asked CIA Director William J. Burns and Director of National Intelligence Avril Haines for a classified briefing on the latest intelligence on China and Taiwan, but five people familiar with the briefing said it was not published." In July 2023, three prominent CEOs—Apple's Tim Cook, Nvidia's Jensen Huang, and Advanced Micro Devices' Lisa Su—entered a secure Silicon Valley briefing room, with Qualcomm CEO Cristiano Amon joining via video.

They heard CIA Director Burns and DNI Director Haines say China's military spending could signal a move against Taiwan in 2027.

Mr. Cook then dismissed the intelligence warning, mockingly telling officials he "slept with one eye open."

Six industry sources told the Times, "With these CEOs' lack of interest, Intel and Samsung were unable to meet their CHIPS Act contracts, which required them to retain customers, and the federal government cut Intel and Samsung's subsidies by a combined $2.3 billion." "This setback came as Intel, the last leading-edge chipmaker in the United States, faced declining sales and profits, and in December 2024, CEO Mr. Gelsinger was forced out."

Concerned about Intel's future, Mr. Raimondo sent a letter to Intel and TSMC before leaving office, stating that he would support U.S. government cooperation, and Secretary of Commerce Raymond warned his successor, Howard Lutnick, under Trump, that "the intelligence community needs help."

The New York Times reported that when President Trump and Chinese leader Xi Jinping met in South Korea last October, U.S. officials warned that "China's blockade of Taiwan could cut off the supply of computer chips and bring the U.S. technology industry to its knees."

Jens Huang, who had swayed public opinion with a beer launch party in Seoul, flew to Phoenix to visit the TSMC plant that made Nvidia's first AI chip in the U.S., calling it a "historic moment" and a significant step forward for American manufacturing.

However, Huang made no mention of the fact that "the chip was not yet finished."

The New York Times reported that "to become a leading AI chip, it had to be connected to other chips," adding that "this process, called packaging, involves shipping American chips to Taiwanese factories," making complete production impossible in US factories.

In the report, the Semiconductor Industry Association hired McKinsey to conduct the review, and they began with a fundamental question.

The question was simple: "What would happen if companies couldn't get chips from Taiwan?"

The resulting report summary began with a map of Taiwan and detailed the island's importance to the global economy.

Taiwan contributed approximately $10 trillion to global GDP, produced more than half of the chips used in iPhones and automotive memory chips, and led the way in AI chip assembly.

The island's semiconductor manufacturing is primarily concentrated in Hsinchu, which the Taiwanese government suppressed after World War II, citing its proximity to the sloping coastline as an ideal location for amphibious assaults.

The report stated that if Taiwan's factories shut down, the impact would be immediate and the global economy would slow, stating, "China's GDP would decline by $2.8 trillion; the United States' would see a $2.5 trillion decline."

Other reports, including one from Bloomberg Economics, estimate that a Taiwanese dispute could cost the global economy more than $10 trillion.

Trump's tariff strategy focused on actual chip production in the United States.

Since the Biden administration, the strategy has been to encourage TSMC to increase its production in the United States.

While Nvidia's success has been fueled by its AI chips, it doesn't manufacture those chips itself; this work is primarily handled by TSMC in its Taiwanese factories.

Secretary of Commerce Lutnick's proposal came as President Trump welcomed Nvidia's Huang to the White House for the first time.

During the White House meeting, Trump told Huang that he planned to impose tariffs because of the risks of producing semiconductors in Taiwan, two officials said. A person briefed on the matter said that President Trump told Huang that the Chinese leader took a deep breath when talking to Xi Jinping about the island.

"The president didn't like that," the official said. "He suggested Huang make potato chips in the United States."

There are clear business reasons why the advanced chip industry is hesitant to relocate from Taiwan.

Industry executives said chips produced in the United States were more than 25% more expensive due to rising material, labor, and licensing costs.

TSMC was widely recognized as being better at making cutting-edge chips than American companies like Intel.

In particular, American companies were more focused on "quarterly profits" and stock price increases than on geopolitical threats.

Over the past 50 years, Taiwan has transformed itself into a global semiconductor powerhouse, becoming a leader in semiconductor research and development. The center has become a hub for producing chips used in every iPhone, as well as a third of the basic chips used in cars, tractors, cell phone base stations, and pacemakers, and produces 90% of the world's advanced computer chips.

The confidential report largely states that many of America's major technology companies could have enough semiconductors to operate for months before their businesses collapse.

The report, written with encouragement from Biden administration officials, shows that Washington has been forced to rethink its stance on Taiwan.

The New York Times stated, "For decades, America's commitment to the island was based on geopolitics, respect for democracy, and containing China—a unilateral arrangement that was beneficial to Taiwan and dangerous for the United States. But now, especially as artificial intelligence powered by Taiwan-made chips drives U.S. stock markets and spurs economic growth, it's clearer than ever that Taiwan is crucial to America's economic survival."

The New York Times continued, “The Trump administration is acutely aware of this risk,” adding, “While some of the president’s tariffs have appeared impulsive or retaliatory, he has consistently used the threat of tariffs on semiconductors to pressure tech companies to buy more chips from U.S. factories. This coercion recently led Nvidia, the world’s most valuable company, to pledge to buy chips from Taiwan Semiconductor Manufacturing Corp.’s new Arizona plant.”

This agreement represents only a “step” toward solving a complex problem.

The New York Times reported, “New factories in the U.S. won’t be built unless companies first agree to buy the chips they produce, which is more expensive, cuts profits, and threatens to hurt stock prices. This is a dilemma that federal intervention has struggled to resolve.”

White House Press Secretary Kush Desai told the Times, “Rebalancing manufacturing, which is critical to national and economic security, is a top priority for President Trump, and the Trump administration is implementing a nuanced and multifaceted policy approach to achieve this.”

Other new commitments to US semiconductor manufacturing are also slowly being reflected.

The US plans to invest $200 billion in semiconductor factories by 2030, according to SEMI, a global semiconductor industry association, which could increase chip production capacity by 50%.

The New York Times reported, "With Taiwan, China, and other countries pouring billions of dollars into semiconductor factories, the US will account for only 10% of global semiconductor production in 2030, the same as it did in 2020 when the government demanded change."

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Bill Wiseman, global co-leader of McKinsey's semiconductor practice, told the Times that the risk remains high, saying, "The industry needs to say, 'We're all going to do this.' Instead, industry executives are thinking, 'If we fail, everyone else is,' and are therefore reluctant to act."

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The crisis has focused on President Xi Jinping's 2027 strategy for "occupying Taiwan." At the World Economic Forum in Davos, Switzerland, in January, U.S. Treasury Secretary Scott Bessent, somewhat exaggerating industry estimates, threatened, "The greatest threat to the global economy, the single biggest point of failure, is that 97% of advanced chips are produced in Taiwan. If that island were to be blocked and its production capacity destroyed, it would be economic annihilation."

The first warning came in March 2021, when Admiral Philip S. Davidson, commander of U.S. Indo-Pacific Command, warned the Senate Armed Services Committee about geopolitical tensions surrounding Taiwan.

"This threat has been evident throughout this decade," he said. "In fact, it will be evident within the next six years."

This marked the first time a senior US military official had told Congress that he believed President Xi Jinping wanted to be ready to occupy Taiwan by 2027, but many defense planners at the time were skeptical that such a move could happen so quickly.

Jake Sullivan, then President Biden's national security adviser, identified the US's dependence on Taiwan for semiconductors as one of the country's greatest vulnerabilities.

Sullivan wanted the tech industry to recognize the risks and support the construction of US manufacturing plants. Biden attempted to offer $50 billion in government subsidies to build semiconductor factories in the US, but the industry refused to back him.

"We were saying, 'This is crazy. We have to fix this,'" Sullivan said in a New York Times interview at the time.

The change required uprooting deeply entrenched businesses. Taiwan had already transformed itself into a global semiconductor factory over the past 50 years, becoming a leader in semiconductor R&D. US tech companies, however, refused to embrace their previous strategy of long-term investment, relying on reported "quarterly earnings" and stock price fluctuations. To this end, the White House held a confidential briefing on Taiwan with seven top executives, including Intel, in the fall of 2021, but they ignored it.

The New York Times stated, "If Taiwan is lost, the tech industry won't be able to say it wasn't warned," adding, "Executives were so focused on winning in a highly competitive market and maintaining high profit margins that confronting Taiwan was a secondary concern. Now, it will be years before some companies finally make a difference."

The Times concluded, "It's too late."

President Trump is scheduled to visit Beijing for a meeting with President Xi Jinping in late March, and the Lee Jae-myung administration has repeatedly announced a "North Korea-US summit" as a strategic initiative.

The New York Times revealed how support for Samsung was thwarted under the Biden administration.

Just two years after announcing its first facility during President Trump's first term, TSMC invested more than $50 billion to build its second and third factories in Arizona.

Intel has pledged to expand in Arizona and invest up to $100 billion in its Ohio campus.

Samsung pledged $45 billion to the U.S. government in April 2024 for two factories in Taylor, Texas, but has not fulfilled its pledge.

The Biden administration announced at the time that it would provide up to $6.4 billion in grants to Samsung, one of the world's largest semiconductor manufacturers, marking the latest example of federal support to bolster domestic production of cutting-edge semiconductors.

The federal funds will help Samsung build a new semiconductor manufacturing hub in Taylor, Texas, expand an existing facility in nearby Austin, build an additional manufacturing plant, and upgrade a facility under construction in Taylor.

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Administration officials said on April 21, 2024, that the investment in Texas would increase to approximately $45 billion.

This figure represents an increase from the $17 billion the administration announced two years ago.

Federal officials said in the announcement that "these grants will help establish a domestic hub for the development and production of cutting-edge semiconductors." The New York Times reported on April 25, 2024, regarding the Samsung subsidies, saying, “In addition to chip manufacturing, Samsung will now build an R&D facility in Taylor and an advanced packaging plant, the final step before semiconductors are used in electronic systems.”

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Under the Biden administration, Commerce Secretary Raimondo said these plants would give the United States the capacity to produce one-fifth of the world’s advanced semiconductors by 2030.

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Under the Biden administration, chip support was essentially a policy of “technology companies shouldering the cost of American chips.”

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TSMC received commitments from Apple, Nvidia, and others to purchase enough chips to build three factories in Arizona.

The New York Times reported that “three people familiar with the plan said TSMC failed to secure enough orders to build its planned complex,” adding that “customers were reluctant to buy chips that were more than 25% more expensive and a generation behind those made in Taiwan, and the government in Taiwan has an unofficial rule that TSMC must prioritize the island’s most cutting-edge technology.”

The Times concluded that the US production support system was frustrated by tech companies’ preference for “made in Taiwan.”

The Times specifically stated that “Intel and Samsung had promised to expand production but had not delivered on their promises. Samsung’s Intel technology lagged TSMC’s, and the industry doubted whether they could catch up.”

The Times reported that the failure of then-Commerce Secretary Raimondo’s “support for Intel and Samsung US production” strategy “was due to Raimondo and Commerce Department officials having difficulty persuading American companies to buy chips from Intel and Samsung.”

See <Korean media outlet "NVIDIA Passes Approval for HBM3 for China, Samsung Electronics' HBM3E Falls Short," July 24, 2024>

<Samsung Electronics' HBM3E falls short of China's HBM3 approval, Korean media reports 'NVIDIA passes', July 24, 2024>

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