Hualien, Taiwan earthquake: losses in Taiwan's chip industry

When a 7.4-magnitude earthquake struck Taiwan's east coast on April 3, the first concern was about the risks to people and property. Here, the news was not as bad as initially feared, with only nine people reported dead as of Wednesday evening, with hundreds more injured. Given that Wednesday's quake was the strongest in Taiwan in 25 years — and that quakes of similar magnitude have killed tens of thousands of people or more in other countries — it could have been much worse.

Taiwan was largely able to withstand such a powerful earthquake because the island took earthquake preparations seriously, strengthened building codes after past disasters and trained its residents on how to respond. Newer buildings tended to perform better, with the 1,670-foot-tall Taipei 101, the island's tallest building, designed to dampen shaking during an earthquake, barely moving.

There was another way Taiwan — and the world — was able to avoid a worse outcome than the earthquake: the island's critically important semiconductor industry appeared to emerge largely intact. This is good news – but also a reminder of how fragile some of the global economy's hotspots are.

The world's computers cannot function without Taiwan

Saying that Taiwan is important to the global technology industry is like saying that oxygen is important for breathing. Taiwan as a whole is responsible for manufacturing between 80% and 90% of the world's most advanced computer chips, chips for which there is currently no alternative. Taiwan's TSMC alone accounts for half of this production, and 90 percent of the chips TSMC makes are produced at its 12 manufacturing plants – or “fabs” – on the island.

Fortunately, all of these factories are located on the western side of the island, far from the epicenter of the April 3 earthquake. However, even a slight vibration is enough to throw off the highly sensitive work of semiconductor manufacturing, and some machines have stopped working or even been damaged. But TSMC reported that production returned to normal within a few hours of the quake.

Once again, preparation has made a difference — TSMC has invested heavily in earthquake resistance at its plants, which the company says are designed beyond code.

But part of the reason Taiwan has such great earthquake resistance is that it has a long history of…earthquakes. The island is located on the Ring of Fire, the unusually cool name for the 25,000-mile-long belt of volcanoes and earthquakes that surrounds the Pacific Ocean. As a result, Taiwan experiences about a thousand earthquakes a year that are strong enough to be felt, and many others that are not. Just last year, Taipei discovered an actual active volcano within its city limits.

After the 1999 earthquake further damaged Taiwan's chip-building infrastructure, the electronics industry was disrupted for weeks — and this was at a time when technology and computer chips were far less important to the global economy than they are today, when chips are found in everything from cars to… Refrigerators. An analysis by Credit Suisse found that if TSMC's operations were to shut down somehow — perhaps due to a more powerful earthquake — manufacturing across the global economy would be severely disrupted.

Of course, earthquakes and volcanoes pose just one threat to Taiwan's semiconductor foundries. The most famous site is just 80 miles across the Taiwan Strait, where the People's Republic of China has increasingly made clear that it may be willing to use military force to force reunification with what it sees as a rebellious province. If Taiwan's chip factories were destroyed in such a conflict, the damage to the global economy could be on a par with the Great Depression of the 1930s.

Fragile points of global technology

Is it the safest thing in the world to concentrate production of the most important industrial component of the global economy on a single island that faces existential seismic and geopolitical threats (in addition to the occasional hurricane)? Not real.

But Taiwan is not the only critical node of technological manufacturing located in a risky part of the world.

South Korea is perhaps the second most important semiconductor manufacturing location after Taiwan, with a 60% market share of memory chips used in computers and smartphones, and it is also home to the world's leading technology company, Samsung. South Korea also borders North Korea, a nuclear-armed state run by a dictator who appears to be increasingly flirting with the possibility of war on the Korean peninsula. It is also at risk from storms and floods, although its tectonics are at least somewhat stable. (maybe?)

What about Japan? It is no longer the dominant player it was in the 1980s, although the government has spent billions to bring more semiconductor manufacturing back to the country, and it now has about 10% of the global market. Japan is also one of the most disaster-prone countries on Earth – at risk of earthquakes, volcanoes, tsunamis and typhoons. If war breaks out with North Korea or China over Taiwan, Japan will almost certainly be on the front line.

United State? Well, America hasn't been a semiconductor hub for a long time, although the Biden administration is doing its best to change that (with mixed success). But it is worth noting that the intellectual nerve center of global technology, the Bay Area and Silicon Valley, lies on several major fault lines, including the San Andreas Fault. A major earthquake is a question of when, not if.

Would it be better if more of the world's technology manufacturing was concentrated somewhere safer — like Syracuse, New York, which is perhaps the safest city in the United States according to FEMA's National Risk Index? certainly. But this is unlikely to happen.

The reality is that something as incredibly complex as the global technology manufacturing supply chain will be inherently fragile. The best we can hope for is that the areas where we have concentrated this vulnerability take every step possible to prepare for this risk. Taiwan – at least when it comes to earthquakes – has.

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