US warns losing access to Taiwanese chips could break the economy

Stark warning of a 'deep and immediate recession' if China takes over

Taiwan controls most of the world's chip manufacturing capacity, and that worries US Commerce Secretary Gina Raimondo.

Raimondo believes the US would go into a "deep and immediate recession" and face great security risks if it lost access to the island nation's chips

The Commerce Secretary made the warning in a Wednesday interview with CNBC as part of her plea for Congress to aid a major US semiconductor manufacturing expansion by passing the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, which would unlock $52 billion in subsidies for new plants and research efforts.

"If you allow yourself to think about a scenario where the United States no longer had access to the chips currently being made in Taiwan, it's a scary scenario," Raimondo told CNBC. "It's a deep and immediate recession. It's an inability to protect ourselves by making military equipment. We need to make this in America."

The issue is that Taiwan has faced ongoing aggression from China, which claims the self-governing island nation as its own and has not ruled out using military force to "reunify" the two. This has sparked fears that China could invade Taiwan and seize its manufacturing plants, which are run by, among other chipmakers, three of the world's largest contract chip manufacturers - it hte fabs aren't deliberately destroyed first.

This scenario would spell big trouble for the US because Taiwan produces 90 percent of the leading-edge chips that are bought by the country, according to Raimondo.

She is likely referring to TSMC, which Reuters said controls 90 percent of global output for such chips, citing industry estimates. This includes chips designed by companies such as Apple, Nvidia, AMD, and Qualcomm, and they are used in everyday devices such as smartphones, PCs, and servers. And then there's the whole military kit issue.

These concerns around Taiwan's security and independence are why the Raimondo believes it's important that the US rebuilds its semiconductor manufacturing base through the CHIPS Act.

"We need a manufacturing base that produces these chips, at least enough of these chips, here on our shores because otherwise we'll just be too dependent on other countries," she said.

Even if the CHIPS Act gets passed, which is moving along after the Senate voted on Tuesday to advance the legislation, it will take years before new manufacturing plants in the US start producing chips.

Intel, for instance, doesn't expect its new fabs in Ohio to begin production until 2025. The company is building two new factories in Arizona too, and those are expected to go online in 2024. That's when TSMC and Samsung also plan to open new fabs in Texas and Arizona, respectively.

While the new factories will expand US chip manufacturing capacity, research firm TrendForce believes that they won't make much of a dent in Taiwan's industry dominance in the short term. By 2025, the firm said, Taiwanese chip manufacturers will still hold 44 percent of the global foundry market, 47 percent of the 12-inch wafer capacity, and 58 percent of capacity for advanced manufacturing processes. ®