Taiwan in the Raw Materials Trap: When the World Runs Out of Chips

David Acker: What happens if the world runs out of chips?

Andreas Kroll: First, the stock markets would react—and react violently. The current AI boom hinges on a handful of companies like Nvidia, TSMC, and ASML, as well as the major hyperscalers, which are investing billions in new data centers. If Taiwan’s chip production were to grind to a halt, the foundation of these growth expectations would be shaken.
After that, the shock would reach the real economy. Companies would try to secure whatever manufacturing capacity is still available. Smartphones, computers, and servers would become more expensive, and some production lines might come to a standstill. In the medium term, nearly all modern industries would be affected: from automotive manufacturing to medical technology to the defense industry.
That said, the world wouldn’t run out of all chips. But when it comes to highly advanced logic chips in particular, TSMC is by far the most important contract manufacturer. Samsung and Intel would not be able to make up for a shortfall in the short term. Such production capacity cannot simply be ramped up at the push of a button.

David Acker: Are we seeing ordinary export controls here—or the beginning of a targeted economic blockade of Taiwan?

Andreas Kroll: I wouldn’t call it a blockade just yet. Formally, we’re seeing stricter controls, longer inspections, and delayed approvals. Materials are also still flowing from mainland China to Taiwan.
Politically, however, the situation is noteworthy. Beijing considers Taiwan to be part of China. A publicly announced halt to shipments would be difficult to reconcile with this position. Delayed customs clearances and stricter case-by-case reviews, on the other hand, allow for economic pressure without having to officially declare a blockade.
I therefore see this primarily as a further escalation of the measures being used in the technology and trade conflict between China and the West.

David Acker: This trade conflict between China and the West dates back to Donald Trump’s first term in office. What role did the Biden administration and the CHIPS Act subsequently play?

Andreas Kroll: The first comprehensive U.S. restrictions were already put in place during the first Trump administration. This became particularly evident in the case of Huawei and the expansion of 5G networks. At that time, Beijing realized just how dependent China is on American chip design software, Western manufacturing equipment, and foreign semiconductor manufacturers.
The Biden administration significantly tightened this policy. High-performance chips and certain equipment used to manufacture them were no longer allowed to be shipped to China, or only under restricted conditions. At the same time, the CHIPS Act was intended to build new production capacity in the U.S.
Today, China is responding in kind: The West controls chips and manufacturing equipment, while Beijing controls critical commodities and intermediate products. Both sides are striking where the opponent’s supply chain is particularly vulnerable.

David Acker: Could China cripple Taiwan’s chip production by cutting off access to commodities and specialty materials without imposing a military blockade on the island?

Andreas Kroll: Basically, yes. However, it is not yet possible to say with any certainty whether the supplies currently affected would be sufficient for this.
Semiconductor production is one of the most complex supply chains in the world. It requires not only silicon, but also high-purity chemicals, specialty gases, quartz products, optical components, and numerous metals. If even a single qualified material is unavailable, the entire production process can come to a standstill under certain circumstances.
Often, it is not just the available quantity of raw materials that is crucial, but also the required purity and processing. You cannot replace a highly specialized supplier with another one overnight.

David Acker: If China keeps up the pressure, what would happen immediately, what would happen after a few weeks, and what would happen in the long term?

Andreas Kroll: First, prices and uncertainty would rise. TSMC’s customers would compete for the remaining production capacity and try to secure production of their most important products.
After a few weeks or months—depending on inventory levels and the specific materials affected—the first production lines could come to a halt. Manufacturers would likely reserve the scarce chips initially for particularly profitable or strategically important products.
In the long term, Samsung, Intel, and other companies would build additional capacity. However, this would take years, cost billions, and would not automatically replace TSMC’s manufacturing quality and experience. A prolonged outage in Taiwan could therefore not be fully compensated for.

David Acker: How long could Taiwan’s chip industry withstand a complete halt in the supply of these materials?

Andreas Kroll: It’s virtually impossible to give a reliable answer to that question from the outside. To do so, we’d need to know the exact material requirements and inventory levels of each individual manufacturer. Companies treat such information with the utmost confidentiality—and for good reason.
Anyone who publicly states that they only have enough of a certain material to last a few more weeks is revealing their greatest vulnerability to customers, competitors, and possibly even political actors. It’s a bit like government stockpiles of defensive missiles: you acknowledge their importance, but you don’t necessarily disclose the exact size of the stockpiles.

David Acker: Which critical commodities and materials are particularly affected?

Andreas Kroll: Currently, reports are focusing primarily on germanium-based materials, high-purity quartz products, and certain permanent magnets. Germanium is used in infrared optics, photonics, and fiber-optic technology, among other applications. High-purity quartz components play an important role in semiconductor manufacturing and in the corresponding production equipment.
Gallium is also of great strategic importance. It is primarily needed for compound semiconductors such as gallium arsenide and gallium nitride—for example, in high-frequency technology, power electronics, and in radar and 5G applications. Silicon, in turn, forms the basis of most modern processors. Both materials fulfill different functions and are therefore not readily interchangeable.
As a general rule, commodities play a role at nearly every stage of the semiconductor supply chain. Photolithography is particularly critical. This is where ASML’s machines, Zeiss’s high-performance optics, and numerous other specialized suppliers come together. This supply chain is technologically difficult to replace in the short term.

David Acker: Does Taiwan have alternative supply chains? Who could step in to fill the gap left by China in the short term?

Andreas Kroll: Right now, that’s extremely difficult. Taiwan could source a small portion of its needs through international distributors like us or draw on existing inventory. However, that would only be a short-term solution—in my estimation, for three months at most.
The semiconductor industry requires gallium of the highest purity—up to 8N, or 99.999999 percent, depending on the application. Such grades cannot be easily replaced, and certainly not on short notice. Furthermore, China currently controls well over 90 percent of global primary gallium production and thus a crucial starting point in the supply chain.
While other countries are working to establish their own mines as well as new refining and processing capacities, it will still take years before these develop into reliable supply chains on an industrial scale. This is no solution to an acute supply disruption.

David Acker: How significant would the economic damage be? Can this be compared to the semiconductor shortage of 2021?

Andreas Kroll: The 2021 chip crisis was just a taste of things to come. At that time, there was a shortage of certain semiconductors, yet production in North America alone fell by about 2.3 million vehicles. Components worth just a few dollars prevented the completion of products worth tens of thousands of dollars.
A widespread shutdown in Taiwan would also affect numerous highly sophisticated and custom-designed chips for which there are no alternative manufacturing capacities available in the short term. The economic damage would therefore be significantly greater and would quickly spread through nearly all value chains.
Added to this is the political dimension: A raw-material-induced shutdown of Taiwan’s chip industry would massively exacerbate tensions between China and the West—particularly the U.S. A supply crisis could very quickly turn into an international security crisis.

David Acker: Mr. Kroll, thank you very much for your insights and for speaking with us.

Noble BC and Noble Elements are working together to ensure a secure raw material supply and resilient, as independent as possible supply chains in Europe.

Still not had enough of commodities and geopolitics? The book *The Cocaine of Industry* by Andreas Kroll and Andreas Pietsch provides a detailed analysis of our dependence on China’s dominance in raw materials. It shows how the U.S. and China are gradually waging a battle against each other through chip controls and raw material restrictions—and what consequences this conflict has for Europe.