A friend of mine who used to work in the aerospace industry is fond of referring to "single-point failures." If a rocket relies on any single component that has no backup to take over in case that component fails, you are liable to have a single-point failure that destroys the rocket. The Chipocalypse of the title refers, not to the actions of a character in a new Disney animated series called "Big City Greens," but to what might happen if the world's supply of critically important integrated circuits (ICs) was disrupted in a major way. And the Taiwan Semiconductor Manufacturing Corporation (TSMC) is the most obvious single-point failure in the global semiconductor supply chain.
Last week's invasion of Ukraine by Russia draws attention to the way war can interrupt the peaceful international exchange of goods and services which is the realization of economist Adam Smith's "invisible hand." We have already seen the price of gasoline leap upward in response, and further disruptions may come in other markets. But that is chump change compared to the costs consumers in the U. S. and Europe would pay if Asian IC suppliers quit making chips.
An article published over a year ago in Bloomberg News points out that the great majority of the world's semiconductor "foundries" (factories that produce chips designed by outside customers, not by their own engineers) are in either China, South Korea, or Taiwan, with TSMC running the largest single foundry in the world.
Taiwan is not the first place you would choose to site such an important facility. For one thing, it's prone to earthquakes. As recently as 1999, a 7.6-magnitude quake hit Taiwan and killed thousands of people, leaving about 100,000 homeless. Given the atomic-scale precision that is required for successful IC manufacturing, a major earthquake that caused significant damage to TSMC's facilities could knock it out for up to a year or more.
But besides Mother Nature, Taiwan has been in the military sights of the Peoples' Republic of China (PRC) ever since 1949, when Chiang Kai-shek and his Nationalist followers evacuated to Taiwan and established their government there. The PRC has claimed ever since that Taiwan is rightfully theirs, and would like to find an excuse to invade and take over what has since become a manufacturing giant that overshadows the PRC's IC production capability.
But as we will no doubt rediscover in the next few days and weeks with regard to Ukraine, wars never go quite like they are planned. And an armed conflict in the Far East could easily cut off supplies of ICs to the rest of the world for months or even years. Hence the Chipocalypse.
Now that we've embarked on this dismal speculation, what would it be like? Chips aren't the only thing made in Asia, but they are at the heart of many of the most highly-capitalized modern industries. Apple, for example, derives much of their profit from hardware rather than software, although this has been changing in recent years. And as I discovered recently, a lot of hardware sales are driven by changes in systems and software. The recent upgrade to 5G by T-Mobile and other telecomm firms in the U. S. has obsoleted millions of devices that otherwise work fine, including yours truly's third flip phone in almost as many years.
Left to my own devices, I would still be using my Motorola mini-brick with the pull-out antenna that was my first mobile phone. But the telecomms are not about to let that happen, and so as a chronic late adopter, I have been dragged kicking and grumbling through the various G's, always one of the last trailing points on the bell curve, until now I am the reluctant possessor of a flip phone with a touchscreen.
Multiply this experience by the millions, or even billions worldwide, as more enthusiastic early adopters drop their phones for the latest model, and you get the synergistic process of innovation in both software and hardware which is our age's best answer to the cathedrals of the Middle Ages, but not nearly as long lasting, unless you count the piles of dead electronics in landfills. A chipocalypse would put a serious brake on this process, leading to all sorts of disruptions like the one we saw in the automotive industry last year, when car makers could not get chips to go into their electronified cars, and so they simply shut down whole lines for months.
That is bubkis (beans, as the Yiddish speakers used to say) compared to what we would see in a full-scale chipocalypse. Imagine there's no new mobile phones, server farms, robotic manufacturing systems, Xboxes, or anything electronic with a chip in it, which means basically anything electronic these days. In principle, software updates would not be affected, although by halting the production of new hardware you would be cutting off one of the two legs of the consumer-electronics giant, the other being software. Like a one-legged man, it might manage to hobble around, but at a greatly reduced speed.
One of the most serious threats posed by a chipocalypse to a nation's integrity would be the consequences to military operations, dependent as they are on electronics for everything from communications to military vehicles. Military hardware wears out fast, and if the armed forces are constrained to hunt around in used-electronics scrapyards for replacement ICs like the Space Shuttle technicians had to do for the last few years of its existence, that will put a severe cramp in the military's style.
But undoubtedly the most severe consequences would be economic. Although the tech sector (e. g. Apple, IBM, Microsoft, etc.) made up only about 10% of the U. S. GDP in the period 2017-2020, it is a highly critical 10%, employing some of the best-paid workers in the country and providing new capital and growth to the fastest-growing locales. Anything that severely damaged this sector would have ripple effects much larger than the 10% directly affected, ranging from real estate to luxury-goods consumption.
All of which makes me wonder whether we are a little too dependent on our shiny new toys. But that is an argument for another day.
Sources: The Bloomberg report on TSMC's critical role in the global economy is at https://www.bloomberg.com/news/features/2021-01-25/the-world-is-dangerously-dependent-on-taiwan-for-semiconductors. Earthquakes in Taiwan can be read about at https://www.history.com/this-day-in-history/earthquake-kills-thousands-in-taiwan, and the statistics on the tech sector are from https://www.statista.com/statistics/1239480/united-states-leading-states-by-tech-contribution-to-gross-product/.
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