Taiwan's 3 April earthquake has led to increased calls for Europe to reduce dependence on Taiwanese semiconductor chips.
ADVERTISEMENTTaiwan saw its worst earthquake in 25 years on Wednesday morning, about 18 kilometres south of Hualien. Taiwan's Central Weather Administration estimated the quake to be at a magnitude of 7.2 although the US Geological Survey put it at a 7.4 magnitude.
So far, at least seven people have died, with more than 500 others injured and more than 100 buildings damaged. Tsunami warnings were also issued in Japan, Taiwan and the Philippines, leading to the cancellation of several flights. The warnings have now been lifted.
The quake has led to significant fears about semiconductor supply chains facing blockages and slowdowns in Europe. Taiwan accounts for more than 60% of current semiconductor supply worldwide, as well as more than 90% of the most advanced chips.
The chips are used in everything from mobile phones to automobiles, and are extremely sensitive to the smallest tremors. As such, these kinds of earthquakes can cause great damage to several batches of delicately made semiconductors.
The world's biggest semiconductor producer, Taiwan Semiconductor Manufacturing Company (TSMC), saw its shares slide 1.69% to €128.0, after having to halt production and evacuate personnel from some of its plants.
This was done to assess any potential damage to operations. The company later clarified that systems and plants were working as usual. The producer is a significant supplier to tech companies such as Nvidia and Apple.
TSMC said in a statement: "TSMC's safety systems are operating normally. To ensure the safety of personnel, some fabs were evacuated according to company procedure. We are currently confirming the details of the impact."
Another chip company, United Microelectronics, also had to pause operations and evacuate facilities in Tainan and Hsinchu.
In an email note to clients, IG said: "A powerful earthquake, the strongest to hit Taiwan in 25 years, struck the island which accounts for 90% of production for major chipmaker TSMC. Shares of TSMC and other Taiwanese tech companies like Foxconn and AU Optronics fell after the quake, reflecting investor concerns over potential disruptions.
"Serious damage to Taiwan's chip foundries could ripple through global supply chains and highlight the urgency of reducing reliance on Taiwan for chip output, a goal of the US strategy to encourage domestic production.
"The quake added to market jitters ahead of comments from Fed Chair Powell and US economic data. Rising US bond yields also weighed on markets. The Japanese yen remained stable around 151.55 per dollar amid warnings from authorities about possible currency intervention."
How could Taiwan’s quake impact chip supply chains in Europe?
In 2021, more than 60% of EU appliances and machinery imports came from Taiwan, according to Politico. Of this, semiconductor chips formed a significant portion. Taiwan is already considerably prone to natural disasters such as earthquakes and tsunamis, which can affect semiconductor production at any time.
If so, European supply chains could be significantly compromised, as was also seen during the semiconductor crisis several months back, as well as throughout the COVID-19 pandemic.
Furthermore, Taiwan is also seeing rising tensions with China, which considers it to be a renegade province. This uncertainty regarding military escalation is also another threat to supply chains.
As a result of this, the US has been encouraging Taiwanese semiconductor producers such as TSMC to expand globally, especially in the US and Japan, so that they are not based solely in an increasingly unstable Taiwan.
However, this expansion could still take several months, if not years, during which time European supply chains will remain vulnerable to economic and geopolitical shocks coming from Taiwan.
Because of this, the EU launched the European Chips Act, back in 2023, in order to increase domestic semiconductor production, as well as reduce dependence on any one supplier.
EUR-Lex, an official European Union law website said, regarding the EU's semiconductor production plans: "Its ambition is to double its world production share today to 20% by 2030. The goal is not only to reduce dependencies, but also to seize the economic opportunities as the global market for semiconductors is expected to double before the end of the decade, increasing competitiveness of the semiconductor ecosystem, and of industry at large, through innovative products for European citizens."
