Taiwan’s Pivotal Role in Supply Chains in the Indo-Pacific: Protecting a Global Public Good

Table of Contents Introduction Taiwan’s Position in Supply Chains Concentration of Critical Industries, Key Production Nodes and Dependence on Taiwanese Components and Know-how Global Industries’ Reliance on Taiwan’s Semiconductor and Electronic Components Implications of Disruptions in Taiwan’s Supply Chains Taiwan’s Strategic Significance in Supply Chain Networks The Prospect of a Taiwan Supply Chain Disruption: Implications for Canadian National Interests Economic Implications for Canada Geopolitical Considerations Security Concerns Conclusion End Notes About the Author Canadian Global Affairs Institute Introduction Supply chains have become the key arteries of the global economy. This is especially true in the sea lines that link the Indian Ocean to the Pacific Ocean through the Malacca Straits, South China Sea, East China Sea and waters surrounding Taiwan. They have enabled the seamless flow of goods and services across borders at affordable prices. This has facilitated globalization and improved the quality of lives for most. Critically, Taiwan has emerged as a vital player in supply chains in the Indo-Pacific region, transforming Taiwan into a global public good.1 This paper expounds on Taiwan’s role in these supply chains and analyzes the potential ramifications for Canadian national interests in the event of a Taiwan contingency with China. Recognizing Taiwan’s pivotal economic role in the Indo-Pacific region is essential. This role is a reflection of cross-strait relations, Taiwan’s central role in the production of the latest semiconductors, geopolitical tensions associated with the U.S.-China strategic competition and Taiwan’s deep integration in global supply chains. Taiwan’s economic vitality is anchored by its robust high-tech industries, particularly semiconductors, where it is a global leader, thanks to companies like Taiwan Semiconductor Manufacturing Company (TSMC).2 The island’s semiconductor prowess is crucial for international markets, given the global dependency on these components in an array of sectors, from consumer electronics to advanced military systems.3 Moreover, Taiwan’s strategic location along the East Asian littoral positions it as a vital node in the first island chain, influencing sea lanes that are critical for trade in the region. While not mentioned directly, Taiwan plays a significant role in the Free and Open Indo-Pacific (FOIP) vision, created by the United States and its allies, including Japan, and aiming to ensure security and the uninterrupted flow of commerce.4 The importance that countries such as Japan place on peace and stability in cross-strait relations is shown by Japanese Foreign Minister Kawakami Yoko’s statements following the election of Lai Ching-te (William) of the DPP as Taiwan’s new president. She said: “For Japan, Taiwan is an extremely crucial partner and an important friend, with which it shares fundamental values and enjoys close economic relations and people to people exchanges. The Government of Japan will work toward further deepening cooperation and exchanges between Japan and Taiwan, based on its position to maintain a working relationship at the non-governmental basis”.5