TAIPEI (Taiwan News) — Taiwan has become important to both the U.S. and China as it has come to dominate the production of the world’s most advanced semiconductors.

The chips being produced by Taiwan Semiconductor Manufacturing Co (TSMC) have become vital to the most advanced digital devices and weapons, according to Reuters. TSMC alone is responsible for upwards of 90% of global output for these types of silicon, according to industry estimates cited by Reuters.

From the U.S. perspective, letting China take control of TSMC foundries in the event of an invasion could harm American military and technological leadership. On the flip side, Beijing may not be able to keep the fabs intact if war broke out, which could disrupt China’s own electronics industry that is also reliant on chips from Taiwan. And if China somehow managed to successfully secure the foundries, they would most likely be cut off from global supply chain inputs needed to make chips, according to the report.

Both the U.S. and China would like to reduce their reliance on Taiwan. Washington was able to woo TSMC to build a smaller 5nm process fab in Arizona, which is currently under construction, and also wants to spend around US$52 billion (NT$1.44 trillion) to rebuild its domestic semiconductor sector.

China is also pouring money into its semiconductor industry, but Chinese chipmakers are around a decade or so behind Taiwanese manufacturers. This gap is expected to increase in the coming years, according to analysts cited by Reuters.

The problem for Taiwan is that TSMC’s chip plants are all located on the western side of the country, right in the crosshairs if China were to attempt an invasion. Many of these fabs are located near beaches that military analysts say would be possible landing sites in a Chinese attack.

A possible war over Taiwan could threaten access to semiconductors that power nearly all advanced military and civilian technologies for the U.S. and China, the report said. The most sophisticated chips are those 10 nanometers or smaller, a segment commanded by Taiwan.

Washington is concerned about losing ground to China in the competition to take advantage of artificial intelligence in weapons systems, said Reuters. It is seen as the next evolution in modern warfare, one that relies heavily on Taiwan’s advanced chips.

For Beijing, losing access to Taiwanese chips would severely hamper Chinese industry. China is responsible for 60% of global chip demand, Reuters cited an October 2020 report from the Congressional Research Service (CSR) as saying. Over 90% of the chips used in China are imported or produced in-country by foreign suppliers, the CSR found.

Taiwan is a major supplier of silicon to China. During the first quarter of this year, almost half of Taiwan’s exports to China were chips, a 33% bump from the same period in 2020, according to data from Taiwan’s Ministry of Economic Affairs cited by Reuters.

According to Reuters, the global chip crunch created by supply chain issues related to the COVID-19 pandemic gives a small taste of what a Taiwan invasion by China could create. The loss of a year’s output from Taiwan would bring the global electronic supply chain to a standstill, according to an April report from Boston Consulting Group and the Semiconductor Industry Association cited by Reuters.

While both China and the U.S. are eager to produce more advanced chips on their respective home turf, Taiwan has no intention of giving up its vital position within the industry, per Reuters. TSMC has already begun trial production for its most-advanced silicon yet, its 3nm chips, which are expected to enter mass production in the second half of 2022.