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Erin Campbell
Economics 335
Term Paper
Taiwan’s Control of Semiconductors
Taiwan is a major player in the global semiconductor market, with a significant number of
companies involved in the design, manufacturing, and distribution of semiconductor products.
Companies like TSMC, which is the largest semiconductor manufacturer in the world brining in $47.85
billion us Dollars in revenue each year (Das, S 2022). The country has developed a strong semiconductor
industry over the years, thanks to its advanced technology, skilled workforce, available resources and
favorable government policies. I’ll be taking a look at the shortage in semicondcutors, how Taiwan
became a powerhouse for semiconductors, and opportunities for the country to grow their Economy in
other areas.
Currently there is a large shortage on semiconductors across the world. This is due to the
increase in demand for electronics such as high powered GPU’s, these are mostly used by Crypto
farmers to mine currency (Mujtaba, H 2022). Another big reason for the shortage is that supply cant
keep up with demand, according to the Department of Commerce, they did an RFI(request for
information) inquiry and many major chip producers reported that “
highlighted by buyers was as much as 17% higher in 2021 than 2019, and buyers aren’t seeing
commensurate increases in the supply they receive. This is a major supply and demand mismatch.
2019 to less than 5 days in 2021 (see Figure 2). These inventories are even smaller in key industries.
So even when companies can produce semiconductors they wont be able to keep them on the
shelves for longer than 5 days.
It is not clear exactly how the industrial cluster in Taiwan was formed. However, it is
likely that it developed over time as the country's economy grew and its industries became more
specialized. Taiwan's strong manufacturing sector, particularly in the electronics industry, likely
played a key role in the development of the industrial cluster. Additionally, factors such as the
availability of labor, capital, and technology, as well as the presence of a supportive government
and business environment, may have contributed to the formation of the industrial cluster in
Taiwan. Taiwan's location in the Asia-Pacific region, which is a major market for electronics,
may have also played a role in its development as a major semiconductor manufacturer
The Heckscher-Ohlin trade theory, also known as the factor proportions theory, is a
theory of international trade that suggests that countries will export goods that use their abundant
and cheap factors of production and import goods that use their scarce factors of production. In
the case of Taiwan's semiconductor exports, the Heckscher-Ohlin trade theory suggests that
Taiwan is exporting semiconductors because it has an abundance of the factors of production
(such as labor and capital) that are required to produce them, and it is able to produce them at a
relatively low cost compared to other countries. This allows Taiwan to compete in the global
market for semiconductors and export them to other countries
The new trade theory, also known as the endogenous growth theory, is a theory of
international trade that focuses on the role of technological innovation and increasing returns to
scale in international trade. According to this theory, countries will export goods that they are
able to produce more efficiently due to technological innovations or other factors. In the case of
Taiwan's export of semiconductors, the new trade theory suggests that Taiwan is able to produce
semiconductors more efficiently than other countries due to technological innovations and other
factors, allowing it to export them to other countries. This has led to increased economic growth
and development in Taiwan.
Comparative advantage refers to the ability of a country to produce a good or service at a
lower opportunity cost than other countries. In other words, a country has a comparative
advantage in a good or service if it can produce it more efficiently than other countries. Taiwan
uses comparative advantage by specializing in the production of semiconductors and services
that it can produce more efficiently than other countries, and then exporting those
semiconductors and services to other countries. This allows Taiwan to take advantage of its
unique strengths at making semiconductors and resources to compete in the global market and
generate income for its economy.
There are a few potential disadvantages of Taiwan being the major semiconductor
producer. One disadvantage is that Taiwan's economy may become overly reliant on the
semiconductor industry, which could make it vulnerable to shifts in global demand for
semiconductors. If the demand for semiconductors were to decrease, for example, it could have a
negative impact on Taiwan's economy. Additionally, there may be concerns about the
environmental impact of the semiconductor industry, such as the use of hazardous chemicals and
the generation of waste. There may be competition from other countries that are also looking to
become major semiconductor producers, which could lead to lower prices and reduced profits for
Taiwan's semiconductor industry
Taiwan could protect its economy by investing in research and development to improve
its semiconductor manufacturing technology and processes. This could help Taiwan's
semiconductor industry remain competitive and attract customers looking for high-quality
products. Additionally, Taiwan could focus on building strong relationships with its customers
and developing specialized semiconductor products that are in high demand. It could also
consider diversifying its economy by investing in other industries that are not as vulnerable to
changes in the semiconductor market; such as healthcare, education and renewable energy.
Das, S. (2022, November 26). Top 10 largest semiconductor companies in Taiwan. Electronics
Tutorial | The Best Electronics Tutorial Website. Retrieved December 15, 2022, from
https://www.electronicsandyou.com/blog/semiconductor-companies-in-taiwan.html
Mujtaba, H. (2022, June 19). Crypto miners, not gamers, were the primary buyers of graphics
cards since 2021, almost $15 billion worth of GPU sales reported. Wccftech. Retrieved
December 15, 2022, from https://wccftech.com/crypto-miners-not-gamers-were-theprimary-buyers-of-gpu-since-2021-almost-15-billion-worth-of-graphics-card-salesreported/
Results from Semiconductor Supply Chain Request for Information. U.S. Department of
Commerce. (2022, January 25). Retrieved December 15, 2022, from
https://www.commerce.gov/news/blog/2022/01/results-semiconductor-supply-chainrequest-information
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