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