Chips crisis could deepen as Taiwan struggles with another COVID wave

“Chipageddon” is what they’ve coined it: When semiconductor chips run short, companies that sell products panic, while customers are deprived because products are either unavailable or their prices escalate to unaffordable levels.

The biggest hit has been automobiles, which, according to consulting firm AlixPartners, will cost the global automotive industry a total lost revenue reaching no less than $110 billion in 2021. Shuttered factories and temporarily furloughed workers are causing painful unemployment. Many goods are affected as well because modern gadgets invariably have “chips inside” — to borrow from a popular marketing phrase.  

Is “Chipageddon” poised to get much worse as the pandemic hits Taiwan with a recent explosion of COVID cases? 

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest chip foundry, manufacturing about two-thirds of the world’s semiconductor chips. The whole island is now on Level 3 COVID alert and inching towards Level 4 — the highest level — which invokes a full lockdown. A shutdown at TSMC would profoundly exacerbate the world’s already acute shortage of semiconductor chips — unless the lockdown rules are changed.

According to Taiwan’s government rules, alert Level 4 consists of the following clauses: “Lockdown imposed in townships, counties or cities where the outbreak is severe, only designated personnel may enter/exit the lockdown area; residents must remain in their homes.” And, “All public events cancelled: Apart from essential services, law enforcement, medical and government services, all in-person work and school is suspended.” Apparently, TSMC wouldn’t be allowed to operate — nor could it operate under those conditions. On May 22 TSMC announced that one employee was confirmed positive for COVID and 14 others were in quarantine. Four days later, the company announced a second confirmed positive and 10 in self-quarantine.

Quick vaccination is the best solution. But mitigation through vaccination seems problematic at present since Taiwan has vaccinated only about 0.5 percent of its population with AstraZeneca’s two-shot vaccine obtained through COVAX. It has just received another batch of 400,000 AstraZeneca doses, which will increase vaccination capacity to only about 1.5 percent of its population. Taiwan had contracted Moderna for 5 million doses to be shipped in June, bringing vaccination capacity to 12 percent of its population — still nowhere near herd immunity requirements. Taiwan’s own vaccines are under development and are currently at the end of phase 2 trials. Implementing the “gold standard” of a phase 3 trial could only offer a long-term solution to the COVID and chip shortage crises and will not help if the lockdown threat becomes a reality.

On May 17, President Biden announced the donation of 20 million doses of vaccines to the global vaccination efforts, mostly through COVAX. Following Biden’s announcement, Taiwan’s de facto ambassador to the U.S., Hsiao Bi-khim, revealed that she had asked the administration for a donation of vaccine to Taiwan, signifying the urgency of securing the vaccine in light of the surge in virus cases in Taiwan. However, disruption of chips production due to a possible lockdown wasn’t mentioned, nor the receptiveness of her request.

As to vaccine distribution, it is understandable that favoritism is not in line with the administration’s pronouncement that the U.S. will not play the game of vaccine diplomacy, unlike Russia and China’s self-serving style of vaccine “largesse” with ulterior motives. However, the fact is clear that if Taiwan were to declare a Level 4 alert, chips production would be severely and adversely impacted — and that doesn’t bode well for anybody across the globe.

Hope that Taiwan will end the scourge of the virus quickly — or at least have it under control so that a shutdown can be avoided.

Chin B. Su is an emeritus professor of electrical and computer engineering at Texas A&M University in College Station, Texas.