China’s Quest for Reunification: What a Conflict in Taiwan Means for the Tech Industry

2 hours ago
4 min read

By Nick C. Lowfield

China’s vow to reunify with Taiwan has been a central issue in international affairs since the Chinese Civil War, posing not only a threat to political stability in the Pacific but also to the growing semiconductor industry. With Taiwan Semiconductor Manufacturing Company (TSMC) controlling half of the world’s market, it is no wonder that Taiwan’s significance now extends beyond strategic significance.

China’s stance on Taiwan has been a matter of great importance since the Civil War, when the Chinese Nationalists retreated to the island following its defeat by Communist forces. This retreat later triggered the People's Republic of China’s pursuit of reunification. Since 1949, China has regarded Taiwan as a breakaway province, opposing its independence and framing the issue as a matter of sovereignty and territorial integrity, while maintaining the possibility of military intervention.

Throughout much of the Cold War, the two governments—Beijing and Taipei—pursued their interests through the proxy dynamics characteristic of the era. Taiwan was backed by the United States, while mainland China initially relied on Soviet support, culminating in the short-lived Sino-Soviet Alliance. However, ideological and strategic differences eventually led to the Sino-Soviet split, significantly weakening China's position within the global Cold War order. As a consequence, China temporarily paused its pursuit of unification with Taiwan to focus on the Cultural Revolution and subsequent internal turmoil.

The 1970s marked another turning point in Chinese foreign policy, as Beijing engaged in a historic rapprochement with the United States under President Richard Nixon. Driven largely by the diplomatic efforts of Secretary of State Henry Kissinger, this shift resulted in a period of détente and established triangular diplomacy between the United States, China, and the Soviet Union. For Taiwan, though, this period meant a significant departure from its previous relations with Beijing, with China’s approach shifting from militarist to more economically oriented. This was done to prevent further tensions as the US withdrew forces from the region. Despite these changes, the political status of Taiwan remained unresolved.

It was in the 1970s that Taiwan made a decisive leap into the semiconductor industry. In 1974, facing economic challenges, the Taiwanese government identified semiconductors as a key sector for future growth. The government-funded Industrial Technology Research Institute (ITRI) was founded, and a critical technology transfer agreement was signed with the Radio Corporation of America (RCA) in 1976. This laid Taiwan’s foundation for domestic expertise in chip design and manufacturing. These developments took place against the backdrop of China’s unwavering intention of reuniting with Taiwan for what at the time were considered reasons of control and geopolitical strategy.

By the late 1990s and early 2000s, Taiwan emerged as a global leader in semiconductor production, not through its natural resource wealth, but through investment in technology, infrastructure, and skilled labour. By 2020, Taiwan Semiconductor Manufacturing Company (TSMC) controlled over 50 per cent of the global foundry market. Three years later, Taiwan produced more than 90 per cent of the world’s most advanced logic chips, cementing Taiwan’s status as a “silicon superpower”.

With Taiwan’s strategic role and technological history in mind, it is clear why China considers the island both politically and economically significant. Beijing now views Taiwan not only as part of its territorial claims but also as a region of immense industrial and technological potential. China’s position as the “factory of the world” could be further strengthened by integrating Taiwan’s advanced semiconductor and tech industries. In recent years, Chinese companies have rapidly advanced in artificial intelligence and other high-tech fields, increasingly challenging U.S. dominance in key sectors. For China, proximity to Taiwan’s cutting-edge industry presents both an opportunity to expand its presence in the tech market and a strategic incentive to gain ulterior control of the region.

Meanwhile, China continues to conduct frequent military exercises near Taiwan, some in very close proximity to its territorial waters. Such activity increases the risk of regional instability, which, combined with emerging AI investment risks like overvaluation, bubble behaviour, and market volatility, could have serious repercussions for the global technology supply chain. An escalation over Taiwan—whether initiated by China or by external intervention— could disrupt semiconductor production, exacerbate volatility in emerging technology markets, and trigger broader economic consequences worldwide. Given Taiwan’s central role in global manufacturing and innovation, with over 60% of global foundry revenue and more than 90% of leading-edge chip manufacturing, the stakes extend far beyond the region itself. This may explain the recent stances of the United States, Japan, and their regional allies on an intervention in the case of an escalation by China.

Japan and the US, both major players in the semiconductor industry and reliant on Taiwan for supplies, have made their opinions relatively clear to protect their national interests. The United States alone imports 44% of its most advanced logic chips from Taiwan, while analysts speculate a 14.7% drop in Japan’s GDP in the case of a US-China war over Taiwan. In late 2025, Japan’s Prime Minister Sanae Takaichi reportedly commented on defending the region, highlighting tensions and deteriorating relations with China. Meanwhile, President Trump reportedly downplayed the drills during a press conference held on December 30th, 2025, likely to encourage de-escalation. This U.S. statement coincided with an 11-billion-dollar arms sale to Taiwan, underlining the intricacy of Washington’s position.

All in all, the current geopolitical situation in Taiwan alternates between periods of increasing and decreasing tensions, evident in the consistent threats by China and how quickly they seem to be appeased. The true elephant in the room, though, seems to be the constantly higher stakes threatening people and markets. With Taiwan’s geopolitical and economic importance in mind, this is a potential crisis not to be underestimated. As the world stands by looking, the importance of diplomacy has never been more evident on the international stage.