The Supply Chain Wildcard: How a Taiwan Strait Crisis Could Reshape Global Trade and ASEAN’s Role
A disruption in the Taiwan Strait would extend far beyond East Asia, exposing global supply-chain vulnerabilities while creating both risks and opportunities for ASEAN.
The global economy has spent the past several years learning a difficult lesson: supply chains built primarily for efficiency can become vulnerable when geopolitical, environmental, or logistical disruptions occur.
The Taiwan Strait presents one of the most significant potential risks in international supply chain because of its importance to maritime trade and the concentration of advanced semiconductor production in Taiwan. However, this does not mean a crisis is inevitable. With the Middle-East as the most recent example of supply chain disruption, preparing for low-probability, high-impact disruptions has become an increasingly important part of economic resilience.
For ASEAN, the implications would be particularly significant. The region is already deeply integrated into Asian manufacturing and trade networks. A major disruption could reduce demand for ASEAN exports and raise transport and input costs, while simultaneously creating opportunities for the region to attract investment seeking greater geographic diversification. There is no sides here. The question is simply whether ASEAN can become resilient enough to absorb a major external shock while taking advantage of this with its unique strengths and position in the global economy ASEAN Leaders’ Declaration on Enhancing Supply Chain Connectivity, 2024.
Key Facts
The Taiwan Strait is a major maritime corridor linking East Asian production centres, energy suppliers, manufacturing economies, and global markets, with approximately 21% of global maritime trade—worth about US$2.45 trillion—transited the strait in 2024 Crossroads of Commerce: How the Taiwan Strait Propels the Global Economy, 2024 33% of China’s Imports and 58% of Seaborne Imports Pass Through Taiwan Strait, 2026.
Taiwan remains a critical center of advanced semiconductor manufacturing, although production capacity is increasingly being diversified geographically. ASEAN-focused research identifies Taiwan as one of the most important economies in the global semiconductor ecosystem, while noting the growing importance of Southeast Asia in assembly, testing, packaging, electronics and supporting activities ASEAN in the Global Semiconductor Race, 2024.
ASEAN already plays a major role in global electronics and semiconductor supply chains, accounting for approximately 23–24% of global semiconductor exports according to Invest ASEAN Advanced Manufacturing, 2026.
ASEAN’s semiconductor ecosystem spans design, manufacturing, assembly, testing, packaging, and supporting activities across several member states ASEAN Investment Report 2025, 2025.
ASEAN attracted approximately US$12 billion annually in semiconductor investment between 2021 and 2024, equivalent to 12% of global greenfield semiconductor investment ASEAN Investment Report 2025, 2025.
ASEAN’s economic ministers and leaders have repeatedly emphasised supply-chain resilience, diversification, digitalisation and regional coordination amid growing global uncertainty Framework on ASEAN Supply Chain Efficiency and Resilience, 2024.
Understanding the Taiwan Strait’s Supply-Chain Importance
A Concentrated Semiconductor Ecosystem
Semiconductors are among the most important components in the modern economy.
They power smartphones, computers, automobiles, telecommunications equipment, medical devices, industrial machinery, and increasingly sophisticated digital systems. Everything we use in daily life. Taiwan occupies an especially important position in advanced semiconductor manufacturing, reflecting its decades of investment in engineering expertise, supplier networks, research capabilities and industrial clustering Advancing Forward-Looking Semiconductor Talent and R&D, 2011 How Taiwan Came to Dominate the Global Chip Industry, 2026. This is not something that can be replicated quickly. An ASEAN-focused research has concluded that this decades of investment has led to a highly specialized global system involving design, equipment, materials, fabrication, assembly, testing, packaging and logistics. A disruption in one major production center will have ramifications beyond the location where the disruption begins ASEAN in the Global Semiconductor Race, 2024.
Why Diversification Takes Time
Fortunately, the global semiconductor industry is already diversifying. New production capacity is being developed in different regions, while companies are expanding operations across Southeast Asia, with the region attracting around US$12 billion annually in semiconductor investment ASEAN Investment Report 2025, 2025. But a strong semiconductor ecosystem require enormous capital investment, specialized workers, infrastructure, and years of development. It took Taiwan decades of investment and research to reach where they are today. Diversification cannot happen overnight.
The 2021 Chip Shortage Offered a Warning
The global semiconductor shortage during the COVID-19 pandemic demonstrated how quickly disruption in one part of the supply chain could have a casacding effect across multiple industries. Automotive production and electronics manufacturers faced shortages, while companies competed for limited supplies; resulting in scarcity of raw goods leading to longer lead times, production backlogs, and higher prices for chips and related goods. Understanding Systemic Disruption from the Covid-19-Induced Semiconductor Shortage for the Auto Industry, 2022 Automotive Market Set to Recover in 2021 with Yearly Sales of 84 Million Vehicles, While 12-inch Fab Capacities for Automotive Semiconductor Undergo Most Severe Shortage, 2021 A Tumultuous Road Ahead for Global Markets, 2021. While a potential Taiwan Strait disruption would be different in scale, the 2021 chip shortage provided a taste of what could happen of the economic consequences of semiconductor concentration.
What a Major Disruption Could Mean
Immediate Effects: Trade and Logistics
The Taiwan Strait is a major maritime corridor, carrying substantial flows of commercial shipping between East Asian production centers and global markets Safeguarding Freedom of Navigation in the Taiwan Strait, 2026 Crossroads of Commerce: How the Taiwan Strait Propels the Global Economy, 2024. A prolonged disruption could force vessels to alter routes, increasing voyage times, fuel consumption, insurance premiums and freight costs.
Medium-Term Effects: Manufacturing
As inventories were depleted, industries dependent on affected components could begin reducing production. Automotive manufacturers could face shortages of electronic components. Consumer-electronics producers could experience delays in product launches and price increases. More importantly industrial-equipment and medical-device manufacturers could also face difficulties sourcing specialized components, leading to cascading effect to many individuals. Understanding Systemic Disruption from the Covid-19-Induced Semiconductor Shortage for the Auto Industry, 2022 World Economic Situation and Prospects, 2022 Methods and Data, 2024. The true impact of this manufacturing shock would depend on the specific components affected and the availability of alternative suppliers.
Longer-Term Effects: Restructuring
A prolonged disruption would likely accelerate a trend that is already underway: supply-chain diversification. Companies would look to increase inventories, establish additional suppliers, and move some production to alternative locations. The trade-off would be higher costs. Research on semiconductor supply chains identifies larger inventories, multiple suppliers, and geographically dispersed production as key risk-mitigation measures, but acknowledge these changes would increase costs and require investment Semiconductor Supply Chain Resilience and Disruption, 2025. A supply chain with multiple suppliers and production locations is generally more resilient, but it can also be less efficient than a highly concentrated system. The result could be a structural shift from maximum efficiency towards a greater balance between efficiency and resilience Shock-Proofing the Semiconductor Supply Chain, 2022 Resilience of the Semiconductor Supply Chain, 2022.
Sectoral Impact: Where the Shock Would Be Felt
Semiconductors and Electronics
The most obvious answer is that the advanced semiconductor supply would likely be among the most impacted. But the impact would not necessarily be limited to the most advanced chips. Processors and microcontrollers control industrial machinery, vehicles, and electronic systems and power semiconductors regulate voltage, current, and energy conversion in applications ranging from electric vehicles to factory automation From Chips to Chances, 2025 Why the Automotive Chip Crisis Isn’t Over (Yet), 2022 Semiconductors 101: A Guide to Today’s Core Technology, 2025. The greater the duration of disruption, the greater the pressure on alternative suppliers.
Automotive Manufacturing
Modern vehicles contain substantial amounts of semiconductor technology.
Electric vehicles require even more sophisticated electronics for battery management, power systems, connectivity and automated functions. ASEAN’s investment reporting identifies automotive, electronics and semiconductors as important supply-chain-intensive sectors ASEAN Investment Report 2025, 2025. A prolonged shortage could therefore affect vehicle production and supply chains across Asia.
Healthcare and Telecommunications
Medical equipment increasingly depends on electronics and semiconductors. Telecommunications infrastructure, data centers and digital networks likewise depend on complex hardware supply chains. ASEAN’s digital and connectivity agendas recognise the need for resilient digital infrastructure, reliable regional networks and stronger supply-chain security for digital products and services ASEAN Plus Three Leaders’ Statement on Strengthening Regional Supply-Chain Connectivity, 2024.
ASEAN loss is also its win
ASEAN Would Face Risks First
ASEAN is highly dependent on international trade. Its combined exports and imports exceed 95% of regional GDP, and several members have trade-to-GDP ratios above 100%. Pathways for Deeper Economic Integration, 2026 Prosperity and Income Inequality Dynamics in Selected ASEAN Countries, 2025. A major global manufacturing shock could reduce external demand, disrupt intermediate-goods supplies and increase shipping and insurance costs. The region’s proximity to the Taiwan Strait would also make it particularly sensitive to changes in regional maritime traffic. ASEAN therefore should not assume that a disruption automatically means more investment. Its leaders have recognized the need foor redundancy and have been putting effort into of improving supply-chain connectivity, and increasing the resilience of regional production networks ASEAN Leaders’ Declaration on Enhancing Supply Chain Connectivity, 2024.
But ASEAN Could Also Attract Diversification
Over the longer term, however, companies seeking to diversify production could increase investment in Southeast Asia. ASEAN already accounts for approximately 23–24% of global semiconductor exports, demonstrating that it is not simply a potential future player but an existing part of the semiconductor ecosystem Advanced Manufacturing, 2026.
The ASEAN Investment Report 2025 shows that semiconductor investment is distributed across several member states and includes manufacturing, electronics, semiconductor-related activities, and supporting industries ASEAN Investment Report 2025, 2025. This provides an important foundation. The region’s opportunity would be to strengthen those existing capabilities rather than attempt to build an entirely new industry from scratch.
ASEAN’s Strategic Opportunity and Next Steps
A major crisis would not automatically benefit ASEAN. But the region can use it to its advantage by offering something multinational companies increasingly value: Reliable diversification.
1. Map Critical Supply Chains
ASEAN should identify which semiconductor, electronics, automotive, and industrial components would be most vulnerable to major regional disruptions. They should then should encourage companies to develop production networks spanning multiple member states where one economy could focus on design, another could specialize in assembly and testing, with another could provide components or materials and so forth. ASEAN’s semiconductor framework and supply-chain resilience agenda provides a basis for developing a regional map of production facilities, suppliers, logistics hubs, critical inputs, energy infrastructure and potential bottlenecks ASEAN Framework for Integrated Semiconductor Supply Chain, 2025 Framework on ASEAN Supply Chain Efficiency and Resilience, 2024, highlighting a good starting point.
2. Strengthen Intra-ASEAN Production Networks
Governments should make it easier for companies to distribute production across multiple ASEAN economies. The ASEAN Economic Community’s emphasis on supply-chain resilience, investment, connectivity and regional production networks provides a foundation for responding to external shocks. With ASEAN's strength coming from it's diverse and unique economies, leveraging this to maximise each members strengths is paramount. This means improving customs systems, logistics connectivity, digital trade, and regulatory interoperability so they can work as a single machine. The ASEAN Single Window and regional supply-chain initiatives provide existing foundation for this ASEAN Single Window and Trade Facilitation, 2023.
3. Attract Higher-Value Investment
ASEAN should use the current investment cycle to move beyond basic assembly.
Semiconductor design, advanced packaging, testing, equipment, materials and R&D should all be part of the region’s industrial strategy. ASEAN attracted approximately US$12 billion annually in semiconductor investment between 2021 and 2024. The challenge now is to use that investment to build deeper supplier networks, stronger research capabilities, and greater regional value capture ASEAN Investment Report 2025, 2025.
4. Build Strategic Reserves Where Appropriate
Governments and businesses should assess whether selected critical components require larger inventories or alternative suppliers. They should identify the components where a shortage would create disproportionate economic damage, prioritising inputs that are hard to substitute, essential to multiple downstream sectors, or subject to long replacement times. Such assessments should be based on sector-specific supply-chain mapping, import dependence, replacement times, strategic importance, and the availability of alternative suppliers Vulnerabilities in the Semiconductor Supply Chain, 2023 Assessment of Vulnerability to Disruptions to the Supply of Semiconductors, 2026 Supply Chain Resilience: A Review from the Inventory Management Perspective, 2024.
5. Preserve ASEAN’s Strategic Autonomy
ASEAN should prepare for geopolitical shocks without turning economic policy into bloc politics. Its current geopolitical advantage is its ability to maintain relationships across major economic powers, with China being ASEAN’s largest trading partner, while the United States remains a major investment and trading partner. A Taiwan Strait crisis could put those relationships under considerable pressure. Therefore they should avoid treating supply-chain resilience as synonymous with choosing one economic bloc over another.
Diversification should mean more options, not fewer relationships. As asserted in our previous articles, the region’s strength lies in maintaining broad economic relationships while building its own resilience ASEAN 2045: Our Shared Future, 2025, ASEAN Economic Integration Brief, 2024. It should not aim to put itself inbetween these superpowers.
Conclusion: Preparing for an Uncertain Future
A Taiwan Strait crisis would represent a major shock to global trade. The precise economic consequences would depend on the nature and duration of the disruption, but the potential exposure is significant because of the waterway’s importance to maritime commerce and Taiwan’s role in advanced semiconductor manufacturing ASEAN in the Global Semiconductor Race, 2024. Fortunately, ASEAN, already has many of the ingredients needed to become more resilient such as manufacturing capacity, semiconductor expertise, strategic ports, and increasingly interconnected markets ASEAN Investment Report 2025, 2025 ASEAN Connectivity Strategic Plan, 2025.
The next step however is for ASEAN to build on these foundations and strengthen its internal supply chains, diversify critical inputs, improve logistics and attract investment into higher-value industries. The ultimate aim would be to building enough capacity and connectivity that no single disruption can bring an entire regional production system to a standstill.
For ASEAN, the goal should not be to predict where the next crisis will come from. It should be to build an ASEAN economy capable of absorbing the shock when one arrives Framework on ASEAN Supply Chain Efficiency and Resilience, 2024.
Frequently Asked Questions
Why would a Taiwan Strait crisis affect the global economy?
The Taiwan Strait is a major maritime trade route, while Taiwan is an important centre of advanced semiconductor manufacturing. A major disruption could therefore affect both the movement of goods and the supply of critical components used by industries around the world.
How could a Taiwan Strait crisis affect semiconductor supplies?
The impact would depend on the nature and duration of the disruption. A prolonged interruption to semiconductor production or exports could create shortages, particularly for advanced chips and other components used in electronics, automobiles, telecommunications equipment and industrial products.
Would ASEAN benefit from a Taiwan Strait crisis?
ASEAN would initially face significant risks, including disrupted trade, higher shipping costs, component shortages and weaker external demand. Over the longer term, however, companies seeking to diversify their supply chains could increase investment in ASEAN manufacturing and semiconductor facilities. The outcome would therefore depend on ASEAN's ability to provide reliable and diversified production capacity.
Would companies move all their semiconductor production to ASEAN?
Unlikely. Semiconductor supply chains are highly specialised and require significant capital, technology and expertise. ASEAN's more realistic opportunity is to become an important additional production base, particularly in areas such as assembly, testing, packaging, electronics manufacturing, design and selected higher-value semiconductor activities.
How could ASEAN make its supply chains more resilient?
ASEAN could strengthen regional supply chains by diversifying suppliers, improving cross-border logistics, harmonising regulations, strengthening digital trade systems, developing semiconductor and electronics capabilities, and encouraging companies to establish production across multiple member states.
Why is supply-chain diversification important for ASEAN even without a crisis?
Diversification can protect ASEAN from a wide range of disruptions, including natural disasters, pandemics, geopolitical tensions, trade restrictions and logistics disruptions. Building multiple suppliers and production locations can make the region more resilient while also attracting investment.
What should ASEAN do now to prepare for potential supply-chain disruptions?
ASEAN should map critical supply chains, identify vulnerable components, strengthen intra-ASEAN production networks, improve logistics and customs connectivity, attract higher-value semiconductor investment and encourage companies to develop alternative suppliers. The objective should be greater resilience without unnecessarily disrupting existing trade relationships.
