The China Post recently ran a scary article noting that "Chinese provocations against Taiwan could result in an extended disruption to the world's chip supply chain." But it's not just Chinese military action which could prove disruptive (which I'll get to in a minute). The major issue is that Taiwan will become the world's largest manufacturer of DRAM this year, and is already a top producer for notebook computers (82% global marketshare), motherboards (98%), and LCD monitors (72%). According to U.S.-Taiwan Business Council President Rupert Hammond-Chambers, who is quoted in the article, U.S. companies sourced an estimated $73.3 billion of technology products from Taiwan in 2006 alone, an increase of 11% increase over 2005.
Hammond-Chambers also notes that his council is "concerned about the potential costs to the United States if that critical supply chain is severed by "acts of god" such as an earthquake like that which struck in 1999, or if provocative actions undertaken by Beijing resulted in an extended supply chain disruption." It feels to me that North America might have too many eggs in one fragile supply chain basket when it comes to Taiwan. Perhaps the most prudent course of action for manufacturers who depend on the region would be to develop dual-source strategy options from other countries and suppliers in Southeast Asia. And as important, companies should develop an understanding of their extended supply chain exposure to Taiwan (especially where technology is embedded in products made by lower tier suppliers).