The Fate of the Global Economy  Rests With This Small Island

Somewhere in the spring of 2011, maybe it was autumn, I came to the realization that as advanced as America sort of is, it’s not as advanced as a lot of the rest of the world. And I came to that realization while sitting in a hotel room in Taipei, Taiwan.

I’d spent the better part of the afternoon at a Taiwanese brokerage firm and investment-research house in a high-rise overlooking the city. (For what it’s worth, Taiwan is a gorgeous island, if you’re looking for a unique vacation destination).

While sitting alone in the boardroom waiting for my meeting, I noticed the word OLED written on a whiteboard.

Branching out from the word were several lines leading to lots of other words, all written in Mandarin… or Taiwanese—I have no idea. Point it, I didn’t know the purpose of the lines, but given the exclamation marks and the repetitive underlining of certain words, I figured OLED must be important for some reason.

Which is why I Googled OLED the minute I settled back into my hotel room.

That’s when I realized the future of visual technology was clearly going to be OLED, or Organic Light-Emitting Diodes. It’s a type of lighting technology that was going to end up in paper-thin, wall-sized TVs… and electronic roadside billboards… and recordable video greeting cards.

I immediately sent a dispatch to my readers at the time, telling them what was coming with OLED technology that was taking over in Taiwan, and recommending they buy a particular maker of semiconductor chips specifically relevant to OLED production. (Those who followed my recommendation did quite well when the company was snapped up in a takeover at more than 2x my recommended price.)

I tell you all of this not because I’ve found another, similar investment.

I tell you because it underscores the importance of tiny little Taiwan in the great big world of technology.

Taiwan is an ant playing the role of whale shark.

It’s an apt description that is not in any way hyperbolic.

See, Taiwan is home to some of the most important tech companies in the world, including Taiwan Semiconductor Manufacturing Co.

TSMC, as it’s known, is the world’s single-most important maker of computer chips. It’s also the world’s most advanced maker of computer chips. These chips go into more than 12,000 products sold globally by nearly 550 companies.

If you’re reading this on an iPhone, thank TSMC.

The graphics cards on your laptop or desktop… likely powered by TSMC.

Those “Intel inside” chips… many are made by TSMC.

F-35 fighter jets and NASA’s Perseverance Rover roaming around Mars… TSMC chips run the processes.

Bingeing the latest Netflix series… TSMC powers many of today’s HD and OLED TVs (see—I was onto the OLED story nearly decade before the consumer products started popping up at Walmart and Best Buy).

Just how important TSMC is hides in plain view. The company last year collected more than $70 billion in chip sales. That controls about 54% of the global chip market… The next nine competitors combined don’t even reach that level.

All of this is important for one reason: China.

The Middle Kingdom hates that what it considers a breakaway island is not officially under Beijing’s political purview.

Beijing wants to rectify that situation, and that could very well involve miliary might.

Which would send an economic tsunami around the world far greater than Russia’s invasion of Ukraine.

If war did visit the island nation, you can bet China would either take out or take control of TSMC’s production facilities. If nothing else, those plants would very likely close in the early days and weeks.

And that would destabilize much of the global economy, because TSMC’s chips go into the production of so many products.

Prices for consumer goods would explode higher simply because a primary input is gone, like trying to make popcorn without the corn. I’m not just talking about TV and smartphones, mind you. I’m talking about chips populating production facilities that make food and medicines and medical supplies and engines and energy itself.

Global GDP would retreat. Deeply.

Global stocks (aside from energy and metals) would plummet.

And if the production plants survived the war, and China managed to gain control of them, it would give China’s leaders massive leverage over the global economy… and over the U.S., where so many companies are reliant on TSMC’s chips.

That’s the world we live in today. A world where an island the size of Maryland has the power to bring the world to its knees simply because of its technological leadership in computer chips.

Will any of this come to pass?

Impossible to say, because that’s betting on the aggressiveness of China’s leadership. Will they do nothing more than harass and hassle Taiwan with brief, military incursions into Taiwanese air and ocean space? Or will they decide that that type of military posturing is pointless and finally demand an invasion to reclaim the island as their own.

That would be a messy moment for America in terms of its standing with Taiwan, or its ability to stop China from exerting its will uncontested.

Either way, the global economy takes a gut punch and collapses to the canvas.

In that moment, you’ll be glad you own gold and Swiss francs. Bitcoin, too.

At this point, it’s all about preparing for what’s possible, rather than assuming the worst would never to come to pass.