Economics & Security
by Dr. Robert Kim, Director of Economic Security — July 21, 2026
The COVID-19 pandemic and Russia's invasion of Ukraine exposed profound vulnerabilities in global supply chains that had been optimized for efficiency rather than resilience. For decades, the prevailing paradigm in supply chain management prioritized just-in-time inventory systems, single-source suppliers, and the relentless pursuit of lower costs. The result was a global production system that was highly efficient under stable conditions but dangerously brittle in times of crisis.
The semiconductor supply chain represents perhaps the most critical vulnerability in the modern global economy. Advanced chips are essential for everything from military systems to consumer electronics, and their production is concentrated in a handful of companies and geographic regions. Taiwan Semiconductor Manufacturing Company produces over 90% of the world's most advanced chips. Any disruption to TSMC's operations, whether from military conflict, natural disaster, or geopolitical coercion, would have catastrophic effects on the global economy.
The strategic importance of semiconductor manufacturing has driven significant policy responses. The U.S. CHIPS and Science Act, the European Chips Act, and similar initiatives in Japan and South Korea represent efforts to reshore and diversify semiconductor manufacturing capacity. These investments, totaling hundreds of billions of dollars, reflect a recognition that semiconductor supply chain resilience is a matter of national security rather than merely industrial policy.
However, the timeline for building new fabrication facilities is measured in years, and the technical challenges are substantial. Even with unprecedented government investment, the United States is unlikely to achieve self-sufficiency in advanced semiconductor manufacturing before 2030. In the interim, maintaining stable cross-strait relations and ensuring the security of TSMC's operations remains a critical priority.
The energy transition and the growth of the defense industrial base have dramatically increased demand for critical minerals. China's dominance in the processing of rare earth elements, lithium, cobalt, and other strategic minerals creates significant vulnerabilities for Western economies. China accounts for approximately 60% of rare earth mining and over 85% of rare earth processing capacity.
The Department of Defense has identified a range of minerals as critical to national security, including rare earth elements used in permanent magnets for guidance systems and electronic warfare, lithium and cobalt for battery production, and gallium and germanium used in advanced semiconductors. China's 2023 export controls on gallium and germanium demonstrated the potential for supply disruption as a tool of economic coercion.
The pharmaceutical supply chain presents distinct challenges. The United States and European nations have become heavily dependent on India and China for the production of active pharmaceutical ingredients, with China accounting for approximately 80% of the global supply of certain key starting materials. This dependence creates vulnerabilities that extend beyond economic considerations to public health and national security.
Addressing supply chain vulnerabilities requires a coordinated approach among allies. The Indo-Pacific Economic Framework, the U.S.-EU Trade and Technology Council, and other multilateral initiatives are beginning to build frameworks for collective action. Key priorities include joint stockpiling of critical materials, coordinated investment in domestic manufacturing capacity, information sharing on supply chain risks, and the development of alternative supplier relationships.
The era of supply chains optimized solely for efficiency is over. Building economic resilience in an era of strategic competition requires sustained investment, careful risk management, and close coordination among allies. The costs of inaction far exceed the investments required to build more resilient systems.
IISFS