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Information Technology

IT Global Supply Chains: Taiwan, China, and Reshoring

Pomegra Learn

How Does Global Supply Chain Risk Affect IT Sector Investments?

The Information Technology sector's global supply chains represent one of the most geographically concentrated and strategically exposed industrial systems in the world. Advanced semiconductor manufacturing is concentrated in Taiwan. Smartphone assembly and consumer electronics production is concentrated in China. The most advanced chip equipment comes from a handful of companies in the Netherlands, Japan, and the United States. This concentration creates systemic risk that no individual company can fully mitigate — and that represents a permanent background concern for IT sector investors that periodic geopolitical events bring sharply into focus.

Quick definition: IT global supply chain risk refers to the vulnerability of technology product manufacturing and delivery to geographic concentration in geopolitically sensitive regions, trade policy changes, natural disasters, and adversarial government actions — with Taiwan, China, and US-China technology policy at the center of current investor concern.

Key takeaways​

  • TSMC in Taiwan manufactures roughly 90% of the world's advanced (sub-5nm) chips, creating unique concentration risk
  • China manufactures approximately 85% of the world's consumer electronics assembly
  • US export controls have disrupted technology supply chains connecting US companies to Chinese customers
  • CHIPS Act investments and geopolitical diversification are reshaping supply chains over a 5–10 year horizon
  • Supply chain disruptions create both risks (existing positions) and opportunities (domestic beneficiaries)

The Taiwan semiconductor concentration problem​

Taiwan Semiconductor Manufacturing Company (TSMC) is simultaneously the most essential manufacturing company in the global technology supply chain and the most geopolitically exposed. TSMC fabricates the chips for Apple's iPhone processors, Nvidia's AI GPUs, AMD's CPUs, Qualcomm's mobile processors, and hundreds of other companies' critical components. No other company can manufacture the most advanced chips at anywhere near TSMC's volume, quality, and technical sophistication.

The strategic problem is that TSMC's primary fabs are located in Taiwan, an island that China claims as sovereign territory and has threatened militarily on multiple occasions. A Chinese military action against Taiwan — whether an invasion, blockade, or targeted attack on semiconductor infrastructure — would immediately disrupt global technology supply chains to an extent that would cause an economic crisis of unprecedented severity.

This risk is widely recognized but difficult to price. The probability of major military conflict is assessed by most experts as low in the near term but non-trivial over a 10–20 year horizon. The economic consequences if it materialized would be catastrophic for the global technology industry. Most investors accept this tail risk as part of owning technology stocks, but it represents a genuine portfolio risk that should inform position sizing decisions.

TSMC is mitigating this concentration by building advanced fabs in Arizona (with US CHIPS Act support), Japan (with Japanese government subsidies), and planning European facilities. These new fabs will take years to reach the technical sophistication of TSMC's Taiwan processes, and Taiwan will remain dominant in leading-edge manufacturing for the foreseeable future.

China's manufacturing dominance in consumer electronics​

Beyond semiconductors, China's manufacturing ecosystem is the assembly hub for the global consumer electronics industry. Apple assembles roughly 85–90% of its iPhones in China, primarily through contract manufacturers led by Foxconn. Samsung, Dell, HP, and virtually every major consumer electronics brand rely heavily on Chinese assembly.

This concentration creates several categories of risk:

Tariff risk: US tariffs on Chinese-made goods directly increase the cost of consumer electronics imported into the United States. The tariff escalations of 2018–2019 created significant cost pressure for companies heavily dependent on China manufacturing.

Regulatory risk: Chinese government regulatory actions targeting specific companies or industries can disrupt production. Apple's supply chain was disrupted in late 2022 when Foxconn's Zhengzhou iPhone factory — which assembled roughly 70% of iPhone Pro models — faced COVID-related shutdowns and worker protests.

Geopolitical escalation risk: Escalating US-China tensions — over Taiwan, trade policy, technology exports, or other issues — create risk of sudden supply chain disruption that companies cannot easily anticipate or rapidly mitigate.

How it flows​

Diversification away from China​

Major technology companies have been accelerating supply chain diversification in response to US-China tensions and pandemic-era disruptions. The primary alternative manufacturing destinations are:

India: Apple has significantly increased iPhone assembly in India, with Foxconn and Tata Electronics building manufacturing capacity. India has a large skilled workforce, government incentives for electronics manufacturing, and geopolitical alignment with Western technology supply chain goals.

Vietnam: Already a major electronics manufacturing hub for Samsung, LG, and Intel, Vietnam is expanding its technology manufacturing capacity. Its proximity to China, lower labor costs, and stable government make it an attractive alternative.

Mexico: Nearshoring — moving manufacturing closer to the US market — is driving technology manufacturing investment in Mexico, particularly for electronics serving the North American market.

This diversification is a multi-year process. Replicating China's manufacturing ecosystem — its supplier networks, skilled workforce, logistics infrastructure, and production efficiency — in other countries takes a decade or more. Companies are making progress but remain heavily dependent on Chinese manufacturing in the near term.

Export controls and their supply chain implications​

The US Commerce Department's Bureau of Industry and Security (BIS) has implemented a series of export controls restricting the sale of advanced semiconductors, semiconductor manufacturing equipment, and related technology to China. These controls are detailed in Export Administration Regulations available at commerce.gov.

For semiconductor equipment companies (Applied Materials, Lam Research, KLA, ASML), the controls restrict sales of certain equipment to Chinese chip fabs below specified technology thresholds. China represented approximately 25–30% of semiconductor equipment revenue before controls tightened; restrictions have reduced this but companies have sought to identify which equipment remains permissible.

For Nvidia, the controls restrict sales of its most capable AI chips (H100, H800) to Chinese companies. Nvidia developed downgraded versions (H20, L20) that nominally comply with the controls, but subsequent tightening of regulations has restricted these products as well, limiting Nvidia's China AI chip revenue.

Real-world examples​

Apple's iPhone supply chain diversification journey illustrates the complexity and timeline of shifting away from China. Apple began discussing supply chain diversification after the 2018 tariff escalations. By 2024, approximately 10–14% of iPhone production had moved to India — a significant increase from near-zero in 2018, but still far below the 85%+ China concentration. Achieving meaningful diversification for complex products requiring extensive supplier ecosystems takes years.

The 2022 Taiwan Strait crisis — when China conducted military exercises surrounding Taiwan following US House Speaker Nancy Pelosi's visit — provided a vivid reminder of geopolitical risk. While no military action occurred, the exercises created significant market nervousness about technology supply chains and contributed to investor concern about Taiwan concentration risk. Semiconductor stocks fell sharply during the period of heightened tension, illustrating how geopolitical news can create immediate price dislocations in technology stocks.

Common mistakes​

Treating diversification announcements as completed supply chain restructuring. When Apple announces plans to expand India manufacturing or when Intel announces a new US fab, investors sometimes react as if the risk is resolved. In reality, these are multi-year programs with significant execution risk. Near-term supply chain concentration remains even as long-term diversification progresses.

Ignoring supply chain risk until a crisis materializes. Supply chain risk is a background concern that investors tend to discount during periods of geopolitical calm and suddenly reprice dramatically when a crisis erupts. Building some geopolitical risk premium into technology company valuations — rather than pricing them as if supply chains are frictionless — is more defensible risk management.

FAQ​

Is the Taiwan risk priced into semiconductor stocks?​

Some risk premium for Taiwan concentration appears to be embedded in semiconductor valuations — TSMC has historically traded at a discount to comparable US semiconductor companies, partly reflecting geopolitical risk. But the full potential economic impact of a Taiwan conflict is so large that it is arguably uninsurable and impossible to fully price in equity markets.

What would happen to technology stocks in a Taiwan conflict scenario?​

A major Taiwan conflict would be catastrophic for technology sector valuations broadly. GPU, smartphone, PC, and server production would be severely impaired. Alternative chip manufacturing capacity globally could not come close to replacing TSMC's output in the near term. The technology sector would likely fall 40–60% or more in such a scenario, and the broader economy would enter severe recession.

Summary​

IT sector global supply chains carry deep geographic concentration risk — primarily in Taiwan for advanced semiconductors and China for electronics assembly — that creates systemic vulnerability to geopolitical escalation, trade policy changes, and natural disasters. CHIPS Act investments and corporate diversification toward India, Vietnam, and Mexico are gradually reducing concentration but will not eliminate it within the next decade. Investors in the IT sector must monitor supply chain developments as a persistent background risk factor, recognizing that geopolitical events can create rapid, severe price dislocations in technology stocks that are disproportionate to their near-term earnings impact.

Next​

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