Taiwan Chip Reliance Risks 'Economic Apocalypse,' Warns Bessent

The global economy faces a severe systemic risk from its overwhelming reliance on Taiwan for advanced semiconductors, U.S. Treasury Secretary Scott Bessent warned on January 20. He stated that any disruption to the island's manufacturing could spark an "economic apocalypse."

Speaking at the World Economic Forum in Davos, Bessent highlighted a critical vulnerability: "the single biggest point of failure is that 97 percent of the high-end chips are made in Taiwan." He added, "If that island were blockaded, that capacity were destroyed, it would be an economic apocalypse."

This warning comes as the Trump administration accelerates efforts to reshore critical supply chains. The focus is on semiconductors and critical minerals like rare earths, driven by ongoing tensions with China and the potential for trade disruption from a major military conflict in Asia.

Figure 1: U.S. Treasury Secretary Scott Bessent warns of systemic risks from semiconductor supply chain concentration at the World Economic Forum.

A Push to Rebuild Domestic Manufacturing

Bessent confirmed in Davos that Washington is prioritizing the relocation of more semiconductor manufacturing to the United States as a matter of national security and economic stability. "We are reshoring the semiconductor industry to the U.S. with the defense contractors," he said.

A Call for Defense Contractors to Invest

Bessent compared major U.S. defense contractors to systemically important banks, which receive special government support to prevent their failure from destabilizing the financial system. He argued that these contractors have a responsibility to invest in domestic production rather than returning capital to shareholders.

"The defense contractors are no different than the systemically important banks," Bessent asserted, noting they benefit from similar government oversight and support. He accused the contractors of failing to meet their obligations.

"They have let down the American people. They are five, six, seven years behind on fulfillment of their contracts," Bessent stated. "So I do not think it is unreasonable to tell them that until further notice, you need to build more factories and buy back less stock."

COVID-19 Was a Supply Chain 'Test Run'

The disruptions caused by the COVID-19 pandemic served as a crucial warning, Bessent explained. "I think the only good thing that came from COVID was it was a test run for what would happen if our supply chains were ever broken due to a kinetic war," he said.

The pandemic exposed vulnerabilities in about a half-dozen industries essential to U.S. national and economic security. "So we saw that there are five, six, seven key industries that we have to reshore," he noted, specifically naming rare earth magnets and semiconductors.

A Strategy to Counter China on Critical Minerals

Bessent detailed a plan for the United States to coordinate with allies to reduce its dependence on China for critical minerals. He warned that Beijing has weaponized its market position to undermine industrial projects in the U.S. and allied nations.

"We have seen what happens when the free markets get kind of perverted," he said, citing instances where U.S. companies attempting to launch critical mineral facilities were bankrupted by Chinese competitors intentionally lowering prices.

To combat this, the Trump administration plans to implement pricing mechanisms to support domestic producers. "We are going to put in a system, price floor, price ceilings," he announced.

The Treasury Department is helping to form a "critical minerals block" that includes the G7 nations along with Australia, India, Mexico, and South Korea. "We are working at warp speed to create a critical minerals block where we can mine, process, and refine critical minerals, and China won't have this sword over our heads," Bessent said.

When asked about a timeline for U.S. independence in refining critical minerals, Bessent estimated it would take "18 to 24 months." He pointed to recent progress, such as a new facility in his home state of South Carolina that is producing rare earth magnets for the first time in 25 years. He said producers believe they can meet most of the nation's needs within two years, adding, "And then we also want to help our allies, because the supply chain is important."

Bessent's comments in Davos are consistent with previous warnings he has made about the risks posed by Taiwan's chip dominance. His renewed focus on the issue follows a recent announcement by the U.S. Commerce Department of a major U.S.–Taiwan chips deal designed to expand manufacturing investment in the United States.