Apple’s iPhone relies on computer chips made in Taiwan

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Current events: news articles on Canvas have highlighted current and recent events relevant to the course that you could explain using the models and tools from the course. For example, the article “Krugman, Trade Theory, and Apples Chip Problems with TSMCs Earthquake Damage” from chapter 6 explores how Apple’s iPhone relies on computer chips made in Taiwan. There is a significant industrial cluster of semiconductor and computer chip production in Taiwan. You could explore the history of Taiwan’s semiconductor production, how the industrial cluster was formed, and the potential disadvantages of worldwide production of a certain product being concentrated in just a few places.

 

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The industrial cluster of semiconductor and computer chip production in Taiwan is an example of agglomeration economies, which are when firms benefit from the physical and social proximity of numerous other companies. This phenomenon occurs due to cost savings associated with concentration, such as shared infrastructure costs for labor, transportation, and intermediate goods (Fujita et al., 1999). Thus, this clustered setup allows for significant advantages in production efficiency.

Taiwan’s emergence as a central hub for semiconductor production can be traced back to the late 1960s when the United States began outsourcing its electronics manufacturing industry abroad (Khan & Rhee-Brown, 2018). Taiwanese companies were able to competitively produce low-cost components while still maintaining high quality standards. This established Taiwan as a global leader in electronic component manufacturing that has since become increasingly specialized in advanced semiconductors (Lam & Xu 2019).

However, there are also potential drawbacks associated with having a large portion of worldwide production concentrated into just one area. For instance, Apple recently experienced supply chain disruptions following a major earthquake near Taipei – where many of their suppliers are based – resulting in shortages on key components like computer chips (Krugman 2020). These issues highlight the risks associated with depending on single sources or countries for raw materials and/or finished goods. To mitigate this risk going forward, it may be beneficial to diversify supply chains by sourcing from multiple locations around the world.

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