Increasing Unpredictability of China's Military Pressure in the Taiwan Strait and Semiconductor Supply Chain Risks

Executive Summary

In August, China responded to Taiwan’s Han Kuang exercises not with large-scale counter-drills, but with silence followed by brief, dismissive commentary. This marks a shift to its own ambiguity tactic, designed to make the timing and intensity of its reactions unpredictable. This change is the result of two converging conditions: a U.S. aircraft carrier gap in the Western Pacific caused by the prolonged conflict with Iran, and deepening public alienation from China within Taiwan. Taiwan’s Ministry of National Defense assesses that China is learning in real time about the limits of America's ability to respond to two simultaneous theater conflicts. Traditional early-warning indicators, such as large-scale military aircraft incursions or the size of exercises, are losing their validity in the face of gray-zone pressure, including constant vessel incursions that reached a record high of 244 in July. The baseline scenario, with a 55% probability, is a path where this pressure becomes a constant feature of cumulative uncertainty rather than a reaction to specific events. This will act as a persistent risk premium on the semiconductor supply chain, not a physical blockade. South Korean companies and the government should avoid betting on a single scenario. Instead, they need to pursue dual sourcing for foundry and back-end processes, establish independent monitoring systems, and adopt an approach that manages semiconductor supply chain risks separately from geopolitical risks.

I. Situational Analysis

Increasing Unpredictability of China's Military Pressure in the Taiwan Strait: A Situational Analysis

1. Background and Developments

The institutional roots of tensions in the Taiwan Strait trace back to the policy of peaceful reunification introduced by Deng Xiaoping in 1979. At the time, Beijing's calculus was that stable cross-strait relations were necessary for economic development [2]. This premise began to erode in 2019 during the period surrounding the Hong Kong National Security Law. Taiwanese public opinion shifted sharply after observing Beijing's harsh crackdown on Hong Kong's pro-democracy protests. Support for gradual independence doubled from 12.8% in 2018 to 25% in 2019. Over the same period, support for unification plummeted from 12.8% to the 6-7% range [2].

Since then, the Chinese military has escalated its pressure by deploying forces in the air and sea around Taiwan on an almost daily basis [1]. Taiwan has been wary of these actions, viewing them as part of an attempt to assert sovereignty over its territory. The turning point came this past August during Taiwan’s annual Han Kuang exercises. China remained silent until the exercises concluded, after which it issued only brief, dismissive commentary [2][9]. This response stands in stark contrast to its previous pattern of conducting large-scale military exercises in direct response to the drills.

During this period, a structural gap also emerged in the U.S. Navy's force posture in the Western Pacific. Due to the prolonged conflict with Iran, the USS Abraham Lincoln set an unusual record with a continuous deployment of over 260 days [9]. To compensate, the U.S. Navy redeployed the Yokosuka-based USS George Washington to the Middle East. This created a vacuum in the Western Pacific, leaving the region with no aircraft carrier presence [9][13]. Taiwanese security authorities assess that China used this period of strategic vacuum as a testbed to shift its mode of response.

2. Current Situation

In its annual threat assessment, Taiwan’s Ministry of National Defense (MND) characterized China as an “unpredictable” actor [1]. The key judgment of Taiwanese authorities is that the very manner in which China is strengthening its control over the air and sea around Taiwan has changed. In the same assessment, Taiwan pointed out that China is learning from the problems revealed during U.S. operations concerning Iran [1]. This reflects Taipei’s concern that Beijing is analyzing the limits of America’s capacity to respond to two simultaneous theater conflicts through a real-world case study.

Activity by official Chinese vessels around Taiwan reached 244 instances in July, setting a record high for the third consecutive month [25]. This signifies a shift in the form of pressure, moving from visible events like military exercises to constant vessel incursions. The Hong Kong-based South China Morning Post (SCMP) analyzed that the People's Liberation Army (PLA) is moving beyond competition over individual weapon performance toward a concept of 'systems warfare' that integrates intelligence, AI, communications, weapons, logistics, and infrastructure. Experts assess that the conflicts in Ukraine and Iran have demonstrated the power of integrated strikes, including those targeting civilian infrastructure [5].

Internally, Taiwan is also experiencing political conflict over its defense industry budget. A special bill promoted by the Executive Yuan to procure NT$240 billion (approximately US$7.6 billion) in domestically produced drones over six years met with bipartisan opposition in the Legislative Yuan. Ultimately, an amended bill proposed by the opposition coalition was passed [8][16]. While the disagreement between President Lai Ching-te's administration and the Kuomintang (KMT)-led opposition centers on how to foster the drone industry, it is rooted in fundamental differences in perspective on the proper defense posture against China's military pressure [14].

China's pressure campaign is also unfolding on the diplomatic stage. When Taiwan's Minister of Foreign Affairs, Lin Chia-lung, attended the Pacific Islands Forum (PIF) summit in Palau, Beijing issued a warning that there would be “consequences” [12][15]. At least five national leaders reportedly did not attend the summit, concerned about Beijing’s attempts to undermine the meeting [12]. This case demonstrates that the Taiwan Strait issue is impacting the diplomatic landscape across the entire Indo-Pacific region, extending beyond cross-strait relations.

3. Key Actors and Positions

The Taiwanese Governmenthas officially designated China's tactical shift as a new threat factor. By highlighting “unpredictability” as a key theme in its annual defense assessment, the government implies that the visible exercise patterns on which the existing early-warning system is based are no longer valid [1]. Concurrently, the Lai Ching-te administration is attempting to strengthen Taiwan’s asymmetric capabilities by procuring domestically produced drones, but the pace of budget execution is being slowed by partisan conflict within the Legislative Yuan [8][14][16].

The Chinese Government and the People's Liberation Army (PLA)have shifted to a low-intensity, high-frequency approach, replacing large-scale counter-exercises with silence followed by brief, dismissive commentary [2][9]. This is a different form of ambiguity from that of U.S. strategic ambiguity. Analysts suggest its purpose is to make the timing and intensity of Beijing's reactions unpredictable [2]. At the same time, China is attempting to curtail Taiwan’s activities on the international stage by taking issue with its participation in the PIF summit [12][15].

The United Stateshas revealed the physical limits of its ability to respond to two simultaneous theater conflicts due to its prolonged engagement concerning Iran [4][9]. The aircraft carrier gap in the Western Pacific is assessed not as a deliberate neglect of Asia by Washington, but as a consequence of a structural shortage of available forces [9][13]. A Council on Foreign Relations (CFR) report concluded that the U.S. military already lacks the required inventory of weapon systems and the industrial capacity to produce them in order to deter and defeat a Chinese invasion or blockade of Taiwan [4].

Taiwanese Semiconductor Companies, including TSMCare facing issues of supply chain trust, separate from geopolitical risks. The chairman of Gudeng Precision, referencing a country-of-origin labeling controversy involving Unimicron, emphasized that trust is the foundation of the Taiwanese supply chain’s global standing [10]. This suggests that, apart from military pressure, Taiwan's semiconductor industry is also revealing vulnerabilities related to country-of-origin and regulatory compliance issues.

4. Key Issues

The first issue is the neutralization of early-warning indicators. Traditional visible signals, such as large-scale military aircraft incursions and major counter-exercises, no longer serve as reliable indicators for reading China’s intentions [2][9]. The approach of silence followed by brief commentary makes it difficult for observers to distinguish between a crisis and a period of normalcy.

The second issue is the correlation between U.S. aircraft carrier deployments and tensions in the Taiwan Strait. The fact that the U.S. force gap in the Western Pacific coincided with the timing of China's tactical shift can hardly be seen as a coincidence [9][13]. If the U.S. Navy’s force deployment capacity remains structurally limited even after the conflict concerning Iran concludes, the threshold for China to apply gray-zone pressure will likely remain low.

The third issue is the changing nature of semiconductor supply chain risk. Taiwan’s semiconductor industry, including TSMC, is exposed not only to military conflict scenarios but also to non-military risks such as country-of-origin labeling and expanding export controls [10][18]. As unpredictable military pressure and firm-level regulatory compliance risks operate simultaneously, it is becoming increasingly difficult for supply chain managers to design responses based on a single scenario.

II. In-Depth Analysis

Increasing Unpredictability of China's Military Pressure in the Taiwan Strait: An In-Depth Analysis

1. Analysis of Root Causes

China's shift in its method of response was not an accidental choice. It is the result of precisely observing the limits of U.S. force deployment. In its annual threat assessment, Taiwan’s Ministry of National Defense explicitly stated that China is learning from the problems revealed during U.S. operations concerning Iran [1]. This means the U.S. military’s structural constraint—its inability to maintain a strong posture in two theaters simultaneously—was exposed in a real-world situation. China immediately incorporated this observation into its tactical adjustments in the Taiwan Strait.

The Han Kuang exercises served as the first test stage for these lessons. China remained silent until the exercises concluded, after which it issued only brief, dismissive commentary [2][9]. This was a deliberate abandonment of its previous pattern of large-scale counter-exercises. An EAI analysis assesses that this “suggests that China has begun to employ its own ambiguity tactic, designed to make the timing and intensity of its reactions unpredictable” [2]. The diagnosis is that the concept of strategic ambiguity, long maintained by the United States on the Taiwan issue, is now being appropriated by Beijing as its own tool.

A deeper factor behind this shift is the changing landscape of public opinion within Taiwan. Since the 2019 developments surrounding Hong Kong's National Security Law, support for gradual independence has jumped from 12.8% to 25%, while support for unification has plummeted from 12.8% to the 6-7% range over the same period [2][6]. With the rationale for “peaceful reunification” losing its persuasiveness in Taiwan, Beijing appears to be reassessing the political utility of conventional military exercises. This may be based on a judgment that the exercises merely expose Taiwanese society to predictable signals repeatedly, without contributing to a shift in public opinion.

2. Structural Context

Security Structure: The U.S. aircraft carrier gap in the Western Pacific provided the physical conditions for China’s tactical shift. The prolonged conflict concerning Iran led to the USS Abraham Lincoln’s unusually long deployment of over 260 consecutive days [9]. The U.S. Navy attempted to compensate by redeploying the Yokosuka-based USS George Washington to the Middle East, which in turn created a complete carrier vacuum in the Western Pacific [9][13]. A CFR report notes that the U.S. military has already lost the necessary inventory of weapon systems and production capacity to respond to a Taiwan invasion or blockade scenario [4]. This points to a diagnosis that the problem is not a temporary issue of carrier scheduling but a structural deficit in the defense industrial base.

Military Doctrine Structure: The PLA's tactical change is more than a one-off shift in response patterns. The SCMP has analyzed that the PLA is moving beyond competition in individual weapon performance to a concept of 'systems warfare' that integrates intelligence, AI, communications, weapons, logistics, and infrastructure [5]. The conflicts in Ukraine and Iran have demonstrated the destructive power of integrated strikes, including those on civilian infrastructure. The fact that Chinese vessel activity around Taiwan reached a record 244 instances in July [25] shows that this concept of integrated pressure is also being applied to routine gray-zone activities. An early-warning system that judges threat levels based on single, visible events loses its effectiveness in the face of this structural change.

Political Structure: The internal conflict over Taiwan's defense industry budget is a variable that constrains its very ability to respond to this security pressure. The special bill for a six-year, NT$240 billion drone procurement program, initially pushed by the Executive Yuan, was replaced in the Legislative Yuan by an amended version from the opposition coalition [8][16]. Although the conflict between the Lai administration and the KMT-led opposition is over how to foster the drone industry, the result is that a six-year political variable is now constantly embedded in the defense budget execution process. When China's unpredictability tactic is combined with Taiwan's internal political uncertainty, the consistency of Taiwan's security posture could be doubly undermined.

Economic Structure: The semiconductor supply chain is exposed to geopolitical risk in a way that is inseparable from this security pressure. Taiwanese semiconductor companies, including TSMC, maintain their leadership in leading-edge processes [11], functioning as a bottleneck in the global supply chain. The chairman of Gudeng Precision highlighted that trust is the foundation of Taiwan's supply chain, referencing a country-of-origin dispute involving Unimicron [10]. This suggests that the scope of supply chain risk now encompasses not only military tensions but also issues of trust surrounding trade norms. At the same time, the United States is considering expanding its controls on China's access to advanced computing resources, moving beyond physical chip exports to regulate remote access via overseas data centers [18]. With military ambiguity in the Taiwan Strait and the expansion of U.S. technology controls proceeding in parallel, the sources of supply chain risk are diversifying.

3. Comparison with Historical Precedents and Similar Cases

In the past, China’s pressure on Taiwan followed predictable patterns. During the 1995–96 Taiwan Strait Crisis, China's missile tests and military exercises were an explicit reaction to a clear trigger: President Lee Teng-hui's visit to the United States. Similarly, China's large-scale encirclement drills after U.S. House Speaker Nancy Pelosi's visit in 2022 were an immediate and visible counter-reaction to a specific event. In such cases, external observers could discern a relatively clear cause-and-effect relationship between the provocation and the response.

The situation surrounding the recent Han Kuang exercises may be recorded as the first departure from this pattern. Despite the clear trigger of the exercises, China chose silence. Its subsequent response was limited to brief commentary, disproportionate to the scale of the drills [2][9]. An EAI analysis defines this as a “response method different from the existing pattern of large-scale counter-exercises” and points out that “the effectiveness of visible early-warning indicators that South Korea has relied on, such as large-scale military aircraft incursions, is likely to diminish” [2]. Unlike the ambiguity tactics of the Soviet Union during the Cold War or America’s strategic ambiguity on Taiwan, it is difficult to find a precedent for this case, in which a major military power has weaponized ambiguity in real time, and specifically in a situation responding to a concrete provocation by an adversary.

The situation surrounding the Pacific Islands Forum (PIF) offers another relevant comparison. When a Taiwanese delegation attended the PIF summit in Palau with a higher profile than in previous years, China issued a warning that there would be “consequences” [12][15]. At least five national leaders reportedly chose not to attend the meeting [12]. Although this is diplomatic rather than military pressure, it aligns with the ambiguity tactic in the Taiwan Strait in that it involves responding with broad, warning-like messages rather than reacting proportionally to each of the adversary’s actions. The case of the Indonesian Navy conducting joint exercises with the Chinese military in waters east of Taiwan can also be interpreted in a similar context [13]. It represents a method by which China indirectly widens its encirclement by strengthening military ties with neighboring countries, rather than targeting Taiwan directly.

4. Key Variables Shaping Future Developments

First is the timing of the return of U.S. aircraft carrier strike groups to the Western Pacific. Regardless of whether the conflict concerning Iran concludes, the structural limitation of responding to two theaters simultaneously will not be resolved in the short term [9][4]. The longer the carrier gap persists, the greater the incentive for China to test the intensity of its gray-zone pressure.

Second is the political stability of defense budget execution within Taiwan. The partisan conflict surrounding the special drone procurement law [8][16] has the potential to be reignited repeatedly over the six-year budget execution period. Continued budgetary uncertainty will delay Taiwan’s ability to secure effective deterrence against China’s ambiguity tactics.

Third is the pace of differentiation in the hedging strategies of ASEAN countries. The extent to which China can expand its military footprint in the region will depend on whether Indonesia’s example of expanded military cooperation with Beijing [13] spreads uniformly to countries like the Philippines and Vietnam, or whether such developments unfold at different paces from country to country.

Fourth is the scope of expansion of U.S. semiconductor export controls. If the regulatory scope widens from physical chip exports to controlling remote access via overseas data centers [18], Taiwan’s supply chain will be caught in a structure of simultaneous pressure from two axes: Chinese military pressure and U.S. technology controls. In this case, the risk management calculus for Taiwanese companies like TSMC becomes a complex equation that cannot be explained by military variables alone.