The Perfect Storm
Taiwan is experiencing its worst drought in 56 years, with reservoir levels dropping to critical thresholds across the island. While agricultural impacts are immediately apparent, a less visible but potentially more devastating global consequence is emerging: the threat to semiconductor manufacturing. Taiwan Semiconductor Manufacturing Company (TSMC), which produces over 50% of the world’s contract chips and 90% advanced processors, requires massive amounts of ultra-pure water in its fabrication processes—up to 156,000 tons daily for a single large facility.
The Baoshan and Yongheshan reservoirs, which supply TSMC’s most advanced manufacturing sites, have fallen below 15% capacity. This has forced the government to implement water rationing measures that increasingly affect industrial users, creating a precarious situation for an industry that underpins everything from smartphones to automotive systems to military technology.
Taiwan’s drought isn’t merely a local concern but a global economic threat. The island typically receives substantial rainfall from typhoons between May and September, but climate change has disrupted these patterns. In 2020, no typhoons landed in Taiwan for the first time in 56 years, depriving it of crucial precipitation. Meteorologists attribute this anomaly to shifting Pacific weather patterns, potentially signaling a new climate reality for the island rather than a temporary aberration.
The government has implemented unprecedented measures, including cloud seeding operations, construction of emergency desalination plants, and redirecting water from southern regions less affected by the drought. Despite these efforts, the water shortage has reached crisis levels, with some municipalities restricting household water supplies to five days a week.
The Technical Challenge
Few outside the industry understand why semiconductor manufacturing is exceptionally water-intensive. The fabrication of advanced chips involves hundreds of precise steps, during which silicon wafers must be repeatedly cleaned to remove microscopic contaminants. A single dust particle can render a chip useless, so manufacturing requires water of extraordinary purity, beyond medical-grade standards.
This ultrapure water (UPW) contains less than 100 parts per trillion of contaminants (compared to drinking water’s parts per million standard). Creating UPW requires additional water in the purification process, with approximately 1.5 gallons of municipal water needed to produce 1 gallon of UPW. The current drought has forced TSMC to implement emergency measures, including trucking water from other regions and accelerating plans for water recycling plants.
The semiconductor fabrication process, particularly for advanced nodes like TSMC’s 5nm and upcoming 3nm chips, requires multiple precision washing steps between each lithography stage. As transistor sizes shrink to atomic scales, the cleaning requirements become even more stringent. A 300mm silicon wafer might undergo more than 30 separate washing procedures during production, each requiring ultrapure water. The water must be precisely temperature-controlled, as variations of even one degree can affect critical dimensions in nanometer-scale structures.
Over the past decade, TSMC has invested over $1 billion in water reclamation technology, achieving an impressive 86% recycling rate. However, the fundamental chemistry of semiconductor manufacturing means some water is inevitably lost through evaporation, chemical reactions, and discharge of irretrievably contaminated wastewater. Even with industry-leading conservation efforts, TSMC’s water footprint remains enormous, equivalent to the domestic usage of approximately 1 million Taiwanese citizens.
Global Supply Chain Implications
The timing of this water crisis couldn’t be worse. The global semiconductor industry was already struggling with unprecedented demand due to pandemic-driven digitalization, 5G rollouts, and increasing computational needs for AI applications. Major automakers, including Ford, GM, and Toyota, have already halted production lines due to chip shortages, with estimated industry losses exceeding $110 billion in 2023.
Analysts from Goldman Sachs estimate that 169 industries are directly affected by semiconductor availability, from obvious sectors like consumer electronics to less apparent ones like household appliance manufacturing and medical device production. If TSMC is forced to reduce production capacity by even 5% due to water constraints, the ripple effects could delay product launches across multiple industries and potentially accelerate inflationary pressures on technology products.
The supply chain vulnerabilities extend beyond finished products. Production slowdowns disrupt semiconductor materials suppliers, equipment manufacturers, and packaging facilities. The industry operates on a just-in-time manufacturing model with limited inventory buffers, meaning minor disruptions amplify quickly through the value chain. Apple, Qualcomm, AMD, and NVIDIA—all TSMC customers—have warned investors about potential product constraints if the situation deteriorates.
The drought has exposed how interdependent global technology ecosystems have become. Cloud computing services, which underpin everything from remote work platforms to streaming entertainment, depend on steady supplies of server processors. Medical imaging equipment, automotive safety systems, and telecommunications infrastructure rely on specialized chips that may face extended lead times. Even as companies attempt to diversify suppliers, the technical specialization of TSMC makes substitution difficult in the short term.
Geopolitical Dimensions
The crisis highlights the strategic vulnerability created by the geographic concentration of critical technology manufacturing. Taiwan’s dominant position in advanced semiconductor production has already been identified as a national security concern by multiple governments, and the U.S. CHIPS Act and similar European initiatives are designed to restore some manufacturing capacity.
China, which considers Taiwan part of its territory, has closely monitored the situation. Some security analysts suggest the semiconductor vulnerability creates additional leverage in cross-strait relations. Meanwhile, TSMC’s ongoing construction of fabrication facilities in Arizona faces scrutiny over water usage in another drought-prone region, raising questions about the sustainability of the industry’s water-intensive model in an era of climate change.
The semiconductor supply chain has become a central focus of international relations, with technology leadership increasingly viewed as a national security imperative. Japan has offered assistance to Taiwan with water technology, while South Korea—home to Samsung, TSMC’s primary competitor—watches for competitive shifts. The European Union has declared semiconductor independence a strategic priority, committing €43 billion to boost domestic chip production, partly motivated by Taiwan’s environmental vulnerabilities.
The water crisis has accelerated discussions about the need for geographic diversification in semiconductor manufacturing. Intel’s renewed focus on foundry services, Samsung’s expansion in Texas, and TSMC’s international growth reflect recognition that concentration in Taiwan presents systemic risks. However, building new fabrication facilities requires 3-5 years and billions in investment, meaning any meaningful diversification will take years to materialize.
Sustainable Solutions and Future Outlook
The semiconductor industry faces a fundamental challenge: reconciling water-intensive manufacturing processes with increasing environmental constraints. TSMC has pledged carbon neutrality by 2050, but addressing water consumption presents different technical challenges. The company is pioneering closed-loop water systems that aim to increase recycling rates beyond 90%, potentially reducing freshwater needs by 30% per wafer by 2030.
Emerging technologies may offer partial solutions. Dry lithography techniques, supercritical carbon dioxide cleaning, and plasma-based processes could reduce water requirements for specific manufacturing steps. Research into alternative cleaning agents and novel filtration methods shows promise, though implementation at production scale remains years away. The industry’s roadmap increasingly incorporates water efficiency alongside traditional metrics like transistor density and power consumption.
The Taiwan drought has served as a wake-up call for an industry prioritizing technological advancement over environmental resilience. As climate change increases the frequency of extreme weather events globally, semiconductor manufacturers are reassessing facility locations, water sources, and manufacturing processes. The crisis demonstrates that technological progress and environmental sustainability must be pursued simultaneously rather than sequentially.
For Taiwan, the immediate challenge is weathering the current drought while implementing longer-term adaptations. The situation underscores the urgent need to address supply chain vulnerabilities in critical technologies for the global economy. The semiconductor water crisis may ultimately accelerate innovation in chip manufacturing and water conservation—a necessity for sustainable technological progress in a resource-constrained world.