The restructuring of supply chains, particularly in the semiconductor industry, was an essential part of discussions last week between Taiwan and a US delegation led by US Undersecretary of State for Economic Growth, Energy and the Environment Keith Krach. It took precedent over the highly anticipated subject of bilateral trade partnerships, and Taiwan Semiconductor Manufacturing Co (TSMC) founder Morris Chang’s (張忠謀) appearance on Friday at a dinner hosted by President Tsai Ing-wen (蔡英文) for Krach was a subtle indicator of this.
Chang was in photographs posted by Tsai on Facebook after the dinner, but no details about their discussions were disclosed.
With the US and China locked in disputes on trade and technology, the administration of US President Donald Trump has sought international cooperation in shifting supply chains away from China since the start of the COVID-19 pandemic, while warning of the perils of relying solely on China. Washington has been stepping up those efforts ahead of the US presidential election in November.
The US delegation has expressed an interest in Taiwan’s semiconductor ecosystem, Minister of Economic Affairs Wang Mei-hua (王美花) told a news conference on Sunday.
It is no surprise that TSMC would be at the center of industrial supply chain realignments, given its technological leadership and massive customer pool. The Hsinchu-based company supplies chips to US technology heavyweights including Apple Inc, 5G chipmaker Qualcomm Inc and graphics processor designer Nvidia Corp. Huawei Technologies Co was TSMC’s second-largest client before Washington placed the Chinese tech giant on its “entity list,” barring US and foreign companies from shipping chips to Huawei without a US government license. TSMC stopped shipping chips to Huawei when export restrictions took effect on Tuesday last week.
Cutting off TSMC’s chip supply to Huawei has proved an effective way to thwart China’s progress in building its own semiconductor supply chain. Huawei’s semiconductor subsidiary, HiSilicon Technologies Co, designs Kirin 5G chips used in Huawei’s 5G smartphones, competing with Qualcomm and Taiwan’s MediaTek Inc.
Without 5G chips made with TSMC’s 5-nanometer technology, Huawei is also losing its newly claimed dominance over the smartphone market. TSMC is the world’s only chipmaker capable of producing 5-nanometer chips, the most advanced available. As a result, Huawei has been forced to backtrack on its handset offerings.
TSMC is also to help job creation and semiconductor production in the US, after it in May announced that it planned to spend US$12 billion building an advanced plant in Arizona to make 5-nanometer chips by 2024, a move that analysts said was prompted by heightened geopolitical tensions between the world’s two largest economies.
The facility is to have an installed capacity of 20,000 semiconductor wafers per month, TSMC said. The investment would decrease the US’ economic dependence on China, US Secretary of State Mike Pompeo has said.
Other Taiwanese manufacturers are also accelerating their movement of production out of China to avoid heavy US tariffs imposed on Chinese imports, which showcases their operational agility. Server and laptop maker Quanta Computer Inc is reportedly adding a third production line at its headquarters in New Taipei City’s Linkou District (林口), while iPhone assemblers Pegatron Corp and Wistron Corp are turning to India to build new manufacturing sites.
The exodus of manufacturers from China has become an irresistible trend, and Taiwan stands to benefit from this shift if it plays its cards right.
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