As China pushes the world to avoid official dealings with Taiwan, leaders across the globe are realizing just how dependent they have become on the democratic nation.
Taiwan is being courted for its capacity to make leading-edge computer chips. That is mostly down to Taiwan Semiconductor Manufacturing Co, the world’s largest foundry and go-to producer of chips for Apple Inc smartphones, artificial intelligence and high-performance computing.
Taiwan’s role in the world economy largely existed below the radar, until it came to recent prominence as the auto industry suffered shortfalls in chips used for everything from parking sensors to reducing emissions. With automakers — including Germany’s Volkswagen AG, the US’ Ford Motor Co and Japan’s Toyota Motor Corp — forced to halt production and idle plants, Taiwan’s importance has suddenly become too big to ignore.
US, European and Japanese automakers are lobbying their governments for help, with Taiwan and TSMC being asked to step in.
German Chancellor Angela Merkel and French President Emmanuel Macron discussed the potential for shortages last year and agreed on the need to accelerate Europe’s push to develop its own chip industry, a French official with knowledge of the matter said.
The auto industry’s pleas illustrate how TSMC’s chipmaking skills have handed Taiwan political and economic leverage in a world where technology is being enlisted in the great power rivalry between the US and China — a standoff unlikely to ease under US President Joe Biden’s administration.
CHOKE POINT
Taiwan’s grip on the semiconductor business — despite being under constant threat of invasion by Beijing — also represents a choke point in the global supply chain that is giving new urgency to plans from Tokyo to Washington and Beijing to increase self-reliance.
By dominating the model developed by the US of outsourcing chip manufacture, Taiwan “is potentially the most critical single point of failure in the entire semiconductor value chain,” said Jan-Peter Kleinhans, director of the technology and geopolitics project at Berlin-based think tank Stiftung Neue Verantwortung.
The administration of former US president Donald Trump exploited that pinch point to deny Beijing access to technology. By banning access to all US chip technology including design, it was able to cut off the supply of semiconductors from TSMC and other foundries to Huawei Technologies, hobbling the advance of China’s biggest tech company.
It also negotiated with TSMC to establish a US$12 billion chip fabrication plant in Arizona. South Korea’s Samsung Electronics Co is set to follow, with a US$10 billion facility in Austin, Texas.
The “CHIPS for America Act” introduced in the US Congress last year aims to encourage more plants to be established in the US. US Representative Michael McCaul plans to reintroduce the bipartisan bill this year with a view to securing US$25 billion in federal funds and tax incentives.
McCaul said in a statement that he is working with colleagues in the US House of Representatives and Senate “to prioritize getting the remaining provisions of CHIPS signed into law as quickly as possible.”
News that Intel Corp, the onetime industry leader, was considering outsourcing production of some chips to TSMC under its former CEO underscored the need for a US player that can fabricate at the leading edge, said a member of the House Committee on Foreign Affairs staff who is not authorized to speak publicly.
The EU aims to bolster the bloc’s “technological sovereignty” through an alliance armed initially with as much as 30 billion euros (US$36.4 billion) of public-private investment to raise Europe’s share of the global chip market to 20 percent (without a target date) from less than 10 percent.
It is also encouraging Taiwan to increase investments in the 27-nation bloc, with some success. GlobalWafers Co, based in TSMC’s hometown of Hsinchu, just boosted its offer for Germany’s Siltronic AG to value the company at 4.4 billion euros, an acquisition that would create the world’s largest silicon wafer maker by revenue.
That is not to say Taiwan is the only player in the semiconductor supply chain. The US still holds dominant positions, notably in chip design and electronic software tools; ASML Holding NV of the Netherlands has a monopoly on the machines needed to fabricate the best chips; Japan is a key supplier of equipment, chemicals and wafers.
However, as the emphasis shifts to ever smaller, more powerful chips that require less energy, TSMC is increasingly in a field of its own. Moreover, it has helped Taiwan form a comprehensive ecosystem around it: ASE Technology Holding is the world’s top chip assembler, while MediaTek has become the largest smartphone chipset designer.
Tokyo is also wooing TSMC to set up in Japan. With ￥110 billion (US$1.06 billion) earmarked last year for research and development, and another ￥90 billion for this year, some of that might go to a TSMC facility, which reports have said the company is considering setting up in Japan.
“TSMC is becoming more and more dominant,” said Kazumi Nishikawa, an official working on technology issues at the Japanese Ministry of Economy, Trade and Industry. “This is something everybody in the chip industry must find a way to deal with.”
CYBERTHREAT
China, in its five-year plan presented in October last year, is channeling help to the chip industry and other key technologies to the tune of US$1.4 trillion through 2025. Yet even that kind of money does not negate the need for Taiwan.
Indeed, China has long tapped Taiwan for chipmaking talent; two key executives at China’s top chipmaker, Semiconductor Manufacturing International Corp, used to work at TSMC: co-CEO Liang Mong-song (梁孟松) and vice chairman Chiang Shang-yi (蔣尚義).
However, with Washington stymieing China’s progress, there is speculation that Beijing could resort to stealing chip intellectual property, with Taiwan at the heart of those endeavors.
Taiwanese cybersecurity firm TeamT5 has observed a steady increase in attacks on the local chip industry corresponding to the tightening of US export controls on China.
While it is not always possible to know if these are Chinese state actors, “they are all attacking the Taiwanese semiconductor industry,” T5 cyberthreat analyst Shui Lee said.
Fellow analyst Linda Kuo said that the Taiwanese government was alarmed by a ransomware attack on TSMC in 2018 and had announced plans for about US$500 million to help the industry become more aware of cybersecurity issues.
The greater worry is that TSMC’s chip factories could become collateral damage if China were to make good on threats to invade Taiwan if it moves toward independence.
TSMC’s capital spending of as much as US$28 billion for this year suggests it is going to stay out in front.
“Taiwan is the center of gravity of Chinese security policy,” said Mathieu Duchatel, director of the Asia program at the Institut Montaigne in Paris.
Yet while Taiwan’s status in the global chip supply chain is a “huge strategic value,” it is also a powerful reason for Beijing to stay away, said Duchatel, who has just published a policy paper on China’s push for semiconductors.
Assuming Taiwanese forces were to be overwhelmed during an invasion, “there is no reason why they would leave these facilities intact,” he said, adding that preserving the world’s most advanced fabs “is in the interests of everyone.”
For all the moves to reel back domestic chip fabrication, it is optimistic to think the supply chain for such a complex product as semiconductors could change in short order, ASML chief executive Peter Wennink told Bloomberg TV.
“If you want to reallocate semiconductor build capacity, manufacturing capacity, you have to think in years,” he said.
In the meantime, geopolitics means chip shortages could become a more regular occurrence, EU Chamber of Commerce in China president Joerg Wuttke said.
“This is going to move on to the point where actually because of export controls, because of governmental intervention, there will be all of a sudden supply chain disruptions not just because of capacity problems,” he told Bloomberg Television. “So better get prepared.”
A failure by the Chinese Communist Party (CCP) to respond to Israel’s brilliant 12-day (June 12-23) bombing and special operations war against Iran, topped by US President Donald Trump’s ordering the June 21 bombing of Iranian deep underground nuclear weapons fuel processing sites, has been noted by some as demonstrating a profound lack of resolve, even “impotence,” by China. However, this would be a dangerous underestimation of CCP ambitions and its broader and more profound military response to the Trump Administration — a challenge that includes an acceleration of its strategies to assist nuclear proxy states, and developing a wide array
Eating at a breakfast shop the other day, I turned to an old man sitting at the table next to mine. “Hey, did you hear that the Legislative Yuan passed a bill to give everyone NT$10,000 [US$340]?” I said, pointing to a newspaper headline. The old man cursed, then said: “Yeah, the Chinese Nationalist Party [KMT] canceled the NT$100 billion subsidy for Taiwan Power Co and announced they would give everyone NT$10,000 instead. “Nice. Now they are saying that if electricity prices go up, we can just use that cash to pay for it,” he said. “I have no time for drivel like
Twenty-four Chinese Nationalist Party (KMT) lawmakers are facing recall votes on Saturday, prompting nearly all KMT officials and lawmakers to rally their supporters over the past weekend, urging them to vote “no” in a bid to retain their seats and preserve the KMT’s majority in the Legislative Yuan. The Democratic Progressive Party (DPP), which had largely kept its distance from the civic recall campaigns, earlier this month instructed its officials and staff to support the recall groups in a final push to protect the nation. The justification for the recalls has increasingly been framed as a “resistance” movement against China and
Chinese Minister of Foreign Affairs Wang Yi (王毅) reportedly told the EU’s top diplomat that China does not want Russia to lose in Ukraine, because the US could shift its focus to countering Beijing. Wang made the comment while meeting with EU High Representative for Foreign Affairs and Security Policy Kaja Kallas on July 2 at the 13th China-EU High-Level Strategic Dialogue in Brussels, the South China Morning Post and CNN reported. Although contrary to China’s claim of neutrality in the Russia-Ukraine conflict, such a frank remark suggests Beijing might prefer a protracted war to keep the US from focusing on
RSS