The world is dangerously dependent on Taiwan for semiconductors

As China pushes the world to avoid official relations with Taiwan, leaders around the world are realizing how dependent they have become on the island’s democracy.

Taiwan, which China considers a province, is being judged for its ability to produce cutting-edge computer chips. This is mainly due to Taiwan Semiconductor Manufacturing Co., the world’s largest caster and chip maker for Apple Inc. smartphones, artificial intelligence and high-performance computing.

Taiwan’s role in the world economy existed largely under the radar until it arrived recent prominence, as the automotive industry has suffered from deficiencies in the chips used for everything from parking sensors to reducing emissions. With automakers, including Volkswagen AG of Germany, Ford Motor Co. from the USA and Toyota Motor Corp. from Japan, forced to stop production and idle factories, the importance of Taiwan has suddenly become too great to be ignored.

American, European and Japanese carmakers are lobbying their governments for help, Taiwan and TSMC are being asked to intervene. Chancellor Angela Merkel and President Emmanuel Macron discussed the potential for scarcity last year and agreed on the need to step up Europe’s efforts to develop its own system. chip industry, according to a French official with knowledge of the issue.

Automotive industry advocates illustrate how TSMC’s chip-making capabilities have given Taiwan political and economic leverage in a world where technology is part of the great power rivalry between the US and China – an opposition unlikely to ease under Joe’s administration. Biden.

Taiwan’s seizure of the semiconductor business – despite the constant threat of invasion of Beijing – is also a turning point in the global supply chain, which offers a new urgency to plans from Tokyo to Washington and Beijing to increase autonomy.

By dominating the US-developed chip outsourcing model, 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 the think tank in Berlin. Stiftung Neue Verantwortung.

The Trump administration has exploited this point of denial to deny Beijing access to technology. By banning access to all US chip technologies, including design, it has managed to disrupt the supply of semiconductors from TSMC and other foundries to Huawei Technologies, hindering the advance of China’s largest technology company.

He also negotiated with TSMC to set up a $ 12 billion chip factory in Arizona. Samsung Electronics Co. from South Korea to follow, with a $ 10 billion facility in Austin, Texas.

“CHIPS for America Act” introduced in Congress last year aims to encourage the creation of more plants in the US Michael McCaul, a Republican from Texas, intends to reintroduce the bipartisan bill this year to secure $ 25 billion in federal funds and taxes stimulants. McCaul said in a statement that he was working with colleagues in the House and Senate “to give priority to obtaining the other provisions of the CHIPS signed into law as soon as possible.”

News that Intel Corp., the industry leader in the past, was considering outsourcing chip production to TSMC under its former CEO, underscored the need for a top-down US player, said a Foreign Affairs Commission staff member who is unauthorized to speak in public.

The European Union aims to strengthen the bloc’s “technological sovereignty” through an initially armed alliance of up to € 30 billion ($ 36 billion) in public-private investment to increase Europe’s share of the global chip market to 20% (without a target date)) from less than 10% now.

It also encourages Taiwan to increase investment in the bloc of the 27 nations with some success. GlobalWafers Co. – based in TSMC’s hometown of Hsinchu – has just increased its bid for German company Siltronic AG to value the company at 4.4 billion euros, a acquisition that would create the world’s largest producer of silicon plates by revenue .

This does not mean that Taiwan is the only player in the semiconductor supply chain. The US still holds dominant positions, especially in the design of electronic chips and software; ASML Holding NV in the Netherlands has a monopoly on the machines needed to make the best chips; Japan is a key supplier of equipment, chemicals and wafers.

But as the focus shifts to smaller, stronger chips that require less energy, TSMC is increasingly in its own field. And it has helped Taiwan build a comprehensive ecosystem around it: ASE Technology Holding is the world’s best chip assembler, while MediaTek has become the world’s largest supplier of smartphone chipsets.

And Tokyo is trying to attract TSMC to set up in Japan. With 110 billion yen ($ 1 billion) allocated last year for investment in research and development and another 90 billion yen for 2021, some of them could reach a TSMC facility, according to reports, the company is considering setting up in Japan.

“TSMC is becoming increasingly dominant,” said Kazumi Nishikawa, an official working on technology at the Japanese Ministry of Economy. “It’s something that everyone in the chip industry needs to find a way to deal with.”

China, in its five-year plan presented in October, is directing aid to the $ 1.4 trillion chip and other key technology industry by 2025. However, even this type of money does not deny the need for Taiwan. . Indeed, China has long exploited the island to acquire chip-making talent; two key executives from China’s top chip maker, Semiconductor Manufacturing International Corp., used to work at TSMC: co-executive director Liang Mong Song and vice president Chiang Shang-yi.

But because Washington is hampering China’s progress, there is also speculation that Beijing could resort to IP chip theft, with Taiwan at the center of these efforts.

Taiwanese cybersecurity firm TeamT5 has seen a steady increase in attacks on the island’s chip industry as a result of tightening US export controls on China. Although it is not always possible to know if they are Chinese state actors, “they are all attacking Taiwan’s semiconductor industry,” said Shui Lee, a T5 cyber threat analyst.

Analyst Linda Kuo said the Taiwanese government was alarmed by a ransomware attack on TSMC in 2018 and announced plans for about $ 500 million to help the industry become more aware of cybersecurity issues.

The biggest concern is that TSMC’s chip factories could become collateral damage if China faced threats to invade Taiwan if it headed for independence.

TSMC’s capital expenditures of up to $ 28 billion this year suggest it will stay ahead.

“Taiwan is the center of gravity of China’s security policy,” said Mathieu Duchatel, director of the Asia program at the Montaigne Institute in Paris. However, while Taiwan’s status in the global chip supply chain is a “huge strategic value,” it is also a strong reason for Beijing to stay away, said Duchatel, who has just released a policy paper. on China’s semiconductor pressure.

Assuming that Taiwanese forces will be overwhelmed during an invasion, “there is no reason to leave these facilities intact,” he said. And keeping the most advanced products in the world “is in everyone’s interest”.

For all the moves to run the manufacture of internal chips, it is optimistic to think that the supply chain for a product so complex that semiconductors could change in a short time, said for Bloomberg TV Peter Wennink, executive director of ASML. “If you want to reallocate semiconductor construction capacity, manufacturing capacity, you have to think for years,” he said.

Meanwhile, geopolitics means that the lack of chips could become a more regular event, according to Joerg Wuttke, president of the EU Chamber of Commerce in China.

“This will go to the point where, in fact, because of export controls, because of government intervention, there will be sudden supply chain disruptions, not just because of capacity issues,” he told Bloomberg Television. “So you better get ready.”

– With the assistance of Natalia Drozdiak, Debby Wu, Ellen Proper, Birgit Jennen, Francine Lacqua, Matthew Miller and Gem Atkinson