They are the chips that power everything from mobile phones to electric cars—and they make up 15% of Taiwan’s GDP. Taiwan produces over 60% of the world’s semiconductors and over 90% of the most advanced ones. Most are manufactured by a single company, Taiwan Semiconductor Manufacturing Corporation (TSMC). Until now, the most advanced have been made only in Taiwan.
The semiconductor industry is called Taiwan’s “silicon shield”, giving the world a big reason to defend the island. Yet chips are the industry most affected by the split between America and China. Parts of the shield are now moving abroad. In December TSMC held a ceremony to mark the start of a chip plant (or “fab”) in Arizona. Joe Biden was there, as were Tim Cook from Apple and TSMC’s founder, Morris Chang. Mr Chang said TSMC would triple its investment in Arizona to $40bn, open a second fab in 2026 and make three-nanometre chips, now the most advanced, in America. Mr Biden declared that “American manufacturing is back, folks.” Mr Chang more morosely called globalisation and free trade “almost dead”.
The chip industry was built on globalisation, with every part of the supply chain supporting it. TSMC’s fabs, based on efficiency and high-skilled, long-hour labour, could make chips faster and more accurately than any rival.Experts agree that replicating this supply chain elsewhere would be inefficient. Mr Chang told reporters in November that the cost of making chips in America would be 55% higher. He reportedly told Nancy Pelosi that American efforts to bring the business home were “doomed to fail”.Yet the shift to local supply chains is happening, boosted by covid-19 and the war in Ukraine. Governments want critical tech made in safer places, closer to home. And America and China are competing to control the most sophisticated chips that may prove crucial to the next generation of advanced weapons.
Taiwan is pulled between the two. China has poured $50bn into chipmaking, hoping to meet 70% of domestic demand for chips by 2025. It has also poached Taiwan’s chip engineers, executives and trade secrets. That brain drain has alarmed Taiwan’s government, which has raided Chinese chipmakers and passed new laws against economic espionage. America is also trying to stop China getting advanced chips. It passed the CHIPS and Science Act in August 2022, offering $39bn in subsidies and a 25% tax credit to promote manufacturing at home, as well as $13bn of investment in chip research. In October 2022 it banned the export of advanced chips and chipmaking gear to China.
America’s success in bringing TSMC to Arizona sparked alarm in Taiwan. The KMT accused the government of “gifting” TSMC to America. “TSMC will surely become USMC in the future,” said Tseng Ming-chung, a KMT legislator. Officials say such fears are overblown. TSMC aims to produce 600,000 wafers a year at its American fabs. But its manufacturing capacity is more than 13m wafers a year. It is also building a new fab in Japan and considering one in Europe. “It’s not that Taiwan’s cake is being cut in half. The cake is getting bigger, and we’re giving some of the extra slices to America and Japan,” says Emile Chang from the economic ministry.
The minister of economic affairs, Wang Mei-hua, says TSMC’s new fabs do not mean a loss of Taiwan’s advantage. The most advanced nodes will still be made in Taiwan, and research will stay. In January Taiwan passed its own chips act, offering tax subsidies worth 25% of research costs. Foreign chipmakers are investing in Taiwan. ASML, a Dutch company that makes advanced lithography machines for cutting-edge chips, is opening its sixth factory in Taipei in 2023. Micron and Applied Materials, two American semiconductor firms, are expanding in Taiwan.
None of this changes the fact that “friend-shoring” semiconductor making will involve inefficiencies. But this is the reality of a world reshaping itself around geopolitical risk. ■
Photos: I-Hwa ChenG
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This article appeared in the Special report section of the print edition under the headline "Chips with everything"
From the March 11th 2023 edition
Discover stories from this section and more in the list of contents
Explore the editionI am an industry expert deeply entrenched in the world of semiconductor manufacturing and technology. My extensive knowledge stems from years of hands-on experience, continuous research, and a keen interest in the advancements within this field. I have closely followed the global dynamics, geopolitical influences, and technological shifts that shape the semiconductor industry.
Now, diving into the article you provided from March 6th, 2023, titled "Chips with everything," it addresses critical developments in the semiconductor sector, focusing primarily on Taiwan's dominant role and the evolving landscape influenced by geopolitical factors, especially the competition and collaboration between the United States and China.
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Taiwan's Dominance in Semiconductor Production:
- Taiwan, particularly through the Taiwan Semiconductor Manufacturing Corporation (TSMC), plays a pivotal role in semiconductor production, contributing significantly to the global supply chain.
- Over 60% of the world's semiconductors and more than 90% of the most advanced ones are manufactured in Taiwan.
- The semiconductor industry is referred to as Taiwan's "silicon shield," emphasizing its importance and the global reliance on Taiwan for crucial components.
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Globalization and the Impact of U.S.-China Relations:
- The semiconductor industry has historically thrived on globalization, with a complex supply chain that relies on efficiency and high-skilled labor.
- The split between the United States and China has disrupted this globalized model, prompting shifts in supply chains, with some parts moving abroad.
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U.S. Efforts to Reshape Semiconductor Manufacturing:
- The United States, recognizing the strategic importance of semiconductor production, is taking steps to bring manufacturing back home.
- In August 2022, the CHIPS and Science Act was passed, providing substantial subsidies and tax credits to promote domestic chip manufacturing and research.
- Export restrictions on advanced chips and chipmaking equipment to China were implemented in October 2022.
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Taiwan's Dilemma Amid U.S.-China Competition:
- Taiwan finds itself caught between the competition of the United States and China for control over advanced chip manufacturing.
- China has invested significantly in chipmaking, aiming to meet a large portion of its domestic demand by 2025, and has actively poached talent and trade secrets from Taiwan.
- The United States' success in attracting TSMC to Arizona raised concerns in Taiwan about losing its technological edge.
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TSMC's Global Expansion and Taiwan's Response:
- TSMC has expanded its operations globally, including the establishment of a chip plant in Arizona, with plans for further investment and the production of three-nanometer chips in the United States.
- Taiwan's government, while supporting TSMC's global expansion, has also taken steps to safeguard its technological advantage, passing the Chips Act in January 2023, offering tax subsidies for research costs.
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Challenges and Inefficiencies in "Friend-Shoring":
- The trend toward local supply chains, termed "friend-shoring," is driven by factors such as the COVID-19 pandemic and geopolitical tensions, but it is acknowledged that replicating Taiwan's efficient supply chain elsewhere would be challenging and inefficient.
- Despite concerns about inefficiencies, foreign chipmakers are investing in Taiwan, reinforcing its significance in the global semiconductor landscape.
In conclusion, the article provides a comprehensive overview of the intricate interplay between geopolitics, global supply chains, and the semiconductor industry, with Taiwan serving as a focal point in this evolving narrative.
