The world is dangerously dependent on Taiwan for semiconductors

As China pushes the world to avoid official deals with Taiwan, leaders around the world are realizing their dependence on the island’s democracy.

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

Taiwan’s role in the world economy existed largely below the radar, until it was reached recent prominence, as the automotive industry suffered from chip deficits used for everything from parking sensors to reducing emissions. With car manufacturers such as Germany’s Volkswagen AG, Ford Motor Co. of the US and Japanese Toyota Motor Corp. forced to stop production and inactive plants, the importance of Taiwan has suddenly become too much to ignore.

American, European and Japanese carmakers are pressuring their governments to get help, and Taiwan and TSMC are being called upon to intervene. Chancellor Angela Merkel and President Emmanuel Macron discussed the potential for shortages last year and agreed on the need to accelerate Europe’s momentum to develop its chip industry, according to a knowledgeable French official of the question.

The automotive industry’s pleas illustrate how TSMC’s chip-making capabilities have allowed Taiwan political and economic influence in a world where technology is part of the great power rivalry between the US and China, a confrontation unlikely to facilitate under the administration of Joe Biden.

Taiwan’s adherence to the semiconductor business, despite being constantly threatened by the invasion of Beijing, also represents a stifling point in the global supply chain that gives new urgency to Tokyo’s plans in Washington and Beijing to increase self-sufficiency. .

By mastering the U.S.-developed model of outsourcing chip manufacturing, Taiwan “is potentially the most critical point of failure in the entire semiconductor value chain,” said Jan-Peter Kleinhans, director of the technology and geopolitics project. of the Berlin-based thought group. Stiftung Neue Verantwortung.

The Trump administration exploited this point of contact to deny Beijing access to technology. By banning access to all U.S. chip technology, including design, it was able to cut off the supply of TSMC semiconductors and other foundries to Huawei Technologies, hampering the advancement of China’s largest technology company. .

He also negotiated with TSMC the establishment of a $ 12 billion chip manufacturing plant in Arizona. Samsung Electronics Co. will follow. of South Korea, with a $ 10 billion facility in Austin, Texas.

The “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, plans to reintroduce the bipartisan bill this year with the goal to raise $ 25 billion in federal funds and tax incentives. McCaul said in a statement that he is working with colleagues in the House and Senate “to prioritize the signing of the remaining CHIPS provisions as soon as possible.”

News that Intel Corp., the industry leader, was considering outsourcing the production of some chips to TSMC under its former CEO, underscored the need for an American player capable of manufacturing it at the forefront. , said a staff member of the Foreign Affairs Committee is not allowed to speak publicly.

The European Union aims to strengthen the bloc’s “technological sovereignty” through an initially armed alliance with up to 30 billion euros ($ 36 billion) of public-private investment to raise Europe’s share of the global chip market in 20% (no target date)) of less than 10% now.

It is also encouraging Taiwan to increase investment in the 27-nation bloc, with some success. GlobalWafers Co., based in Hsinchu, TSMC’s hometown, has just increased its bid for German company Siltronic AG to value the company at 4.4 billion euros, an acquisition that would create the wafer manufacturer of the world’s largest silicon by revenue.

This is not to say that Taiwan is the only player in the semiconductor supply chain. The United States still holds dominant positions, especially in chip design and electronic software tools; ASML Holding NV of 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 emphasis shifts to smaller and more powerful chips that require less power, TSMC is increasingly in its own field. And it has helped Taiwan form a complete ecosystem around it: ASE Technology Holding is the world’s best chip assembler, while MediaTek has become the largest provider of smartphone chipsets.

Tokyo is also trying to attract TSMC to settle in Japan. With 110 billion yen ($ 1 billion) earmarked for R&D investments last year and another 90 billion yen by 2021, some of them could go to a TSMC facility, according to reports , which the company is considering settling in Japan.

“TSMC is increasingly dominant,” said Kazumi Nishikawa, an official working on technology issues at Japan’s Ministry of Economy. “This is 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 channeling aid to the chip and other key technology industry to the tune of $ 1.4 trillion by 2025. However, even this type of money does not deny the need for Taiwan. In fact, China has long taken advantage of the island to gain talent for making chips; two key executives of China’s largest chip maker, Semiconductor Manufacturing International Corp., used to work at TSMC: CEO Liang Mong Song and Vice President Chiang Shang-yi.

But with Washington hampering China’s progress, there is also speculation that Beijing could resort to stealing chip IPs, with Taiwan at the center of those efforts.

Taiwanese cybersecurity company TeamT5 has seen a steady increase in attacks on the island’s chip industry due to tightening U.S. export controls in China. While it’s not always possible to know if these are Chinese state actors, “everyone is attacking the Taiwanese semiconductor industry,” said Shui Lee, a T5 cyber threat analyst.

Fellow analyst Linda Kuo said the Taiwanese government was alarmed by a ransomware attack against TSMC in 2018 and had 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 turn into collateral damage if China offsets threats to invade Taiwan if it moves toward independence.

TSMC’s capital spending of up to $ 28 billion for this year suggests it will stay ahead.

“Taiwan is the center of gravity of Chinese security policy,” said Mathieu Duchatel, director of the Asia program at the Institut Montaigne in Paris. While Taiwan’s state in the global chip supply chain is a “huge strategic value,” it’s also a powerful reason for Beijing to stay away, said Duchatel, who just released a paper on boosting China to semiconductors.

Assuming Taiwanese forces would have to overwhelm during an invasion, “there is no reason to leave these facilities intact,” he said. And preserving the world’s most advanced factories “is in everyone’s interest.”

For all the moves to reverse domestic chip manufacturing, it is optimistic to think that the supply chain for a product as complex as semiconductors could change in the short term, Peter Wennink, CEO of Bloomberg TV, told Bloomberg TV. ASML. “If you want to reallocate semiconductor building capacity, manufacturing capacity, you have to think about years,” he said.

Meanwhile, geopolitics means chip shortages could become more common, according to Joerg Wuttke, president of the EU Chamber of Commerce in China.

“This will go to the point that really because of export controls, because of government intervention, there will be abrupt supply chain disruptions not just because of capacity issues,” he told Bloomberg Television. “Well better, get ready.”

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