Alex Lo
SCMP Columnist
My Take
by Alex Lo
My Take
by Alex Lo

Computer chips are the new oil and Taiwan is the new Saudi Arabia

  • In the US tech war with mainland China, Taiwan will become more important with ever greater security guarantees. In the longer term, though, the US may just kill off the island’s treasured semiconductor industry as it tries to choke off China technologically

Last month, Taiwan’s top defence officials went into high gear to deny a Bloomberg report that the White House had a contingency plan to destroy the facilities of the island’s chip-making giant TSMC to prevent Chinese access to the most advanced computer chips in the event of a mainland invasion.

Whether the report was accurate or not, it highlighted the importance of Taiwan not only for its geopolitical role but its central place in the United States’ tech war against China. The island is at the centre of the manufacturing and supply of some of the most advanced semiconductors in the global economy. For Washington then, the island has arguably become more important strategically than any single ally, perhaps even Israel. And it is not even recognised formally as an independent country!

Oil and chips

With tremendous foresight, Daniel Yergin wrote in his influential 1991 book, The Prize: The Epic Quest for Oil, Money and Power, “As we look towards the 21st century, it is clear that mastery will certainly come as much from a computer chip as from a barrel of oil.”

This is what Yergin observed about oil in the last century: “For oil has meant mastery throughout the 20th century.” “Oil is the world’s biggest and most pervasive business, the greatest of the great industries …” “The expansion of the [oil] business in the 20th century … embodies the evolution of business, of corporate strategy, of technological change and market development, and indeed of both national and international economies.” “Today, oil is the only commodity whose doings and controversies are to be found regularly not only on the business page but also on the front page.” “[It] is a massive generator of wealth – for individuals, companies, and entire nations. In the words of one tycoon, ‘oil is almost like money.’”

And oil as a subject of international politics? “[Oil] as a commodity is intimately intertwined with national strategies and global politics and power.” “Whatever the evolution of this new international order, oil will remain the strategic commodity, critical to national strategies and international politics.”

If China can’t get American tech, asking US allies may help weather storm

What strikes me as I reread Yergin’s book is that what he said about oil is equally true of the computer chip today, if not more so.

At the centre of this political history of oil has been the long-standing relationship between Saudi Arabia and the United States, who were surely among the strangest bedfellows in history. Ties have had their ups and downs, but every time, the two sides managed to patch things up eventually. This time, though, the bitter spat may be different. The harsh personality of its new ruler rather disguises some long-term trends.

There is no question that Western societies are determined to move past their hydrocarbon dependence, to borrow from Yergin’s terminology. The question is how long or how short they will manage. In this case, Saudi Arabia will become less and less relevant to the US, perhaps even a liability in the Middle East.

Yergin might have written the last hooray of oil. “Ours has become a ‘Hydrocarbon Society’ and we, in the language of anthropologists, ‘Hydrocarbon Man’,” he wrote. “Yet, Hydrocarbon Man shows little inclination to give up his cars, his suburban home, and what he takes to be not only the conveniences but the essentials of his way of life.”

Today, that may be truer of computer chips than oil. My Honda dealer recently told me my car had a faulty chip and that was why its electronics were all shot up. Just recently, my house was getting cold so I used my Google remote to turn up the heat. My Samsung 3G phone is such a dinosaur WhatsApp won’t let it update its latest version. The chip is the backbone of all those technological wonders, or in my own case, hassles.

Taiwan and the chip war

About 37 per cent of the world’s computer chips are made in Taiwan. TSMC alone takes up 53 per cent of the global foundry market, that is, factories contracted to make chips designed in other countries. Its other Taiwanese peers account for a further 10 per cent of the same market.

After the Cold War, liberal democracy, free trade and laissez-faire capitalism coalesced under US dominance to make globalisation and the offshoring of labour and manufacturing financially profitable and politically desirable. While the US invented and perfected chip technologies, it allowed places such as Taiwan and South Korea to take up the hi-tech manufacturing, including and up to the current most advanced 5-nanometre chips. All that has now changed.

Meet the Harvard Law School graduate helping China cut its reliance on US AI chips

In June last year, the White House published its “100-day reviews under executive order 14017” on “building resilient supply chains”. It concludes that the US is too “dependent on a single company – TSMC – for producing its leading-edge chips”. The monopolistic capacity of TSMC and Samsung to make the most advanced 5-nanometre chips, it warned, “puts at risk the ability to supply current and future [US] national security and critical infrastructure needs”.

It’s no surprise that Washington is now trying to kill the China business of TSMC and Samsung, among others, and is applying pressure on TSMC to set up shop in the US. It is also trying to “reshore” chip manufacturing capacities with domestic companies. Taiwan being exposed to a mainland takeover is too much of a risk.

So in the short run, Taiwan will become more important to the US with ever greater commitment to its defence. In the longer term, though, the US may just kill off the island’s treasured chip industry as it tries to choke off China technologically.

That’s starting to look like a Faustian bargain for Taiwan.