Taiwanese chip giant TSMC holds a ceremony to start mass production of its most advanced 3-nanometer chips in the southern city of Tainan, Taiwan, on December 29, 2022. In 2021, the company began building a factory in Phoenix, Arizona. Photo: Reuters
Opinion
Gabriel Lin and Li Mingjiang
Gabriel Lin and Li Mingjiang
How the US-China chip war is dismantling Taiwan’s silicon shield
The 2021 chip shortage pushed great powers to take back control of the semiconductor industry, attempting to redraw supply chains concentrated in East Asia
This is eroding Taiwan’s geostrategic importance and bargaining power, and forcing companies there – and elsewhere – to make difficult choices
The geoeconomic role of Taiwanese semiconductor companies has garnered increasing attention from academia and the public. Some analysts regard companies such as Taiwan Semiconductor Manufacturing Company (TSMC) as crucial players or even super predators in the global production network.
But this view of the agency of Taiwanese semiconductor corporations is seriously flawed because it does not take into account their geopolitical quagmire.
The myth of Taiwanese chip makers’ outsize agency emerged during the 2021 chip shortage, which was projected to cost the global automobile industry US$210 billion in revenue that year in addition to impeding the economic recovery in many countries. Taiwanese semiconductor foundries were expected to be the economic saviours because they accounted for more than 60 per cent of global contract chip-making.
Germany, Japan and South Korea approached the Taiwanese authorities, asking them to urge the island’s semiconductor foundries to increase the supply of automotive chips. US President Joe Biden invited Taiwanese entrepreneurs to join virtual meetings to deliberate on issues related to the microprocessor shortage.
The Taiwanese companies equivocated in response to politicians’ requests, refusing to prioritise the orders of carmakers at the expense of other clients and their shareholders. At the time, state actors seemed unable to command the big tech companies; yet what ensued in subsequent years would not bode well for Taiwan’s chip sector.
In hindsight, the 2021 chip shortage was indeed a critical juncture for the transformation of the state-tech relationship – not until then did the great powers fully realise that semiconductors could be the chokehold of the world economy.
The shortage led to state apparatuses’ attempts to govern the industry. The United States began to develop a semiconductor strategy aimed at essentially hollowing out East Asia’s hi-tech bases to strengthen its domestic entities and protect its chip supply from geopolitical risks.
On June 8, 2021, Washington released its 100-day supply chain review report, blaming the lagging competitiveness of American manufacturers in part on “unfair trade practices by competitor nations”.
The report affirmed that semiconductor foundries’ geographical concentration in East Asia posed a threat to US economic independence and technological supremacy. It also provided a rationale for the Biden administration to impose long-arm jurisdiction over hi-tech activities overseas.
The measures included asking Taiwanese chip makers to hand over confidential information to the US Department of Commerce and banning US entities from exporting advanced chips, the equipment used to make them and the related intellectual property to China. Contentiously, the policy effectively forced some companies to transplant their production lines to the US.
02:42
Biden tours new Taiwanese chip-making plant in Arizona, fans US-China semiconductor rivalry
Biden tours new Taiwanese chip-making plant in Arizona, fans US-China semiconductor rivalry
The American plan was to replicate a Taiwan-style semiconductor complex in Phoenix, Arizona, where TSMC undertook the building of 4-nanometre and 3-nanometre fabrication plants expected to be commissioned in 2024 and 2026 respectively. As construction started from scratch in a desert, accompanying TSMC across the Pacific were 2,000 engineers and 26 suppliers specialising in fields ranging from upstream epitaxy (growing a crystal film) to downstream assembly.
The US$40 billion construction spending, one of the largest foreign investments in American history, means it will cost more to produce chips in Arizona – twice more than in Taiwan, despite the federal government’s pledge to subsidise 25 per cent of the expenditure under the Chips and Science Act.
The Arizona project appears to be a honey trap. Fabrication plants in Phoenix weaken Taiwan’s geostrategic significance because the US could continue to procure cutting-edge microchips even if mainland China takes control of the island.
01:57
China condemns new US law aimed at boosting domestic semiconductor manufacturing
China condemns new US law aimed at boosting domestic semiconductor manufacturing
Meanwhile, the US eventually showed its true colours by announcing last March that under the Chips Act’s guardrail provisions US-sponsored foreign chip makers would be required to share any excess profit with the federal government.
The US is not the only great power tightening its grip on Taiwanese semiconductor corporations. Back in 2015, China’s State Council announced the Made in China 2025 initiative, proclaiming that 70 per cent of national chip demand should be met domestically by the date. One crucial measure was to seek investment from Taiwan.
In this context, United Microelectronics Corporation, Taiwan’s second-largest chip maker, the Xiamen municipal government and Fujian Electronics and Information Group established the Lianxin joint venture, a fabrication plant in Xiamen which later was made capable of using 28-nanometre technology. Under the agreement, UMC, which initially had around a 30 per cent stake, has the right to acquire shares from the local government.
As the Sino-American tech war intensified, UMC became concerned about Lianxin’s “China-funded entity” label and reportedly tried to acquire the remaining shares last year, but was blocked by the local government. The botched acquisition shows that mainland China is also prepared to play hardball with Taiwanese companies in pursuit of greater semiconductor self-reliance.
A new order of technopolitics has resulted from the parochialism, interventionism and hegemonism of both the US and China, ratcheting up the pressure on the mobility, competency and leeway of third-party actors such as Taiwan’s hi-tech corporations.
Associated with the diminishing autonomy of Taiwanese companies is the shrinking geostrategic importance and bargaining power of the island. The Taiwan miracle was made possible when Taiwanese enterprises forged a connection between mainland China and the West – such an advantage no longer exists with geoeconomic decoupling.
Companies in Taiwan, together with those in Singapore, Israel, the Netherlands and South Korea, will continue to face the predicament of picking a side between the two major powers.
Gabriel Yi-Heng Lin is a postgraduate student at National Taiwan University and currently an exchange student at S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore
Li Mingjiang is an associate professor at S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore
