The importance of Taiwan as a global manufacturing and innovation hub for semiconductors, or microchips, and other high-tech inputs crucial to major U.S. goods producers and defense firms was recently highlighted in an event hosted by the Global Taiwan Institute, a think tank dedicated to Taiwan policy research.
With the theme “Opportunities and Challenges in US-Taiwan Cooperation in the High-Tech Supply Chain,” the event, held last week, also addressed increasing geopolitical tensions between authoritarian China and democratic Taiwan, and the economic and security implications of a potential hot conflict, which Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council stated, “would not be localized in any way.”
During the event, Stephen Ezell, Vice President of Global Innovation Policy at the Information Technology and Innovation Foundation (ITIF), said, “There’s one industry that’s more important than any other to the US-Taiwan relationship and, of course, that’s semiconductors.”
“Semiconductors, or integrated circuits, are foundational technology that is irreplaceable to power the emerging technologies of the future, including artificial intelligence, AI, IoT [Internet of things], autonomous vehicles, and 5G,” said Alexa Lee, Senior Manager of Global Policy at the Information Technology Industry Council (ITI). “They power our medical devices, industrial equipment, and cars that we interact with daily, but also the most innovative defense systems that protect nations …. Taiwan is crucial to US national security and economic competitiveness and, in fact, to any country’s national security and economic prosperity because of its semiconductor might.”
Ezell of the ITIF stated that Taiwan accounts for 20 percent of global semiconductor production, and said, “What will catch the eye is that Taiwan accounts for 92 percent of semiconductor production at the most sophisticated sub-seven-nanometer process levels. Ninety-two percent of chips seven [nanometers] or less are made on this island today.”
Semiconductor design is described in terms of nanometers, with nanometers referring to the length of transistor gates, and a lower number of nanometers indicating higher chip sophistication. Taiwan’s leading chipmaker, TSMC (Taiwan Semiconductor Manufacturing Company), currently manufactures chips in high volumes at five-nanometer process levels, while China’s leading chipmaker, SMIC (Semiconductor Manufacturing International Corporation) has reportedly begun mass production of chips at 14-nanometer process levels.
The U.S.-Taiwan Business Council’s Hammond-Chambers agreed that the statistic cited by Ezell is eye-catching. “Ninety-two percent of the highest end is coming from TSMC,” he said, referring to the world’s largest chipmaker and Taiwan’s largest company by market capitalization. “That’s such a great point Stephen’s making, because that really shows where the innovation is. That really shows where TSMC is starting to pull away.”
The dependence of American and global defense and manufacturing supply chains on Taiwanese chipmakers like TSMC has become a concern, according to Adam Segal, the Ira A. Lipman Chair in Emerging Technologies and National Security at the Council on Foreign Relations. “There’s also a worry that Taiwan itself, we are too dependent on Taiwan, in particular TSMC,” Segal stated. Segal noted, however, that reducing this dependency would not be simple.
“Supply chains are extremely complicated. For policymakers, we often just say that we’ll move the supply chain. The average large company has about 5,000 suppliers across different tiers. A company like Apple has 638 suppliers in ‘Tier One’ and close to 7,500 suppliers in ‘Tier Two.’ And, so, to say ‘move a supply chain’ is not an easy thing,” Segal said. “Supply chains exist in ecosystems. So, the reason why they exist is that there are other companies that are upstream and downstream, and you don’t just remove a company from that and think it’s going to produce in the same way. We see this kind of playing out in the Foxconn saga in Wisconsin, that there is no ecosystem around that plant.”
It was reported earlier this year that Foxconn, a major Taiwanese electronics manufacturer, would be reducing planned investment in a newly established Wisconsin factory to less than $700 million from a $10 billion figure initially announced in 2017.
However, Lee of the ITI, noted TSMC’s plans, first announced last year, to invest approximately $12 billion to establish an advanced chip semiconductor fabrication plant, or “fab,” in Phoenix, Arizona. This plant could be the first of up to six planned plants in Arizona, according to reports. “Semiconductors are one of the top priorities in the Biden administration’s agenda, and the momentum for supporting these investments has already accelerated, with an example that TSMC is bringing a leading-edge fab to Arizona,” Lee said.
Hammond-Chambers noted that attracting Taiwanese technology companies like TSMC to produce in the United States will give the U.S. a greater edge in its ongoing comprehensive competition with authoritarian China.
“[Regarding] the supply chain moving back to the States … it’s also worth noting that in US-China, competition, in hard power, the Chinese need access to cutting-edge chips and the dynamic chip design space to produce for their hard-power platform and systems, and they’re going to have an increasingly difficult time getting access to those, which by extension is going to have an increasingly profound impact on their ability to continue to produce their own cutting edge platforms and systems,” Hammond-Chambers said. “And it is a pressure point, a choke point, if you will, that’s very much worth looking into, at the very time in which we are doing—even though it’s in its nascent stages—an increasingly good job in attracting the TSMCs … to stand up production here in the States, so should there be any disruption in supply outside of the States, at least our hard-power companies are able to get access to the chips they need.”
Event participants noted significant technology investment-related legislation that has been brought forward in Congress, including the CHIPS Act, which aims to support U.S. domestic semiconductor manufacturing with approximately $50 billion in funding; and the Endless Frontier Act, which would support technology research with approximately $120 billion in funding. These bills were combined last week by Senate Majority Leader Chuck Schumer into a larger bill called the U.S. Innovation and Competition Act.
Even as the United States works toward achieving increased domestic production of semiconductors and other essential technological hardware, Hammond-Chambers said that Taiwan will remain an essential friend and ally.
“Obviously there’s been a history of the importance of Taiwan in the US-Taiwan relationship and Taiwan’s role in the world, but I think it’s shifted since 2016, 2017. It’s shifted and broadened in a profoundly positive way. And the economic relationship and the semiconductor space truly underscore that importance, not in and of themselves, but as one piece of a broader set of pillars that are underscoring why it’s so essential that Taiwan remain free, that Taiwan remain democratic, that Taiwan remain an essential friend and ally for the United States and its partners around the world.”
Hammond-Chambers said that a potential hot conflict in the Taiwan Strait would have a global economic impact.
“I don’t believe that the economic implications of a conflict would be localized in any way. It would have global ramifications for manufacturing, which would…have implications for capital markets and so on. The ripple effects through the economy would be profound, and of course the political and national security implications. Taiwan-China conflict is not a localized conflict. The world would be caught up in it.”
He also stated that the Biden administration’s support of Taiwan and strategy vis-à-vis authoritarian China will continue to be a key test.
“The Chinese are looking to see what Mr. Biden and his colleagues’ mettle looks like …. Stability and growth in the US-Taiwan relationship and a proper, assertive policy towards the Chinese that represents American national interest is the foundation for further growth and stability.”