Chip Manufacturing at the Forefront Amid Political Tensions

Photo: Construction of TSMC’s new manufacturing site in Arizona, USA. Source: TSMC

At the 2024 North America Technology Symposium, Taiwanese company TSMC, a global leader in advanced chip manufacturing, unveiled its latest semiconductor technology, advanced packaging, and 3D integration technologies. These innovative technological solutions are expected to play a key role in the next wave of developments in chips supporting artificial intelligence. The main question remains where TSMC will implement these advancements, a concern that extends to other Taiwanese chip manufacturers as well.

Are chips the “new oil”? It seems so. During the 2020 pandemic, the world was hit hard by a chip shortage, an event perceived as a “black swan” — an unexpected factor impacting virtually everything from car manufacturers in Germany to cutting-edge weapons manufacturers in the USA, and from smartphone producers in China to household appliance suppliers in South Korea.

The Chip Crunch Intensifies

Subsequent events have only heightened these concerns. Following Russia’s full-scale invasion of Ukraine, China began actively supplying microelectronic components to Russia, which are used in weapon production. Additionally, Beijing has increasingly leveraged the achievements of the Taiwanese and American semiconductor industries for its military-industrial complex.

Consequently, on October 7, 2022, the U.S. Bureau of Industry and Security at the Department of Commerce introduced measures related to the production of advanced computing machines and semiconductors in China. Some of these control measures took immediate effect, while others were implemented slightly later. In 2023, the list of Chinese companies subject to these restrictions continued to expand. Later, the Netherlands, a leading developer of chip manufacturing equipment, joined the sanctions, restricting the supply of corresponding equipment to China.

These measures have been drawn out over time as any sanctions and restrictions carry a cost for those implementing them. Moreover, there remains a significant risk that Taiwan, for various reasons, may not be able to replace chip supplies from mainland China. Alternatively, Taiwan’s industry could be blocked due to hostile actions from mainland China or even due to the potential annexation of the independent island by Beijing.

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Furthermore, tensions between Beijing and Taipei have significantly escalated in the context of Russia’s full-scale invasion of Ukraine. Many analysts have expressed justified concerns that the escalation of military conflicts in Eastern Europe might distract Washington and Brussels from the tension in the Far East to such an extent that Beijing might be emboldened to make a move across the Taiwan Strait.

The configuration looked like this:

  • The USA and Western European countries have almost ceased large-scale chip production before;
  • In terms of mass varieties of chips, China is the dominant manufacturer;
  • Taiwan dominates in the production of advanced and most powerful chips, although a significant number of standard chips are also manufactured there;
  • China is capable of imposing restrictions on the supply chains of its chips today, although it would incur colossal losses in such a case;
  • Amid tensions around Taiwan, China could limit the island nation’s ability to supply the most advanced chips and equipment to the USA and European countries;
  • China is significantly dependent on the supply of technologies and equipment for chip manufacturing from the USA and Western Europe;
  • There is a risk of Beijing gaining control over Taipei through non-military means, namely through the electoral victory of pro-integration political forces. But not for this time.

Photo: One of the most modern factories, for so-called 12-inch chip waffels producing. Source: TSMC

Taipei’s Policy is Set for Another Four Years

We wrote about the risk of a “peaceful” takeover of Taipei by Beijing ahead of the presidential elections in Taiwan, which took place on January 13. Fortunately for the developed nations, the considerable risk of a victory by Beijing-friendly forces did not materialize.

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As we predicted in December 2023, the January president elections saw a win for the tandem from the Democratic Progressive Party (DPP), thus extending the tenure of this party’s representatives following the expiration of the current President Tsai Ing-wen’s second term. President Tsai Ing-wen, first elected in 2016, has served two terms and will now make way for a party colleague. Both she and her party, the DPP, have been advocates for Taiwan’s independence.

Thus, the inauguration of the new president, currently Vice President William Lai, will take place on May 20. His running mate, Vice President-elect Bi-khim Hsiao, has recently served as Taiwan’s representative in the USA. This is a highly symbolic event, as both leaders embody the close ties with the USA and the aspiration to maintain independence.

Therefore, Taipei has gained a certain clarity regarding its political direction for the next four years but has not received unequivocal guarantees or assurance regarding its inviolability from mainland China. Sensitive factors for the islanders, such as the increased military presence of China in the Taiwan Strait and attempts to overtake in technological leadership, required extraordinary actions from the island nation.

Invitation to Quiet Harbor

The threat of suddenly finding themselves without a reliable source of chips certainly did not inspire either the US government or the governments of Western European countries. They resorted to an absolutely logical step – they began to restore their own chip manufacturing capabilities, especially since they retained leadership in creating equipment for such productions.

In autumn 2023, the USA approved a bipartisan Chip Act worth $52.7 billion, aiming to make the country competitive again with South Korea and Taiwan in the semiconductor manufacturing sector. Of this sum, $39 billion will be allocated specifically for manufacturing centres, meaning this support should be utilised by the private sector. According to existing estimates, this will initiate investments in the US private semiconductor sector amounting to $231 billion as a result of receiving federal funds according to the Chip Act.

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One of the biggest recipients of government support in the US turned out to be the team from TSMC. The US government plans to allocate $6.6 billion to this world’s largest semiconductor manufacturer to help it build three factories in Arizona as part of President Joe Biden’s efforts to secure domestic production of advanced microchips.

This was announced at the beginning of April when the White House signed a non-binding agreement with TSMC to provide it with funds for three factories in Phoenix, Arizona. This is in addition to approximately $5 billion in state loans for the same purpose. Scandals are already swirling around these deals, but it is unlikely that this will stop the relocation of the Taiwanese corporation to American soil.

It is expected that, thanks to proactive industrial policy, the US share of the global chip market will return to 40% from the current 10%.

Much more modest-scale projects are taking place in the EU. The “Chips for Europe” initiative aims to only provide €8.1 billion in state funding, which is expected to unlock an additional €13.7 billion in private investments. But, as they say, appetite comes with eating. More substantial initiatives are being prepared, although they are progressing slowly, as is often the case in Brussels.

In conclusion? It’s quite clear: the most developed economies are taking care of the security of their chip supply chains. This includes in a defence sense, supporting the enhancement of Taipei’s military capability, and in an economic sense, deploying alternative manufacturing sites on their own territory. And what about China? It has been clearly hinted that it can’t even dream of maintaining dominance in the chip markets.

 thegaze.media 

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