Fight over Taiwan could paralyze world chip leader and generate global crisis – 06/08/2022

Russian gas can be substituted, but semiconductors from Taiwanese chipmaker TSMC cannot.

The company dominates the global market like no other, and so is the target of China’s greed. It is not a coincidence that the Speaker of the US House of Representatives, Nancy Pelosi, also met with Mark Liu during her visit to Taiwan. He is the chairman of the island’s most valuable company, Taiwan Semiconductor Manufacturing Company (TSMC).

Liu has great power over the supply of semiconductors to the global economy, from cutting-edge chips for the aerospace industry to circuits used in cars and refrigerators. If chip production stops in the city of Hsichnu, Taiwan’s semiconductor metropolis on the island’s northwest coast, then automakers in Germany, on the other side of the world, will also have to shut down their assembly lines and lay off workers.

World leadership achieved in 30 years

In the free zone of Hsinchu, which has less than 500 thousand inhabitants, the semiconductor industry has been a priority since the 1980s. There, less than 150 kilometers from mainland China, are two of the most important universities on the island, which train specialists for companies in the local science park.

The optical industry is represented, as are some of Taiwan’s solar companies. The heart of the park, however, is the 20 semiconductor manufacturers that produce chips for the big digital trends in the global economy. From there, the two largest semiconductor manufacturers on the planet, TSMC and UMC, supply the world with their high-tech products.

Man handling chip - Getty Images - Getty Images
Image: Getty Images

TSMC is the undisputed leader, with around 65,000 employees, not just in Taiwan but across the world. The company manufactures more than 10,000 different products that set the pace in the digital world.

Unknown but very relevant

The company’s logo doesn’t appear on any of the products, because TSMC is what’s called a foundry – manufacturers hired to produce high-quality semiconductors on behalf of Apple and other technology corporations.

Many of the best-known companies in the tech world do not have factories of their own, and devote all their energy to developing and designing semiconductors. The chips are then produced at a foundry such as TSMC.

self-confident bet

Mark Liu runs this hugely important company that most people have never heard of before. Shortly before Pelosi’s visit to Taiwan, the head of TSMC, speaking to CNN, warned that a Chinese invasion of the island would bring chip production at TSMC factories to a halt.

In a rare interview aired on Monday, the head of TSMC confidently declared, “No one can control TSMC by force.” In the event of the use of military force or an invasion, “a TSMC factory would no longer be operational,” Liu said, without specifying why. He just said, “These are very sophisticated production facilities that rely on real-time connections to the outside world, to Europe, to Japan, to the US.”

Market dominance like no other company

TSMC dominates over half of the global semiconductor market. Its customers are all the big names in the global semiconductor industry: in addition to Apple and Qualcomm, Germany’s Infineon also has its production in Taiwan.

Intel itself hires TSMC to manufacture chips - Getty Images - Getty Images

Intel itself hires TSMC to manufacture chips

Image: Getty Images

The Americans Intel and Broadcom also have semiconductors that they developed produced by TSMC, as well as Nvidia, which specializes in graphics processors. All companies involved in today’s big technology trends such as digitization, artificial intelligence or autonomous vehicles depend on the semiconductor experts in Hsinchu.

“They have built themselves a position of systemic importance,” Peter Fintl, a semiconductor specialist at consultancy Capgemini, told the German newspaper Handelsblatt. TSMC is also a world leader in high-end chip manufacturing processes, such as for the aerospace or defense industry.

In the US, TSMC semiconductors are used in F-35 fighter planes or in the Javelin system of anti-tank weapons, with which Ukraine managed to neutralize many Russian tanks. TSMC components are also on supercomputers in US national laboratories, where research of strategic interest to the US government is carried out.

Not just cutting edge technology

As Taiwanese companies also manufacture less sophisticated chips for various consumer goods, the global industry is particularly dependent on non-stop production at TSCM. It’s no surprise that warnings sound as Beijing threatens to invade and incorporate Taiwan into China.

Since then US President Donald Trump increased pressure on Asian high-tech companies to build factories on American soil, a lot has happened. A new TSMC chip factory is being built in Arizona and should be ready in 2024, at a cost of 12 billion dollars (R$ 62 billion). The company plans to produce semiconductors for American customers like Apple, Nvidia or Qualcomm near Phoenix.

It won’t be TSMC’s first factory in the US. The company already produces the wafers – thin disks on which integrated circuits, the microchips, are made – in factories on the American West Coast. In Texas, TSCM maintains research centers to design processors.

More production in the US and Europe

According to the Washington Post, the meeting with Pelosi also involved the Chips and Science Act, which has just been passed by the US Congress. With a total of 52 billion dollars (R$ 271 billion), the United States wants to promote new factories in its territory. But the generous subsidies are only available to manufacturers who ensure that sensitive chip-making technology is not used in China. After all, no other country has worked harder for years to acquire the know-how to produce high-quality chips in order to keep up with the West in the war or aerospace sector, and then to surpass it technologically.

In an interview with broadcaster Welt, China expert and DW columnist Alexander Görlach of Oxford University summarized: “China is interested in Taiwan’s semiconductor production industry because China has the rare earths and Taiwan has the technology. and know-how”. That’s one of the central reasons why Germany and the US can’t just stand by and watch Taiwan take over by China, says Görlach. “Because then no car will come off the assembly lines in our country either if Taiwanese chips don’t arrive.”

Europe’s semiconductor program

The European Union (EU) is also working towards independence in chip production and is planning stimulus for its semiconductor industry. With the European Chips Act, the European Commission wants to support the chip industry with 43 billion euros (R$ 230 billion) in public funds. The goal: to double Europe’s share of global chip production, from less than 10% today, to 20% by 2030. Intel’s project for a huge chip factory in Magdeburg, in the German state of Saxony-Anhalt, is a step on that path.

Until then, however, no one will be able to leave Taiwan aside. According to the US Semiconductor Industry Association, the island produces more than 90% of the world’s high-quality chips – and TSMC has by far the largest share.

Mark Liu is known for making subtle statements. When asked why China, despite billions in government subsidies, can’t produce chips as high quality as Taiwan, the TSMC boss replied to CNN with a smile: “Oh, they can, but a few years later than us .”

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