Double Stake for Taiwan in the Chip War: Helping America to Become More Powerful in the Field While Keeping Its Technological Advantage.
Taiwan is convinced that it can keep its lead while collaborating with America's desire to produce more semiconductors to preserve its strategic interests.
It is one of the legends of Taiwan. A baby who fled Communist China with his parents in 1949 to follow Chiang Kai-shek, he arrived at the American University of Stanford twenty years later, then returned to his island to create one of the giants of global tech. Surprisingly unassuming in a society that likes to think of it as a cardinal virtue, Miin Wu runs Macronix - a champion of memory cards - and believes that his country's prosperity owes much to him.
“In the 1980s, Taiwan was an exporter of talent: the smartest people went to work in the United States. I turned that around and convinced a lot of people to go the other way,” he says proudly.
Miin Wu is now in Hsinchu, the richest city in the country. Located a hefty hour from Taipei, Taiwan's Silicon Valley is far less glamorous than its American model. Grey skyscrapers dominate the landscape, alternating with car workshops and warehouses.
The Taiwanese are less ostentatious than Californians: here, there are few Teslas or BMWs, and even fewer gardens with palm trees. Billionaires live in the luxury of high-rise buildings, hidden from view. Wealth is only to be found in the golden triangle of the city, where the big names in tech follow one another: TSMC of course, the world leader in semiconductors, but also UMC, Altek, and MediaTek.
Most of these tech giants were born in a nursery a few hundred meters away: the Industrial Technology Research Institute (ITRI). Hidden behind fences, it has developed along the lines of American campuses, with its alternating lawns and square buildings. It is now one of the best research centers in the world. Financed equally by the state and companies, it acts as a university, a research center, and an incubator. Some 130 start-ups have been born here.
The success of a man
Some have become global giants, including UMC and TSMC. The latter would never have existed without ITRI, and vice versa. Both structures were led by Morris Chang, who turned Taiwan into an empire: the island now produces more than 60% of the world's semiconductors and 92% of the most sophisticated ones - those that equip our smartphones.
However, this success is also very different from the Californian success stories.
It is first and foremost that of the State, and more precisely that of one man, Li Kwohting, who could no longer bear to see his country produce low-end electronics - the famous “Made in Taiwan” of the 1980s. Governor of the region, then Minister of Economy, he created the Hsinchu Science Park and pushed the State to take a 48% stake in TSMC when it was created.
“A country cannot succeed without this kind of politician. We owe our success entirely to him,” says Macronix CEO Miin Wu.
TSMC has never been a private project: it is the Taiwanese state's project. Americans and Europeans are dreaming of replicating the model and are ready to devote fortunes to it as well. The United States has put $52 billion on the table, the Europeans barely less ($40 billion). Washington has already won a major victory by convincing TSMC to build a factory in Arizona. A second one has since been made official by President Joe Biden. The White House hopes that it will eventually be able to produce some of the most sophisticated semiconductors with a size of 3 nanometers.
Until now, Taiwan was the only country capable of doing this. This is a paradigm shift for America, and perhaps an opportunity to regain control of this ultra-strategic industry.
Two weeks ago, Apple CEO Tim Cook already announced that iPhones would finally be made of “Made in America” chips from the new Arizona factories. What better symbol to embody the country's industrial reclamation? But don't let that fool you: despite their international expansion, Taiwan's champions remain extremely patriotic. They are certainly building three factories abroad - two in the United States and one in Japan - but still eleven new ones on national soil!
TSMC, which plans to invest $100 billion over three years, is banking on its country and still reserves its best technologies for it. TSMC is still three generations ahead on Taiwanese soil. It will soon be able to market 2-nanometer chips. Those of 1 nanometer should come out by 2025-2026. This is three times better than the American objectives. Behind this champion stands a government that is committed to the cause: it continues, as much as possible, to undervalue the national currency to boost exports.
Europe lags behind
Not content with rolling out the red carpet to Asian nuggets - Samsung is also planning major investments in Texas - the United States is wondering whether it should not add a small dose of blackmail: “National security officials are talking about restricting American shipments to Taiwan of software and equipment needed to manufacture chips, to convince their manufacturers to produce the most advanced technologies in America. The alternative would be to force them to invest $1 in their foreign factories (in Japan or the United States) for every $1 they spend at home,” says Chris Miller, an American expert, and author of a recent book on the subject, “Chip War: The Fight for the World's Most Critical Technology.”
Beyond TSMC and Samsung, the U.S. is also banking heavily on its national champion, Intel. “It's God who put the oil fields in certain countries. It's up to us to see where to put the chip factories,” its new CEO, Pat Gelsinger, recently said. The man is confident that he can take market share from the Taiwanese: he has just signed an agreement with ASML - the only company capable of supplying the machines that make the best chips - to be the first to obtain its new generation technology, around 2025. This could be a decisive advantage. Taiwanese manufacturers' global market share could fall by ten percentage points in the next three years.
And what about Europe? It is already lagging. The American company Intel is planning to open a factory in Magdeburg, Germany. But it will produce 5-nanometer chips for cars and refrigerators, for example. For their smartphones, Europeans will continue to buy from Taiwan, or why not from the Americans …
TSMC also intends to establish itself in Europe. But negotiations are still very preliminary. The Germans and the French are developing different strategies to attract TSMC to their countries. The German Deputy Minister of Economic Affairs, Franziska Brantner, traveled to Taipei last month to make initial contacts. Immediately afterward, Taiwan's Minister of Science, Wu Tsung-tsong, was himself received with honors in Berlin in a very official manner. In France, he was welcomed by two ministries, without appearing on the official agenda - perhaps for fear of antagonizing the Chinese, or in the spirit of confidentiality that befits major industrial projects. As for the French ministers, they have not set foot on Taiwanese soil since 1998.
“Germany has a slight advantage over France for the moment. But nothing will be decided before the Taiwanese elections of 2024. TSMC is still far from having made its choice,” explains a Taiwanese source.
By dint of its international expansion, isn't the number one chip maker in Taiwan in danger of losing its leadership? In Taipei, they pretend not to worry: "It took us 40 years to build our ecosystem. It requires a network of subcontractors that is extremely difficult to develop, and above all, many, many engineers,” confides the Minister of Foreign Affairs, Joseph Wu.
Taiwan is so unique that some companies refuse to set up shop elsewhere, even though China is threatening to invade the island. That's the case with Macronix, which has three factories there and wouldn't dream of doing otherwise. “It would be an economic aberration, production cannot be profitable in Western countries,” explains its CEO, Miin Wu. “The U.S. semiconductor law has no economic logic: it was decided for national security reasons. Unlike TSMC, I don't follow that logic. My only goal is for us to be so good that the Chinese say: it's okay, leave them alone.”
Other Taiwanese people are even more scathing: the Western culture prevents the emergence of such ecosystems, they say. “Back home, tech employees are available 24 hours a day. They are called at any time, whenever there is a problem. We don't get coffee while there's work going on. At your place, we can't reach anyone after 7 p.m. You are giant babies,” said one. “South Korea and Japan share these values but inherit more closed, conservative, and less international cultures,” he added.
The Taiwanese are all the more determined to defend their supremacy because it is their only life insurance against China.
In Taipei, the chip industry is often referred to as “Huguo Shenshan,” the magic mountain that protects Taiwan. Vital for the planet, including for Beijing, it constitutes a shield that can convince Xi Jinping not to attack, and the West to defend the island at all costs. “If there is a war, we will stop our factories,” has already warned Mark Liu, the CEO of TSMC. A threat that the government gladly relays: “A Chinese invasion would be a catastrophe for the whole planet. The semiconductor production process is too delicate to maintain in wartime. It involves very stable energy levels and very toxic waste. Companies will have no choice but to shut down their factories,” confirmed Vice Minister of Economy Chen Chern-chyi.
Faced with the Chinese threat of Xi Jinping, Taiwan has a reprieve, being the only country that knows how to produce this new “black gold,” these small chips that allow us to communicate, move and work. If Taiwan loses the advantage, there may not be many people left to extract it from the Chinese clutches.
Some reading
Focus on Robert Tsao, the Billionaire Who Wants to Unite the Taiwanese Against Xi Jinping’s China. Electronics magnate spends $100 million on civil defense development to show the Taiwanese that there is strength in unity as demonstrated by the Ukrainians against the Russians.
Nancy Pelosi’s Visit to Taiwan Reignites the China-America Semiconductor War. TSMC is at the heart of all covetousness.
Don’t Be Fooled, Nobody Has an Interest in a War in Taiwan, Neither China nor America. The reasons are different, but both giants will do everything to preserve the current status quo.
Is China an Overrated Superpower? Economically, geopolitically, demographically, and militarily, the Middle Kingdom is showing increasingly visible signs of fragility.
Between War, Populism, and Authoritarianism, Half of the World’s Democracies Are in Peril. Demonstrations in China and Iran give a fragile glimmer of hope to this dark year of 2022. But the overall picture is worrying, according to the think tank Idea.