Nancy Pelosi’s Visit to Taiwan Reignites the China-America Semiconductor War.
TSMC is at the heart of all covetousness.
Stock markets are in turmoil, chancelleries are on the alert, and military staffs are more than ever on the bridge. But global tech is also on high alert since Nancy Pelosi, the head of the US Congress and the third highest-ranking federal official, made a stopover in Taiwan on August 2, 2022 - the highest visit by an American official in 25 years. The 82-year-old Speaker's visit to the democratic and de facto autonomous island - but claimed by Beijing - immediately exacerbated tensions between China and the United States on tech, yet already very sharp since Donald Trump's tenure in the White House.
The Democrat's agenda, it is true, left little doubt. After her political meetings with the president, Tsai Ing-wen, and human rights activists, Nancy Pelosi took advantage of her high-profile visit to show her support for Taiwanese tech. On Wednesday, August 3rd, 2022, the head of the American Congress met with Mark Liu, the president of TSMC, the biggest foundry in the world.
A choice far from being insignificant, given the strategic importance of this player to the world economy. In its factories in Hsinchu, near the capital Taipei, the Taiwanese giant manufactures almost 50% of the world's semiconductors, for American (Qualcomm, Apple), Chinese (Huawei), and European customers.
TSMC is a coveted giant
For years, TSMC's technological lead in these arch-critical components for myriad of sectors of the economy has made the group coveted by both the US and China. In this match, however, Washington has already scored a point: in mid-2020, TSMC agreed to build a $12 billion factory in Arizona, which will be its second in the country.
This is a victory for the United States, which wants to boost its industrial capacity in semiconductors, thanks to a $52 billion plan just voted by Congress. According to the American SIA (Semi-conductors Industry Association), the sector's lobby, the United States share of global chip production has fallen from 37% to 12% in thirty years, largely to the benefit of Asia and Taiwan, which has become the global hub for this industry.
But TSMC can hardly turn its back on China, which is also growing in chip production. The group achieves 10% of its sales there and has two factories in the country. On Sunday, as tensions mounted, Mark Liu was clear:
“No one can control TSMC by force. If China were to invade Taiwan, TSMC's factories would be inoperable because they are integrated into a global supply chain. And in turn, that would create enormous economic turbulence in China, as their supplies of the most sophisticated components would come to an end.”
A fierce battle between America and China in semiconductors
Despite its anger at Pelosi's visit, China can hardly sanction TSMC, since the world's second-largest economy is so dependent on Taiwan and the rest of the world for its semiconductors, with its chip imports exceeding its oil purchases in value every year. Beijing has indeed taken sanctions, but on less strategic sectors: a hundred Taiwanese food companies have been placed on a blacklist this week, and China has simultaneously stopped its exports of sand (for the production of glass and cement) to Taiwan.
On the other hand, the Chinese company CATL, the world's largest manufacturer of batteries for electric cars, has already put its $5 billion factory project in North America on hold, according to Bloomberg. The plant would have supplied Tesla and Ford. Given the current tensions, CATL is expected to finalize the choice of site (potentially in Mexico or the United States) in the fall of 2022, although an announcement was expected in the next few weeks
The United States continues to prevent China's rise in the semiconductor industry. Companies receiving government subsidies under the Chips Act will be formally prohibited from developing advanced chip production in China for ten years. The decision is expected to affect Intel and its Chinese plant in Chengdu, as well as TSMC.
But the ban also forces Korean giants like Samsung and SK Hynix to rethink their China strategy, according to the Financial Times. With tensions around Taiwan but also Xi Jinping's strict Zero-Covid policy in China, South Koreans are increasingly pivoting to the United States, like Samsung, which last year announced a $17 billion factory in Texas.
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