The United States is moving forward with the technology war against Chinese Communist Party, and Taiwan is not immune to this process. Recently, the U.S. launched new measures to limit the Chinese impact on the semiconductor industry by severely restricting imports of chips made with U.S. machinery.

The Biden administration aims to regain the U.S. superiority of the 1990s. However, it must proceed with caution, as Taiwanese giant chip company, TSMC is one of the country’s and also the world’s largest suppliers. These new measures could in the medium term damage the sustainability of the global semiconductor market as well as the supply chain. Moreover, it will be no easy task to replace Chinese chips, let alone advanced Taiwanese nano chips. TSMC’s global dominance is out of the question, how did it become the big high-tech chip supplier?

According to a Financial Times report, the global semiconductor industry is led by Taiwan, thanks to TSMC, a chip manufacturing company that grew in recent years with the government’s support.

TSMC was founded 35 years ago by Morris Chang, known as “the godfather of the chip industry.” The 91-year-old entrepreneur is very active in representing the company. He was one of the businessmen who attended the meeting with U.S. House Speaker Nancy Pelosi during her visit to the island nation.

The FT report states that the Taiwanese government believes that the country’s semiconductor industry is so crucial to the U.S. that the U.S. would defend them against an attack by the Chinese communist regime.

According to economic data published by British media, which cites sources such as Credit Suisse, in the 1990s the United States manufactured 37% of the world’s chips and Taiwan did not yet manufacture any. Thirty years later, everything changed. In 2020, Taiwan manufactures 22% of the world’s semiconductors and has the technology to manufacture 92% of the world’s most advanced semiconductors. China also has a significant share—19% worldwide, surpassing the U.S., which accounts for 12% of total manufacturing.

Therefore, if the Taiwanese industry were to lose, overnight, the ability to manufacture the most advanced chips, several industries would be severely affected, such as electronics, automotive, cell phones, and others.

Several large companies, such as Apple, AMD, and others, rely exclusively on Taiwan to manufacture the most advanced chips. TSMC is the main supplier to these companies.

As economic historian Chris Miller pointed out, “There has been an unwillingness to even think about moving away from TSMC for much of the industry [because] it was inconceivable for the business model that worked so well.”

Moreover, every stumble or fall of TSMC’s competitors was well exploited by TSMC to move faster. It happened with Intel, when it only focused on producing chips for desktop computers and missed the new wave of semiconductors for the cell phone boom.

Miller said, “That, combined with geopolitical tension, led to a crisis of confidence in the U.S.: If something went wrong in the Taiwan Strait, you couldn’t credibly claim that you could rely solely on U.S. technology to develop the capability you needed, if, in fact, by some key metrics, TSMC had already outperformed Intel in terms of the technology.”

Although Taiwan sees the semiconductor industry as a “silicon shield” against threats from the CCP, this so-called shield could be weakened by U.S. efforts to prevent Chinese interference in the industry and boost its own independence from Chinese manufacturers.

This “silicon shield” is very important to the country’s government, however, it is not something that can be talked about too much in public, although Taiwan’s finance minister did comment on it. He said, “Everyone needs more advanced […] semiconductors,” said Minister Wang Mei-hua, during a visit to the United States last October. This “will make Taiwan [have] a more secure peace.”

Recently, senior Taiwanese officials had to publicly deny that the U.S. had devised a plan to safeguard TSMC engineers in the event of Chinese Communist Party war attacks.

According to Bloomberg, some U.S. officials argued that the U.S. should make it clear to the regime that it would destroy TSMC’s facilities to deny it control over the manufacturing of key technologies.

Chen Ming-tong, director-general of the island’s National Security Council, said that according to intelligence agencies, the U.S. had no such plan.

Chen said in a legislative session, “TSMC is a complete ecosystem that is unlikely to move. Even if [Beijing] were to occupy TSMC, it would be impossible for it to produce the [chips].”

Will Taiwan be able to replicate its production in the US?

The new agreements between the U.S. and TSMC are aimed at encouraging Taiwanese production in the U.S. However, it remains to be seen whether this relocation of TSMC factories from Taiwan is enough for the U.S.

Some experts point out that it is still a long time before Taiwan manages to move its most advanced chip factories overseas and this would be critical for the U.S. to achieve some security in chip supply should something happen in the Taiwan Strait.

Since the Trump administration, the U.S. has been inviting Taiwanese factories to move their production while trying to slow China’s technological advances.

In addition, since Pelosi’s visit to Taiwan, several companies have been reviewing or were about to review their crisis contingency plans or continuity of operations in Taiwan.

The CCP’s People’s Liberation Army military exercises and blockades of Taiwan showed what could happen in the future should China decide to advance on the island nation. However, the Taiwanese defense minister said, “We are counting on our own defense and hope that no unwanted situation will arise and that explains why we always remain restrained to prevent war from breaking out.”

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