On the front line of the superpower struggle between the United States and China, Taiwan has fashioned a defensive masterstroke. It has become indispensable to both sides.
Both America and China want to break their dependency. Washington has persuaded TSMC to open a US foundry that will make advanced semiconductors and is preparing to spend billions rebuilding its domestic chip-making industry. Beijing, too, is spending big, but its chip industry lags a decade or so behind Taiwan’s in many key areas. Analysts say that gap is expected to widen in the years ahead.
In a later statement, the ministry played down the silicon-shield theory. “Rather than saying that the chip industry is Taiwan’s ‘Silicon Shield,'” the statement said, “it is more appropriate to say that Taiwan has an important position in the global supply chain.” Taiwanese soldiers fire howitzers last year during the annual Han Kuang military exercise, which simulates an invasion by China. Ann Wang/Reuters
“The big concern in Washington is the possibility of Beijing gaining control of Taiwan’s semiconductor capacity,” said Martijn Rasser, a former senior intelligence officer and analyst at the US Central Intelligence Agency. “It would be a devastating blow for the American economy and the ability of the US military to field its platforms,” said Rasser, now a senior fellow at the Center for a New American Security.
The deep economic interdependence among the nations of Europe failed to prevent war in 1914, said retired US Marine Corps Lieutenant General Wallace Gregson, a former assistant secretary of defense in the Obama administration. While the semiconductor industry is “thoroughly beneficial” to the island’s security, Gregson said, it’s questionable whether this would prevent conflict once the “dogs of war get loose.
A major US worry is losing ground in the race to use artificial intelligence in weaponry. AI enables machines to outperform humans at solving problems and making decisions. It is expected to revolutionize warfare, and it hinges on semiconductors. The global chip shortage caused by supply disruptions amid the COVID-19 pandemic is giving a foretaste of the havoc a Taiwan conflict would wreak. The loss of a single year’s output from Taiwan would bring the international electronic supply chain to a halt, according to an April report from Boston Consulting Group and the Semiconductor Industry Association, the lobby for the US industry.
In 1985, Chinese-born engineer Morris Chang, a 25-year veteran of another US semiconductor power, Texas Instruments Inc, was recruited to head technology development in Taiwan. In 1987, Chang founded TSMC with the government as the major shareholder. In a speech in Taipei in April, Chang likened Taiwan’s chip industry to a “holy mountain range protecting the country,” a phrase popular in Taiwan that is used to describe TSMC’s pivotal role in the island’s economy. “I used it to make my point that it would be very difficult for Taiwan to create another company with TSMC’s influence,” Chang told Reuters.
America and its allies have for decades imposed chip technology barriers on China, mostly aimed at curbing Beijing’s development of advanced weaponry. The United States maintains a list of specific chip technology that requires a license for export, and restricts tech exports to China’s leading chipmaker, Semiconductor Manufacturing International Corporation. SMIC did not respond to questions from Reuters.
The most significant restriction is on equipment that uses extreme ultraviolet light beams. This light is generated by lasers and focused by mirrors to lay out ultra-thin circuits on silicon wafers. EUV is at the bleeding edge of semiconductor manufacturing. It allows chipmakers to build faster and more powerful microprocessors and memory chips.
A Biden administration review of US supply-chain vulnerability reported in June that Beijing was directing $100 billion in subsidies to its chip industry, including the development of 60 new plants. Some of this spending has already led to huge losses, however, with a spate of bankruptcies, loan defaults and abandoned projects.