The Battle for TSMC

Thursday January 26, 2023

•  supply chain •  Asian politics •  China •  Taiwan • 

The ongoing Russian invasion of Ukraine has upset more than a few applecarts. Setting aside the Idealpolitk of the situation, the possibility of Russian success is terrifying for other reasons. Those most interested in Russian success are Xi Jinping and the Chinese state because the lack of direct Western involvement in Ukraine would be seen to presage direct Western involvement in a potential Chinese invasion of Taiwan.

China claims Taiwan as a part of its territory and has long sought to reunify the island with the mainland. The Chinese government views Taiwan as a breakaway province and has never renounced the use of force to bring it back under its control.

The Chinese government has been pressuring Taiwan in various ways over the years, including diplomatic isolation, military intimidation, and economic pressure. The Chinese government has also been actively seeking to limit Taiwan’s international recognition and participation in international organizations for decades.

But Taiwan is critical to Western economies because Taiwan is the home to TSMC. TSMC (Taiwan Semiconductor Manufacturing Company) is a leading global semiconductor foundry that designs and manufactures integrated circuits and other semiconductor devices. It is considered to be one of the most important companies in the industry because it is the largest contract chipmaker in the world, providing manufacturing services for a wide range of customers, including some of the biggest names in technology, such as Apple, Qualcomm, and Nvidia.

TSMC’s advanced manufacturing processes and technologies enable it to produce chips with smaller geometries, higher performance, and lower power consumption, which are critical for the development of cutting-edge technologies such as smartphones, laptops, and data centers. Additionally, TSMC is a major supplier of chips used in 5G networks, IoT devices, and AI applications, making it a key player in the development of these emerging technologies.

And suddenly, the United States has moved to block mainland China from accessing chip manufacturers. From the Peterson Institute for International Economics:

On October 7, 2022, the Biden administration suddenly restricted exports of certain equipment and services to Chinese semiconductor companies. Motivated by national security concerns, the policy aims to slow the Chinese industry’s ability to produce advanced node semiconductors.

Now, TSMC has moved from a systemically important business to a significant geopolitical chip. And it is possible that China may have economic and military interests in taking control of TSMC.

Economically, TSMC is a major player in the global semiconductor industry and controls a significant share of the market for advanced manufacturing processes. If China were to take control of TSMC, it could gain access to the company’s advanced technologies and manufacturing capabilities, which could help it to close the gap with other leading semiconductor-producing nations like South Korea and the United States. Additionally, it could help China to reduce its dependence on foreign chipmakers and increase its competitiveness in the global technology market.

In terms of the military, TSMC’s advanced manufacturing processes and technologies could also be of interest to China’s military, as they are critical for the development of advanced weapons systems and other military equipment. Having control of TSMC could give China a strategic advantage in the development and production of cutting-edge military technology.

If China were to invade Taiwan with taking control of TSMC as a strategic objective, the risks to Western economies would be enormous. TSMC is a major supplier of semiconductors and other components to a wide range of customers, including many leading technology companies in the United States and Europe. If TSMC were unable to supply these customers, it could cause a shortage of critical components and slow down the development and production of new technology products.

This could have a ripple effect throughout the technology industry, leading to delays and disruptions in the launch of new products, higher costs for manufacturers, and reduced competitiveness for companies that rely on TSMC’s manufacturing capabilities.

Additionally, many companies have their supply chains dependent on TSMC, and it could be challenging to find alternative foundries that are able to match TSMC’s level of technology and production capabilities.

It’s worth noting that the global semiconductor industry is highly competitive, and other semiconductor foundries could potentially fill the gap left by TSMC. Still, it would take time for them to ramp up production to meet the demand. All of this would leave the 2021-2023 supply chain crisis as a warning of a much worse to come.