Spotlight on Taiwan and TSMC’s role in global tech amid tensions with Beijing

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But as tensions rise between Taipei and Beijing, the fate of that industry has become a global concern. Experts have warned that any disruption to Taiwan’s chip supply could cripple production of key equipment, affecting almost the entire world.
The island has faced mounting military aggression from China in recent months. In response, Taiwan has stepped up its own military training and committed a record amount of defense spending this year.

The advanced chips Taiwan makes are an indispensable part of everything from smartphones to washing machines.

If a conflict were to occur across the Taiwan Strait, “it would be disastrous not only for Taiwan, not only for China, but also for the US, the European Union and everyone else,” said Roy Lee, deputy CEO of Chung- hua Economic Research Institute.

The chaos in global car manufacturing caused by a pandemic-related chip shortage over the past year gives an idea of ​​how bad it could get.

“With the car shortage, now you have to wait six months for cars made in Europe,” he added. “If Taiwan stopped supplying chips for other products, I would probably have to wait more than 12 months for a new mobile phone, or even longer for a laptop.”

Taiwan’s ‘holy mountain’

One Taiwanese company in particular, Taiwan Semiconductor Manufacturing Company (TSMC), is the world’s largest contract chipmaker and plays a key role in supplying products designed by tech companies like Apple, Qualcomm and Nvidia.

With a market capitalization of almost $500 billion, TSMC is one of the most valuable companies in Asia and accounts for 90% of the world’s super-advanced chips, Reuters said in a recent report citing industry estimates.
The company, widely known in Taiwan as its “holy mountain,” is so important to the island that its employees can apply to be exempt from military reservist training, even if called up, the Defense Ministry said.

The company did not respond to a CNN Business request for comment.

Super-advanced semiconductor chips, such as those produced by TSMC, are difficult to manufacture due to the high cost of development and the level of knowledge required, which means that much of the production is concentrated in just a handful of suppliers.

The global semiconductor industry has already been under pressure from a growing supply shortage, with many technology companies reporting delays in sourcing chips for their production activities. This makes Taiwan all the more important, especially as the United States and China engage in a bitter rivalry over the development of advanced technologies of the future, such as artificial intelligence and 5G.

If Taiwan were to fall to the communist authorities in Beijing, Western nations could lose access to the island’s valuable semiconductor chips.

Growing Concerns

Russia’s invasion of Ukraine has raised concerns about the risk that China could increase its military force against Taiwan. The communist leadership in Beijing has long claimed the island as part of its territory, even though it has never ruled it.

In recent months, China has increased its military pressure on Taiwan, including sending a record number of fighter jets near Taiwan last October. Chinese President Xi Jinping has refused to rule out the use of force to achieve what he called “national reunification.”

But as comparisons are made between kyiv and Taipei, the Taiwanese government has repeatedly emphasized the strategic role of its semiconductor industry.

“Taiwan and Ukraine are fundamentally different in geopolitics, geography and in the importance of international supply chains,” President Tsai Ing-wen said in condemning Russia’s invasion of Ukraine last month.

Last month, Taiwan announced that it had begun imposing economic sanctions against Russia. Officials said major Taiwanese chipmakers, which account for more than half of the world’s output of semiconductor chips, have agreed to comply with the measure.

Asked about the differences between Taiwan and Ukraine, J. Michael Cole, a senior fellow at the Taipei-based Global Taiwan Institute, said the island’s indispensable role in global supply chains “changes the way we countries, the international community, will calculate its response to the threat or invasion against Taiwan.”

China’s Taiwan Affairs Office did not respond to a request for comment.

challenges ahead

While Taiwan’s role as a leading semiconductor hub may be indispensable to the world right now, experts believe there are challenges for the island to maintain its edge.

The global chip supply shortage has already prompted many countries to take steps to end their dependence on Taiwan.

Last week, the US Senate approved a $52 billion plan to invest in research, design and manufacturing of semiconductor chips in the United States.
China’s largest chipmaker, Semiconductor Manufacturing International Corp (SMIC), has pledged to invest $5 billion in additional capacity this year.

“Right now, China, the United States and the European Union are looking at so-called next-generation semiconductor technologies,” Lee said.

“We understand that challenges lie ahead and we must maintain our leadership in semiconductors through research and development and, more importantly, cultivate qualified talents that will support Taiwan’s success,” he added.

In response to the challenges, Taiwan recently committed $300 million to chip-focused graduate programs to train the next generation of semiconductor engineers. Last month, it also passed new legislation that requires those working in key tech roles to obtain permission from authorities before visiting mainland China.

As discussions about Taiwan’s future grow, Lee believes the best way to keep the island safe is by leveraging a combination of military and economic might.

“That strength comes not only from military strength, but also from economic strength.”

— Will Ripley and Wayne Chang contributed reporting from Taipei, Taiwan.

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