Taiwan is the linchpin of the world’s supply of chips. In 2020, Taiwan’s TSMC constituted nearly 90 per cent of the market for advanced chips. Semiconductors power modern technology, including smartphones, cars, computers and a growing range of ‘smart’ devices. Both China and the United States, as well as others, are reliant on Taiwan’s manufacturing of semiconductors. In recent years, the Taiwanese semiconductor industry has attracted attention in light of US–China trade tensions and Taiwanese manufactures have sought to engage with both countries so as not to lose out on access to either of these massive markets.
In an effort to ease concerns about overdependence on Taiwan-based production, TSMC announced its commitment in May 2020 to build a US$12 billion semiconductor fabrication plant (known as fabs or foundries) in the south-western US state of Arizona. TSMC’s decision has also been made in an effort to shore up its access to the US market and in response to explicit US political pressure. Even with a transition to the Biden administration, as of yet, there are no signs of US–China tensions abating.
Since 2020, both the US and Taiwanese governments have spoken publicly about the war for technology supremacy and growing national security concerns over semiconductor supply chains. For instance, when German car makers — like their US counterparts — pressed Taiwanese chipmakers for semiconductors through diplomatic channels, some Taiwanese government officials hinted at trading chips in exchange for COVID-19 vaccines. For their part, the US and Japanese governments are cooperating to secure a supply chain for strategic technology components, including semiconductors, in an attempt to revolutionise supply and push for geopolitical balance.
The role of semiconductors in national politics in Taiwan has grown since President Tsai Ing-wen first took office in 2016. In her first term, key industry advocates lamented that the industry received minimal government support. The government’s flagship industrial plan, the 5+2 Innovative Industries Plan launched in 2017, did not specify support for semiconductors. But in President Tsai’s inaugural address in her second term in May 2020, she stressed that ‘we will take advantage of Taiwan’s strengths in the semiconductor and ICT industries to secure a central role in global supply chains’. Subsequently, the semiconductor industry has been included as one of her administration’s Six Core Strategic Industries.
Like TSMC, Intel has also expressed concerns about exposure to geopolitical disruptions and growing competition for high-tech talent. Earlier this year, Intel CEO Pat Gelsinger remarked that ‘having 80 per cent of all supply in Asia simply isn’t a palatable manner for the world to have its view of the most critical technology’. For Intel, moving its supply chain closer to home is increasingly essential. In this way, the launch of Intel’s IDM 2.0 (Integrated Device Manufacturer 2.0) strategy for a new era of manufacturing for the company was no surprise. The chip-making giant will invest US$20 billion in Arizona to build new fabs. The fabs are expected to begin production in 2024 and create 3000 new jobs.
Yet analysts have been increasingly sceptical about Intel re-entering the foundry business after an initial entry in 2010 and exit in 2018. Since these factories will begin operating only in 2024, the current shortage of semiconductors might already have been eliminated. Analysts also question Intel’s ability to compete, having already encountered several delays with its 10-nanometre process and having said to have lost its technology leadership position to both TSMC and Samsung.
Intel’s future is not strictly American. Overseas, Intel will continue to engage with external partners, including Taiwan’s TSMC and UMC, as well as South Korea’s Samsung and US multinational GlobalFoundries, to optimise its roadmap in terms of cost, performance, schedule and supply.
Arizona will also not necessarily host state-of-the-art manufacturing. TSMC’s forthcoming Arizona factory is planned to mainly operate 5-nanometre technology, while it will produce cutting-edge 3-nanometre chips domestically. Semiconductor industry talent and capabilities will be a boon to Arizona in relative terms, but will not immediately bring the state to the world’s technological frontier. For TSMC, that will likely remain in Taiwan. IBM’s 6 May watershed announcement that it has designed the world’s first 2-nanometre chip stands to bring more of the cutting-edge back to the United States; but this does not suggest a boost for Arizona as the IBM facility is across the country, in Albany, New York.
The big Intel and TSMC announcements around production facilities in Arizona will mean an outflow of high-tech talent from Taiwan to the United States. The Arizona plant announcements will accentuate worries around the threat of technology theft and intensify a global war for technology professionals that has already been regarded as a national security issue by Taiwan. In response, President Tsai’s government has been working on developing a regulatory framework to tackle these issues. At the firm level, at least in the short run, the relationship between Intel and Taiwanese chipmakers such as TSMC is set to take the shape of an awkward waltz of cooperation across continents.
Arizona is arguably on course to become a burgeoning industrial park on par with Taiwan’s Hsinchu Science Park, which includes the headquarters of TSMC, given the co-location of massive foundries in the coming years, proximity to an excellent university and talent willing to relocate from the high cost of living Silicon Valley. But the big unanswered question for the US government and firms is whether knowledge transfer will flow within and across firms so that the region can become a vibrant cluster of innovation.
Robyn Klingler-Vidra is Senior Lecturer in Political Economy at King’s College London. She is the author of The Venture Capital State: The Silicon Valley Model in East Asia (Cornell University Press, 2018).
Yu-Ching Kuo is an independent researcher based in Kaohsiung. She is the co-author of ‘Brexit, Supply Chains and the Contest for Supremacy: The Case of Taiwan and the Semiconductor Industry’ in A New Beginning or More of the Same? The European Union and East Asia After Brexit (Palgrave Macmillan, 2021).