The most important company in the world

“It’d be pretty easy for China to bring down the power networks,” Pottinger said. Alternatively, China could impose a partial blockade with the same effect. Either could quickly ripple through the global economy.

Which means it would also ripple through China’s economy. TSMC chips are crucial inputs for Chinese manufacturing, so Taiwan’s president, Tsai Ing-wen, and others have described the chip industry as Taiwan’s “silicon shield” – meaning that China wouldn’t dare attack because that would destroy its own economy.

I’m as skeptical of this argument as I am of the notion that China will invade Taiwan to grab TSMC. The silicon shield reminds me of the 1909 bestselling book “The Great Illusion,” which was translated into 25 languages and predicted that Europe was so economically interdependent that warfare was obsolete. World War I and World War II killed its sales.

It’s definitely not optimal that the global economy depends on chips from an area vulnerable to earthquakes and war. That’s one reason America is investing some $39 billion through the CHIPS Act to manufacture chips domestically. But bringing a big chunk of advanced chipmaking back to America is already proving more difficult than passing the legislation.

It’s immensely challenging for America to replicate the ecosystem in Taiwan that supports chip manufacturing, from the expertise in constructing fabs to the companies that clean the gowns worn inside them. And America is a plodding bureaucracy where it’s harder and more expensive to get environmental approvals and building permits than it is in other countries.

A sign of trouble: Both TSMC and Samsung

have already had to delay plans for new plants in the United States. There’s some uncertainty about how advanced those American-made chips will be, and 18 months after President Joe Biden signed the CHIPS Act into law, the American subsidies are slow going out the door.

And a cautionary tale: TSMC built a fab in Washington state in the late 1990s, and for many years it was an expensive headache.

“It was just a series of ugly surprises,” Morris Chang, the founder of TSMC, said on a podcast in 2022. Despite enormous effort and 25 years of experience, the costs of production at that plant are still 50 percent higher than in Taiwan, Chang added.

Perhaps because he’s 92 years old and retired, Chang is candid about the challenges of the American strategy.

“I think it will be a very expensive exercise in futility,” he said of the US efforts. “The US will increase onshore manufacturing of semiconductors somewhat. But all of that will be very high cost increase, high unit cost. It will be noncompetitive in the world markets.”

Perhaps it makes sense for the United States to manufacture noncompetitive chips to safeguard access to them, but let’s recognize that there are trade-offs: the tens of billions of dollars spent on fabs subsidies would also boost American competitiveness if they were spent to reduce child poverty and improve American education. If Americans were as good at math as the Taiwanese, our fabs might work better, too.

Given how difficult it is to move production, the best way to safeguard the manufacturing of chips may be to work harder than ever to deter and avoid war in the Taiwan Strait.