WHEN TWO TRIBES GO TO WAR
It’s all too easy to flippantly characterise the contest between the big players in chip design and production in militaristic terms. But is TSMC now so important that it could spark not just financial fisticuffs between corporate entities, but a real-world hot war between the USA and China? That is a sobering thought and one that has become rather more ominous in the wake of Russia’s recent incursion into Ukraine. After all, there are many parallels between Russia and Ukraine’s relationship and that of China and Taiwan.
At their closest point, just 130 kilometres of water separates Taiwan from the mainland. China, of course, has long maintained that Taiwan remains part of its territory under the One China doctrine. For its part, the US has operated a policy of strategic ambiguity regarding Taiwan. On the one hand, the US does not formally challenge the One China doctrine. On the other, it maintains informal relations with Taiwan including extensive trade and commercial arrangements.
There’s no denying how much is at stake. For the US, allowing China to seize control of Taiwan and, in turn, TSMC would mean a huge technological and strategic loss. However, should China take the bold military step of invading Taiwan, it’s far from guaranteed that TSMC’s foundries would survive intact and fully operational. Far from needing to be bombed to take them out of operation, fabs are hyper-sensitive to supply chain interruptions or any kind of contamination, never mind the loss of critical staff.
And even if China somehow managed to take control of the island while maintaining a short-term operation of TSMC’s fabs, the medium to long-term outlook would likely be grim. To take one example, TSMC along with all other current cutting-edge fabs, relies on EUV lithography machines produced by the Dutch company ASML. One fairly obvious western response to any Chinese aggression in Taiwan would be to cut off the supply of further ASML machines, which would almost certainly set TSMC back a decade or more.
In many ways, Taiwan and TSMC looks like an intractable problem for both China and the US. Any attempt to forcibly seize Taiwan would almost automatically undermine its economic value to China. But equally, there is arguably little that the US could do to stop China short of all-out war. And in that scenario, TSMC would be the least of everyone’s worries.
With all that in mind, it’s not terribly surprising to find that both the US and China are taking major steps to improve their domestic chip production capabilities and essentially sidestep the TSMC problem altogether. The US has the Creating Helpful Incentives to Produce Semiconductors for America Act or CHIPS Act, legislation that ewas recently signed into law with unusually bipartisan support and sets aside US$52 billion to boost domestic semiconductor research and production.
Meanwhile, a recent Biden administration review of supply-chain vulnerability concluded that China is pumping something in the order of US$100 billion into subsidies for its own chip industry. All of which means that the worst-case scenario of a hot war looks unlikely. But economic conflict is pretty much a nailed-on certainty.