The Chips are Down: The US Must Defend Taiwan
The US and global high tech industry depends on semiconductor exports from Taiwan
Where do semiconductors come from? The numbers are clear:
In 2017, Taiwan was the world’s 18th largest trading economy. The World Economic Forum ranked Taiwan as the world’s 15th most competitive economy in 2017. Taiwan is a major global producer of information and communications technology (ICT) products (e.g., notebook PCs, tablets, smartphones, and computer peripherals) and semiconductors.
…and semiconductors. Semiconductors are critical to Taiwan’s export economy, comprising 62% of its high tech exports in 2017 (SCMP) with sales of over $84 billion. The Taiwan semiconductor powerhouse firm TSMC alone accounts for 55% of global semiconductor production. Many firms in the US, one of Taiwan’s major trading partners, depend on the flow of chips from Taiwan. In the event of war, or if the island is annexed to China, the US high tech sector will suffer severe disruption. One report notes:
Major Taiwanese semiconductor companies are Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Company (UMC), both of which serve as foundries (contract semiconductor manufacturing companies) for fabless IC design companies in the United States and elsewhere. DRAM production was $6.9 billion; fabless production was $18.6 billion, and the balance ($13.9 billion) was in OSAT (Outsourced Semiconductor Assembly and Test). With the cost of building a new semiconductor fab (manufacturing facility) in the billions of dollars, many semiconductor companies worldwide contract their manufacturing to Taiwan — the largest semiconductor foundry manufacturing economy in the world. TSMC and UMC are major customers for U.S. semiconductor manufacturing equipment.
Taiwan is more than just a source of chips for US goods manufacturers. It is also the second largest export market for US semiconductor and semiconductor manufacturing equipment makers. To wit:
Taiwan was the second import market in 2017 with imports of US$ 11.5 billion, while Korea claimed the largest market for semiconductor imports for the first time in 2017. The United States was the fifth largest source of semiconductor products imported into Taiwan, representing US$ 4.4 billion, which was a 5.7% increase from 2016 to 2017 and occupied 9.7% of Taiwan’s worldwide semiconductor imports, which rose 13.3% over the same period. Taiwan foundries TSMC and UMC are both global leaders in semiconductor manufacturing and buy state-of-the-art semiconductor manufacturing equipment.
Taiwan is thus a “superb market for suppliers of U.S. semiconductor assembly and test equipment” as another report commented.
US ally Japan is also dependent on the supply of semiconductors from Taiwan. Three decades ago Japan wrested the crown of semiconductor production from the US, but Korea, China, Taiwan, and the US have dethroned it. In 2003 Japan was still the largest market for semiconductor manufacturing equipment, but by 2009 demand from Taiwan had surpassed Japan’s, indicating Taiwan’s pre-eminent position in the global supply chain. As with the US, Taiwan is a key market for Japanese semiconductor manufacturing equipment producers.
Another nation also threatened by Chinese expansionism, India, is already a large market for semiconductors and is growing rapidly. India at present has no semiconductor fabs in operation, though the government is pushing development of the industry. Hence it is 100% dependent on imports. TSMC opened a business office in India back in 2007.
By occupying Taiwan, the Chinese military will gain direct access to Taiwan’s high technology production facilities, techniques, products, and expertise, along with a rich store of information on the capabilities and expertise of US technology firms, and their markets and products. It is not in the interests of the United States either economically or strategically to permit this wealth of resources to fall behind the Great Firewall.
Taiwan will remain one of the few countries from which chips can be sourced without worry that they are contaminated with hardware and software for espionage.
Taiwan represents more than just a key supplier of semiconductors for the US and its allies. With China rapidly developing its semiconductor industry and putting competitive pressure on other semiconductor producers, Taiwan will remain one of the few countries from which chips can be sourced without worry that they are contaminated with hardware and software for espionage. Surely this is a resource US policy should work to preserve.
Thanks to Clay Lin for his research work on the top 10 foundries.
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