With a population just shy of 24 million, it’s bizarre to believe Taiwan leads the world in semiconductor manufacturing. Unfortunately, this is one of the reasons why China and the USA are so obsessed with the island nation.
Taiwan made heavy investments in their electronics industry in the 1960s and 1970s. In 1974 the Taiwanese semiconductor industry kicked off, aided by semiconductor technology transfer from the United States. In the late 80s, Taiwan Semiconductor Manufacturing Company (TSMC) came into the scene, creating the fabless foundry model; manufacturing chips for companies such as AMD and Nvidia. Today, TSMC is a juggernaut. It has a market share of 56% in 2022. However, TSMC’s dominance can be fully appreciated when seeing its market share of 10nm-5nm chips. Almost 90% of the market share for 10nm-5nm chip production in 2020 belonged to TSMC. This stat alone proves that TSMC is one of the most important companies in the world, even though the majority of people have never heard of it. Not only do PCs and phones make use of chips made by TSMC, but many modern cars do too. A chip shortage has wreaked havoc on global car prices.
TSMC also makes semiconductors used in military systems. The F-35 uses TMSC-fabricated chips. As warfare gets increasingly automated, the need for highly advanced chips will increase. Smaller, more powerful chips could power incredibly advanced AI in future military vehicles or robots. Both the USA and China are afraid of being outpaced in this regard.
In early 2020, the USA urged TSMC to manufacture its chips on US soil, citing concerns of potential Chinese interference. A plant in Arizona is now awaiting completion. Once complete, the $12 billion facility will be the first to mass-produce 5nm chips in the USA. Much to the dismay of China.
China’s largest chip maker, SMIC, has managed to copy TSMC’s 7nm design. Though it should be noted that this is on a cryptocurrency mining chip, meaning it lacks many of the complexities found in other varieties. Though quite rudimentary, it is still quite an achievement, especially with the lack of advanced manufacturing tools. The US has prevented China from acquiring ASML’s extreme ultraviolet lithography (EUV) technology. This technology is essential for manufacturing advanced chips effectively. Rumours suggest that China is attempting to build its own EUV machinery.
In a quarterly paper released by the US Army War College, it was suggested that if China were to try to invade Taiwan, the Americans and Taiwanese should destroy TSMC’s facilities. Thus defeating the purpose of the invasion.
“To start, the United States and Taiwan should lay plans for a targeted scorched-earth strategy that would render Taiwan not just unattractive if ever seized by force, but positively costly to maintain. This could be done most effectively by threatening to destroy facilities belonging to the Taiwan Semiconductor Manufacturing Company”
Broken Nest: Deterring China from Invading Taiwan
If China were to invade Taiwan, and if TSMC factories were left unscathed, China would attempt to reverse engineer ASML’s EUV machines. This would possibly be the most complex reverse engineering operation in history. It would also be a devastating blow to the western world’s technological lead over China.
TSMC’s advanced capabilities are a juicy fruit that neither China nor the US can ignore. As the USA brings TSMC to its shores, China is left furious. Recent visits to Taiwan by US officials pushed China to the tipping point, sparking live fire drills. Though this raised concerns of a potential conflict, China knows that it has lost for now. Even a successful invasion will likely be met with the destruction of TSMC facilities. China’s only hope is to double down on its current EUV programs in order to catch up.
