Donald Trump: “If China were to take Taiwan, it would potentially disrupt the world'' Said Fox News recently seemed to mention the possibility of seizing one company that is at the center of almost everything. Indeed, the company is probably the most important company in the world.
Taiwan Semiconductor Manufacturing Company (TSMC), which President Trump alluded to, is the only company in history that could cause a global depression if forced to halt production.
These days, it seems impossible to talk about geopolitics or economics without going back to TSMC, which makes about 90% of the world's most advanced chips. If the lights go out in the company's super-clean, super-safe building here in Hsinchu, you might not be able to buy a new phone, car, or watch. The military may run out of precision-guided missiles, and hospitals may struggle to replace modern X-ray and MRI machines. This may be like 10x the supply chain chip disruption caused by COVID-19, but TSMC is unfortunately located in an area where war could break out and production could be threatened. doing.
Warren Buffett said last year, “Taiwan Semiconductor is one of the best-run and most important companies in the world.'' However, he sold his $4 billion stake in TSMC because he “didn't like the location.”
TSMC is so valuable that some believe China may try to seize Taiwan and bring the world to its knees.
“The more we talk about silicon, the more irrational people become,” TSMC Chairman Mark Liu told me.
So let's have a nuanced conversation about TSMC, its importance and its vulnerabilities.
First, TSMC's factories, or factories, would probably be useless to China after the invasion, even if the engineers stayed on the job and the factories weren't bombed by American or Taiwanese garrisons to escape Chinese hands. Dew. That's because the chips are designed in other countries and require international networks to continue production. To China, TSMC will be as useful as a defunct phone.
What happens in these factories is amazing because it is done 24 hours a day, 7 days a week by machines with no unions or protests. TSMC has transformed an industry where work is measured in nanometers (billionths of a meter). A human red blood cell is about 7,000 nanometers wide, and TSMC is currently developing a 1.4-nanometer chip.
“You can't beat a TSMC factory,” Matt Pottinger, a former Trump administration national security adviser and longtime Asia veteran, told me. “It's just black magic.”
But black magic requires huge amounts of energy, and TSMC alone probably consumes 7% of Taiwan's electricity, which creates risks. Even if China were not able to take over TSMC's factories, a cyberattack on the power grid alone could disrupt production as a way to put pressure on Taiwan and the West.
“It would be very easy for China to shut down the power grid,” Pottinger said. Alternatively, China could impose a partial blockade with the same effect. Both could soon have ripple effects on the global economy.
In other words, it will also have a ripple effect on the Chinese economy. TSMC's chips are a critical raw material for China's manufacturing industry, so much so that Taiwanese President Tsai Ing-wen has described the chip industry as Taiwan's “silicon shield,” meaning China could destroy its economy. This means that they do not dare to attack.
I'm as skeptical of this argument as I am of the idea of China invading Taiwan to take possession of TSMC. The Silicon Shield reminds us of the best-selling 1909 book, The Great Illusion, which has been translated into 25 languages and predicted the collapse of Europe. Economic interdependence made war obsolete. World War I and World War II led to a decline in sales.
It is clearly suboptimal for the world economy to rely on chips from areas prone to earthquakes and wars. This is one reason why the United States is investing approximately $39 billion through the CHIPS Act to manufacture chips domestically. But bringing most of the advanced semiconductor manufacturing back to the United States is already proving more difficult than passing the bill.
It will be very difficult for the United States to replicate the ecosystem that supports chip manufacturing in Taiwan, from the expertise in building fabs to the companies that clean the gowns worn inside the fabs. And the United States has a more difficult and expensive bureaucracy to obtain environmental approvals and building permits than in other countries.
A sign of trouble: TSMC and Samsung have already been forced to postpone plans for new factories in the United States. There is uncertainty about how advanced these U.S. chips will be, and 18 months after President Biden signed the CHIPS Act, U.S. subsidies have been delayed.
And a cautionary tale: TSMC built a factory in Washington state in the late 1990s, but its costs have been a headache for years.
“It's been a series of ugly surprises,” TSMC founder Morris Chan said in a 2022 podcast. Despite much effort and 25 years of experience, the factory's production costs are still 50 percent higher than in Taiwan. added Mr. Chan.
Perhaps because he is retiring at age 92, Mr. Chan is outspoken about America's strategic challenges.
“I think it would be a very expensive and wasteful exercise,” he said of the U.S. effort. “The United States will increase domestic manufacturing of semiconductors slightly. But it will all result in very large cost increases, high unit prices. It will not be competitive in the world market.”
Perhaps it makes sense for the US to manufacture to protect access to uncompetitive chips, but be aware that there are trade-offs. The U.S. would also become more competitive if the tens of billions of dollars spent on fab subsidies were used to reduce the number of children. Poverty and improving American education. If Americans were as good at math as Taiwanese, our factories might work better.
Given how difficult it will be to relocate production, the best way to protect chip manufacturing may be to work harder than ever to deter and avoid war in the Taiwan Strait. I'll explain more in a future column.