This further enlarges the space already opened by the Trump administration for deeper US-Taiwan industrial ties. Supply chains are on the "top of the list" of the new high-level bilateral dialogue instituted by the two sides. In early September, the American Institute in Taiwan (AIT) and the Taiwan External Trade Development Council (TAITRA) signed a joint statement on securing supply chains, with a priority placed on the Information and communications technology (ICT) and medical sectors. The aim is to build supply chains that are immune to political coercion, and that ideally could reflect "shared values, standards and best practices".
This political involvement in global value chains has already produced results in the semiconductor industry. In May 2018, TSMC announced that it would build an advanced semiconductor foundry in Phoenix, Arizona. The decision is not only significant for US-Taiwan relations, it also does have implications for the whole semiconductor value chain. This will be the first time that Taiwan TSMC’s leading 5-nanometer technology for semiconductor wafer fabrication is used outside Taiwan. The announced US$12 billion investment has been facilitated by an undisclosed package of subsidies provided by the federal and the Arizona governments. According to TSMC Chairman Mark Liu, subsidies are "a key factor in TSMC’s decision to set up a fab in the US...Our request is that the state and federal governments together make up for the cost gap between the US and Taiwan". By how much? Estimates vary but the production cost in the US is estimated to exceed Taiwan’s by at least 20%. Back in June 2020, the State of Arizona rejected a freedom of information request on the incentives it was agreeing to provide, and that were reportedly meant to ensure the conclusion of the deal. The most recent reports show that the US government and TSMC are considering further expansion - larger facilities, and a move to 3 nanometer technology, which would mean doubling the cost of the fab, and another round of subsidies from the Biden administration’s new infrastructure investment package.
TSMC’s most advanced technology stays in Taiwan, but the Arizona fab will process orders from specific US high-tech industries, such as integrated circuits for the defense and the space industry. It will also become a major hub for integrated circuits linked to the applications of the new 5G infrastructure - new generations of smartphones, medical equipment, self-driving vehicles, smart factories… This is made possible by TSMC’s contract foundry model, which specializes in customized orders: the company manufactures 10,000 products for more than 480 customers. This will entrench TSMC as a key supplier to the US arms industry. Having integrated circuits that go in US weapons systems produced in the United States has been a constant goal of the Trump administration when pushing for the fab deal with TSMC.
TSMC no longer sells to Huawei and makes a clear choice to support the US plans for digital transformation, ambitions for arms industry innovation and policies to create high-skilled industry jobs. But this does not mean that TSMC entirely turns its back on China. On the contrary, TSMC plans a major expansion of its Nanjing fab to produce less advanced semiconductor technology (28 nm), with an investment announced at US$ 2,87 billion. The fab expansion responds to the massive needs of the world’s - and China’s booming - automotive industry that have been underlined by the shortages the sector has faced since late 2020. High-end production in Taiwan and in the US, mature technology on mass production in China: this is TSMC’s balancing act, and it has provoked the ire of Chinese netizens, angry that a company now considered by many hostile to Chinese interests continues to draw huge profits from China.
Contract electronic manufacturers looking South and Southeast
Supply chains are a priority of Taiwan’s 2016 "New Southbound policy", which seeks to deepen Taiwan’s links with ASEAN, South Asia, New Zealand and Australia. While the focus of the 2016 policy echoes Lee Teng-hui’s 1994 "Go South" policy, the Taiwanese government strategizes in a changing Asian business environment when it comes to supply chains. Taiwan’s electronic contract manufacturers are crucial consumer electronics assemblers in the supply chains of all the world’s most successful brands, including Apple, Dell, Toshiba and Hewlett-Packard (HP). While Taiwan’s electronic contract manufacturers have massive operations in China, a diversification process is underway. Taiwan-based Market Intelligence & Consulting Institute expects a continuous shift of computer assembly away from China to Southeast Asia and India, with component makers gradually following the assemblers.
Add new comment