Reasons behind Taiwan’s Global Leadership in the “Silicon Shield” of Semiconductors(2)
(PART II: The Rise of Global Semiconductor Demand: A Choke Point amidst U.S.-China Geopolitical Tech War)
Sasirada Sringam
Picture Source: Foreign Policy: “Semiconductors and the U.S.-China Innovation Race:Geopolitics of the supply chain and the central role of Taiwan”
Nowadays, semiconductors, sometimes referred to as microchips, are very important in every domain of life. This is because semiconductors serve as the powerful brains behind various modern technological applications, spanning from medical devices and clean energy solutions to transportation and military defense.[1] Semiconductor technology is also poised to be a significant element in future for tech advancements as well like artificial intelligence (AI).[2] Moreover, semiconductors are not typical materials with electrical conductivity, the same as conductors like copper or insulators like rubber or glass.[3] Their conductivities can be precisely controlled and modified by introducing impurities or defects into the crystal structure of the material.[4] Therefore, Silicon Valley, the most widely used semiconductor material, is extensively utilized in the production of IC technology, also known as microchips. These chips incorporate multiple transistors, functioning as switches that regulate the flow of electricity, thereby enabling the execution of complex electronic functions.[5] Accordingly, semiconductors have been demanded for providing technological advancements from various aspects even higher and higher. The global semiconductor market is experiencing significant growth, with an expected steady Compound Annual Growth Rate (CAGR) of 9.18% between 2024 and 2032.[6] This growth trajectory suggests a substantial expansion, with market valuation projected to reach around USD 1028797.04 million by 2032, up from a valuation of several billion US dollars in 2022.[7] Consequently, the country that can ramp up semiconductor production stands to gain considerable power. However, the current leader in semiconductor productivity, producing high-quality chips, is not recognized as a sovereign state. Taiwan, often referred to as an island rather than a nation, faces pressure from mainland China to adhere to its One China policy.[8]
In the present day, Taiwan stands as a dominant producer in the global value chains of semiconductor industry, having made significant strides to Silicon Valley’s prowess and facility. Leveraging advancements in chip nanofabrication, Taiwan has been turned to be a hub for high-quality semiconductor production, particularly through companies like TSMC. Currently, it accounts for a staggering 92% of logic semiconductor production with components smaller than 10 nanometers, enabling greater processing capacity in a compact space along with enhanced speed and energy efficiency.[9] Moreover, Taiwan manufactures approximately 65% of the world’s semiconductors and nearly 90% of the most advanced computer chips.[10] At this point, Taiwan employs around 2.5% of the local workforce and contributes a remarkable 15% to its GDP.[11] Recent disruptions in the automotive industry due to chip shortages have served the significant role of Taiwanese companies like TSMC, which supply about 70% of the microcontroller units used in automobiles worldwide.[12] Accordingly, after since trade war between the U.S. and China afterwards, in response to the shortages of supply chains – especially for semiconductors – other states have urged Taiwan to prevent halts in automobile production, prompting TSMC, UMC, and other Taiwanese semiconductor manufacturers to scale up production of automotive chips.[13] These developments have strengthened Taiwan’s diplomatic standing, with officials hailing them as a blessing to the nation’s trade. Also, the semiconductor industry in Taiwan has boasted a production value of USD $115 billion in 2020, ranking second globally and comprising 19.7% of the total global output.[14] Furthermore, Taiwan was not only growing from the productivity of TSMC but also from other industry leaders as well such as MediaTek, ASE Group, and Global Wafers.[15] The success of Taiwan’s semiconductor ecosystem can be attributed not only to decades of government support and investment but also to its integration with other sectors of the nation’s tech industry.[16] This interconnectedness extends to PC vendors like ASUS and Acer, as well as electronic manufacturers such as Foxconn, Pegatron, and Wistron.[17] Taiwan’s semiconductor industry has surpassed that of other countries, including major powers like the United States and China. As tensions of the U.S.-China tech war escalates, so that Taiwan must rely on its strength to maintain its power and position in the global semiconductor industry.
The
issue of semiconductors has become a hot potato in the ongoing technological
and economic rivalry between the United States and China, intensifying during
Donald Trump’s presidency when a trade war erupted between the two nations in
2017. The trade conflict, also dubbed a tech-war, has sparked various concerns.
It is because from the United States’s viewpoint, trade with the mainland China
or the People’s Republic of China (PRC) has created several problems including
the loss of U.S. manufacturing jobs, national security issues, Chinese currency
manipulation, and Chinese labor and human rights violations.[18] As a result of these issues, the United
States has attempted to address its concerns through negotiations, WTO
disputes, increased investment scrutiny, tariffs, and U.S. industrial policies,
becoming steadily more combative over time.[19]
These measures have escalated under President Trump’s administration, marked by
actions such as withdrawing from the Trans-Pacific Partnership (TPP) and
imposing tariffs on significant volumes of Chinese imports.[20]
While these actions might inflict damage on both economies, Chinese markets
have shown slower recovery rates compared to the U.S. counterparts, indicating
potential vulnerabilities in the Chinese economy.[21]
However, this has led Chinese business to poise its position to other
countries, rather than in America. While Washington may be able to stand for
itself at first, later it must find the way to lean on China’s market.
Nevertheless, before America coming back to lean on China, one consequence of
the trade war has been asserted as the concept of “decoupling,”[22]
where economic ties between the two nations weaken, leading to economic growth
without corresponding environmental pressures.[23]
Thus, such decoupling scenarios come with significant costs to Washington. The
United States could face substantial GDP losses, with sectors like aviation,
semiconductors, chemicals, and medical devices particularly affected due to
significant supply chain disruptions in various technologies, especially for
semiconductors.[24] Therefore, Taiwan has drawn attention as
major players in this economic conflict. While Taiwan, South Korea, Japan, the
United States, and China collectively produce the majority of the world’s
semiconductors, the quality and advancement of these chips vary based on
manufacturing processes. Taiwan, notably, dominates the semiconductor
productivity, producing over 60% of the world’s semiconductors and more than
90% of the most advanced ones, primarily through companies like TSMC.[25] On the other hand, China could remain itself
as a crucial hub for electronic manufacturing and assembly, necessitating
market access for U.S. national security interests.[26] Therefore, decoupling between these economies
would not only harm the U.S. economy but also impact its security and global
leadership in innovation and technology.[27]
During
the Trump administration, Tsai Ing-wen, representing the Democratic Progressive
Party (DPP), authored an article titled “Taiwan and the Fight for Democracy – A
Force for Good in the Changing International Order” at the invitation of
Foreign Affairs magazine.[28] This piece, published in its
November/December 2021 issue, showed that the Taiwan Model is deeply rooted in
the embrace of democracy, emphasizing Taiwan’s unwavering commitment to facing
global challenges and asserted its readiness with a role on the international
stage commensurate with its abilities from semiconductor development for other
countries.[29] Beyond the preservation of Taiwan’s own
democratic values, President Tsai has highlighted the country’s contribution to
safeguarding regional and global stability as well.[30]
Through perseverance and determination, Taiwan’s 23.5 million citizens have
established themselves as active members of the international community.[31]
In 2016, Taiwan launched the New Southbound Policy, which facilitates regional
prosperity through trade and investment partnerships, educational and
people-to-people exchanges, and technological and medical cooperation with
countries in South and Southeast Asia, as well as Australia and New Zealand.[32]
Taiwan is also making investments in these partners through its business
community, simultaneously enhancing to secure supply chains and regional
development. Indeed, with its high-tech leadership and educated and globalized
workforce, Taiwan is well positioned to help create secure global supply chains
in sectors such as semiconductors, biotechnology, and renewable energy – all
areas where international cooperation is needed now more than ever.[33] Our semiconductor industry is especially
significant – a silicon shield that allows Taiwan to protect itself and others
from aggressive attempts by authoritarian regimes to disrupt global supply
chains.[34]
Until
the Biden administration took office in 2021, Taiwan had become a choke point
of U.S. security strategy for countering China’s influence of semiconductor.
During the latest election in Taiwan, President Biden emphasized the importance
of maintaining stability across the Taiwan Strait and reiterated the unchanged
stance of the United States regarding its policy towards Taiwan.[35]
Following the victory of DPP candidate Lai Ching-te or William Lai in the 2024
presidential election, he pledged to uphold Taiwan’s policy of moderation,
affirming Taiwan’s status as an island toward democracy and away from China and
vowed to safeguard the island’s de-facto independence from China as well as
further align with other democracies.[36] In response to Lai’s election, both Taiwan
and the United States demonstrated restraint China. There were no
congratulatory calls exchanged between the presidents of Taiwan and the U.S.,
and senior leaders from both houses of Congress refrained from announcing any
visits.[37] However, the new Taiwanese president diverged
from the policy of moderation, advocating for Taiwan to have a louder voice on
the international stage and pressing for greater recognition.[38]
Lai identified Xi Jinping as a threat to Taiwan’s freedom and emphasized the
need for assertiveness in safeguarding Taiwan’s interests and way of life.[39]
Accordingly, the current high global demand for semiconductors, fueled by the
ongoing U.S.-China tech competition, spanning from the Trump administration to
Biden and this present day, further strengthens Taiwan being as a choke point
position on the global stage for semiconductor needs.
At
this point, Taiwan can leverage its power from silicon shield characteristic.
Taiwan’s semiconductor industry has been a significant player in the global
semiconductor market since the 1960s. The country has a strong public sector
infrastructure, financing, and investment funds, dating back to the 1960s.
However, Taiwan also faced challenges due to factionalism in bureaucratic
politics during the 1960s-2000s. To overcome these issues, Taiwan can establish
democratization and resolve issues through five solutions: (1.) providing
top-notch education for technocrats, (2.) attracting foreign advisors, (3.)
establishing Hsin-chu Science-based Industry Park, (4.) building joint
ventures, and (5.) encouraging technocrats to start their own
semiconductor-related businesses. Taiwan has also conquered the semiconductor
industry with its high-tech IC technologies, gaining a global silicon shield
over other countries, including the United States. During Tsai Ing-wen’s
presidency, Taiwan has been portrayed as a democratic representative through
semiconductor and technological development. This has helped Taiwan contain its
position against the One China policy under Xi Jinping. Despite this, the great
powers of China and the United States may find other ways to flee or de-risk
from Taiwan, as the semiconductor industry continues to play a significant role
in the global semiconductor market. Washington and Beijing may take themselves
away from Taiwan. However, this doesn’t mean that both don’t try to persuade
Taiwan to be one of their teams, even though they must use force to do so.
[4] Editors,
“National
Taiwan University Office of International Affairs 【亮點實驗室】半導體製程，臺灣重點科技發展: 奈米機電系統研究中心（半導體製程重點技術平台）,”
National Taiwan University Office of International Affairs 【亮點實驗室】半導體製程，臺灣重點科技發展|奈米機電系統研究中心（半導體製程重點技術平台,） March
26, 2024, accessed on 15th May 2024, https://oia.ntu.edu.tw/en/col.article/detail/sn/35.
[28] “President
Tsai Publishes Article in Foreign Affairs on Taiwan’s Democracy and Positive
International Role,” Office of the President Republic of China (Taiwan),
October 5, 2021, accessed on 15th May 2024,
https://english.president.gov.tw/NEWS/6169.
