In 2000, American tech commentator Craig Addison wrote an op-ed in the International Herald Tribune titled “A ‘Silicon Shield’ protects Taiwan from China.” 

In it, he argued that Taiwan has developed a silicon-based product supply chain led by information technology hardware and component producers such as TSMC upon which the global IT economy has become highly dependent, creating a “shield” against China.  

Twenty years later, this “silicon shield” has emerged as the front line of the new cold war between the United States and China, propelling the U.S. and Taiwan closer together than ever before. It has also led the American government to push for the decoupling of global supply chains from China.

At the end of August, Brent Christensen, the director of the Taipei office of the American Institute in Taiwan (AIT), said at a forum that the U.S. government was restructuring supply chains and hoped to cooperate with Taiwan in diversifying them.

Christensen appeared again a month later at the annual meeting of the World Taiwanese Chambers of Commerce. He said the U.S. considers Taiwan a key partner in building trusted global supply chains for semiconductors, critical technologies, and medical equipment, and described U.S.-Taiwan relations like this: “We are real friends, making real progress.”

The AIT director’s repeated advocacy of “supply chain restructuring” has not only been the mantra of the Donald Trump administration but will likely be at the heart of President-elect Joe Biden’s efforts to promote the “de-Sinicization” of America’s key supply chains. 

The Taiwan-U.S. Economic Prosperity Partnership Dialogue being held for the first time on Nov. 20 represents a link in an international alliance – called the Economic Prosperity Network – the U.S. is promoting worldwide to contain China. It hopes to block the Chinese model from being adopted as the international standard in supply chains, 5G, energy, digital infrastructure and public health.

In that battle, Taiwan stands out as one of America’s indispensable partners.

De-Sinicization: No Turning Back

That’s because semiconductors stand out as the critical weapon in preserving America’s leadership status.

The U.S.-China trade war was launched at the end of 2017, and it has since escalated into both a titanic technology war and a new cold war. 

Terry Tsao, the global chief marketing officer and president of SEMI Taiwan, recalls a conference call with the California headquarters of the semiconductor industry association on Nov. 6 as votes were still being counted in the Biden-Trump presidential race.

Terry Tsao, the global chief marketing officer and president of SEMI Taiwan. (Source: CommonWealth Magazine)

The U.S. office said that based on national security and strategy considerations, “no matter who becomes president, the general policy direction will be to keep America’s technology advantages in the U.S. and preserve its leadership status.”

Countering China’s rise is now the consensus of America’s two major parties and will not change regardless of which one assumes power. That means a continuation of the tech war between the two major powers in the Biden era, with semiconductors likely positioned at the center of the conflict. 

The Trump administration first fired major salvos in the skirmish with a series of executive orders imposing export restrictions on leading Chinese 5G and AI companies, such as Huawei and SenseTime. 

Beyond that, however, members of Congress have proposed US$25 billion in subsidies and tax credits to get semiconductor makers and other IT vendors to manufacture in the United States, hoping to strengthen high-tech production in the United States and reduce dependence on the Chinese supply chain.   

Biden’s Democratic Party has also proposed its own “America Leads Act,” which covers economic competitiveness, security, culture and human rights. As the Democratic Party’s most comprehensive strategy for dealing with China to date, the measure would invest US$350 billion over the next 10 years to “synchronize and mobilize all aspects of U.S. national power” to confront the rise of China. That would include providing support for domestic manufacturing industries such as semiconductors and countering China’s “predatory behavior.”

Bad for the World if TSMC Goes Down

In this strategy, Taiwan has emerged as a major key geopolitical battleground.

A closer look at the global semiconductor supply chain reveals it to be dominated by the United States and Taiwan. American companies account for roughly half of all chip sales worldwide, and the tools used to design and produce chips are provided by American equipment manufacturers. Taiwan commands well over half of the world’s contract chipmaking and IC packaging and testing capacity.

The bulwark of Taiwan’s silicon shield is TSMC. Major global vendors of the processors used in AI, cloud servers and data centers, such as Nvidia, AMD, Qualcomm and Broadcom, order all of their most advanced process chips from TSMC. 

The semiconductor supply chain spawned by TSMC’s pure play foundry services, covering everything from materials and IC design to packaging and testing and production equipment, has now expanded across Taiwan, from Hsinchu in northern Taiwan to the Southern Taiwan Science Park in the south. 

(Source: Chien-Ying Chiu)

Taiwan accounts for 60 percent of the world’s semiconductor manufacturing capacity, according to SEMI figures, and it ranks as the world's biggest and second biggest purchaser of semiconductor materials and equipment, respectively, outpacing rival South Korea.

With such a large presence in the semiconductor supply chain, Taiwan’s semiconductor sector will surely benefit in the short term from U.S. efforts to decouple its supply chains from China as orders shift to Taiwanese suppliers. 

The Industrial Economics and Knowledge Center under Taiwan’s Industrial Technology Research Institute has forecast a 20.7 percent increase in the domestic semiconductor sector’s revenue in 2020 to NT$3.22 trillion, far exceeding the global average of 3.3 percent.

Investors have already factored in the trend, pushing share prices of Taiwanese semiconductor stocks 5.85 percent higher in the two months since the restrictions imposed on Huawei by the U.S. government took effect in September. 

American Achilles’ Heel

As Taiwan’s semiconductor sector has grabbed the spotlight, the United States has come to realize that its biggest technology Achilles’ heel is advanced chip production.

Only 12 percent of advanced chips designed by U.S. companies are actually produced in America, and Intel, the American leader in semiconductor production, has hit roadblocks in developing cutting edge processes, announcing in July, for example, that its production of 7nm chips would be set back until 2022. 

The quickest way to fix the problem was to ask TSMC to set up shop in the United States.

TSMC responded by announcing a strategic investment of US$12 billion in Arizona to build a 5nm wafer foundry. It hopes to break ground on the factory next year and enter mass production in 2024.

These developments reflect the subtle division of labor being shaped by Taiwan’s manufacturing supply chain and America’s semiconductor industry.

Superpower Rivalry

Aside from sanctioning Chinese technology companies, the Trump administration has tried to organize an international united front focused on 5G telecommunications infrastructure to contain the expansion of Chinese technology.

It started by promoting the “Clean Network” in August 2020 to “clean” American hardware as well as market and internet platforms of “untrusted” Chinese telecom operators, applications and cloud services. 

The 5G Clean Path Initiative under the Clean Network program will require that 5G service providers of U.S. diplomatic facilities receive “Clean Telcos” certification, meaning they do not use any transmission, control, computing or storage equipment from vendors with information security concerns, such as Huawei.  

(Source: Shutterstock)

Cyrus C.Y. Chu, who served as Taiwan’s representative to the World Trade Organization from 2016 to 2019, got a front-row seat to the growing confrontation between the U.S. and China while in Geneva. 

He said America has built three lines of defense in recent decades to counter its most powerful rivals. The first was NATO, a military line of defense used in the 1970s to contain Soviet Union expansionism. The second was a tariff line of defense comprised of the TPP (Trans-Pacific Partnership) and TTIP (Transatlantic Trade and Investment Partnership) pursued by the Obama administration.

The third is the technology line of defense set up during the Trump administration that has resulted in the technology cold war with China.

Taiwan’s Path to Survival: Stay Irreplaceable

Stuck between the United States and China, “Taiwan cannot choose sides. It should maintain a firm hold on its key position (in the supply chain),” said Robert Cheng (鄭勝榮), the head of research at Bank of America Merrill Lynch in Taiwan. 

SEMI Taiwan’s Terry Tsao agreed. “The semiconductor ecosystem has helped Taiwan become unique and irreplaceable,” and its next step should be to get more people behind it.  

(Source: CommonWealth Magazine)

If Taiwan can “leverage its existing supply chain advantages and bring more global suppliers in the semiconductor sector closer to Taiwan, it will create a second silicon shield,” Tsao said.

When Joe Biden takes over as the new president of the United States, he will undoubtedly continue to put America’s interests first even as he seeks to rebuild ruptured alliances. Having yet to see how the economic superpower rivalry ends, Taiwan’s best and perhaps only path forward is to solidify its indispensable role in global supply chains.

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Translated by Luke Sabatier
Uploaded by Penny Chiang