Semiconductors pressured on Taiwan’s geopolitical row

Truth to tell US House Speaker Nancy Pelosi left Taiwan but the visit has put commodities and supplies in focus once again on the island’s critical role in the global chip supply chain and in particular on the world’s biggest chipmaker, namely, TSMC.

The controversial visit, which angered Beijing, was a sign of how critically important semiconductors are to US national industry and national security. The latest developments also cast spotlight on the crucial role that the company plays in making the most advanced chips.

Semiconductors, which go into everything from our smartphones to cars and refrigerators, have become a key part of the US and China’s rivalry over technology in the past few years. More recently, a shortage of semiconductors has spurred the US to try to catch up with Asia and maintain a lead over China in the industry.

Taiwan’s unresolved diplomatic status will remain a source of intense geopolitical uncertainty. Even Pelosi’s trip underlines how important Taiwan is for both countries. The obvious reason being its crucial strategic importance as a chip manufacturer and in the global semiconductor supply chain.

The US seems in need of collaboration with Asian companies that dominate the most cutting-edge chips. TSMC is a foundry. That means it manufactures chips that other companies design. TSMC has a long list of clients from including some of the world’s biggest technology companies.

It is noteworthy that the As the U.S. fell behind in chip manufacturing over the previous 15 years, companies like TSMC and Samsung Electronics in South Korea, pushed ahead with cutting-edge chipmaking techniques. While they still rely on tools and technology from the US, Europe and elsewhere, TSMC in particular, managed to bolster its place as the world’s top chipmaker.

Fears of Invasion

China views democratically, self-ruled Taiwan as a renegade province that needs to be reunified with the mainland. Beijing spent weeks telling Pelosi not to come to Taiwan. During her visit, China ratcheted up tensions by carrying out military drills.

There is a concern that any kind of invasion of Taiwan by China could massively affect the power structure of the global chip market, giving Beijing control of technology it had not previously had. On top of that, there is a fear that an invasion could choke off the supply of cutting-edge chips to the rest of the world.

Most likely, the Chinese would nationalize TSMC and begin integrating the company, and its technology, into its own semiconductor industry. The US is putting a big emphasis on reshoring manufacturing. Intel has looked to revamp its foundry business after falling behind TSMC for so many years. But the US has also looked to convince other companies to set up shop on its soil.

TSMC is currently building a $12 billion manufacturing plant in Arizona to make highly advanced chips. Last week, the US House of Representatives passed the Chips and Science Act which includes $52 billion in funding designed to boost semiconductor manufacturing in the U.S. and improve competitiveness with China.

On the other hand, China is boosting its semiconductor industry a strategic priority over the past few years with a focus on self-reliance and weaning itself off of American technology.