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‘The Eye of the Storm’: Taiwan Is Caught in a Great Game Over Microchips


TAIPEI, Taiwan — As Chinese warships rehearsed a blockade of Taiwan this month, they simulated a scenario global leaders and policymakers have been busy worrying about: not war, but a grinding halt to the electronic supply chains that make the trendy world run.

Taiwan’s biggest trading partners — which include China, the USA, Europe and Japan — have different ideas concerning the self-ruled island’s political future, yet all share common ground in a single desire, to expand their piece of its cutting-edge semiconductor industry.

Starting with Speaker Nancy Pelosi’s visit in early August, a succession of American delegations have kissed the ring of top Taiwan chip executives. There’s much to achieve. Lately, Taiwan’s biggest chip maker, Taiwan Semiconductor Manufacturing Company, or TSMC, has pledged to open recent factories in the USA and Japan. The Taiwan chip design firm MediaTek recently partnered with Purdue University to open a chip design center.

The calculation begins from a basic, and unsettling, reality of the worldwide economy. Taiwan is the most important producer of the world’s most advanced chips. It is usually rapidly becoming considered one of the world’s most dangerous geopolitical flash points. The fear is that within the event of a conflict, firms won’t get the microchips they should make phones and drones, arrange supercomputers and cellular networks, and even construct recent weapons.

Tech corporations on either side of the Pacific now rely heavily on TSMC to craft the high-performance chips that render graphics in video games and provides smartphones their smarts, but that also guide missiles and analyze oceans of military data. That has turned TSMC, whose name is obscure to most consumers, into a significant strategic asset for each Washington and Beijing.

In the course of the geopolitical drama of the past month, the facility of TSMC and the remainder of the island’s chip supply chain has been clear. On Ms. Pelosi’s trip to Taiwan, she met with TSMC’s chief executive, Mark Liu, and its storied founder, 91-year-old Morris Chang. A separate delegation led by Senator Edward J. Markey, Democrat of Massachusetts, met with the corporate to debate investments and improving semiconductor supply chains.

Taiwan’s president, Tsai Ing-wen, told one group that she saw the island’s tech prowess as a way of shoring up support for its democracy. Calling economic security a “pillar” of national security, she said Taiwan was willing to work with partners to construct sustainable supply chains for what she called “democracy chips.”

Chinese state media sniped on the efforts, calling Ms. Pelosi’s meeting a “photo op.” Still, in an indicator of how vital Taiwan’s chips are, it did little to hit back at the corporate.

For all of her feting of American delegations, Ms. Tsai, and the semiconductor industry she seeks to guard, face a precarious balancing act. Many Taiwanese businesses — TSMC included — depend on China for his or her livelihoods, even in the event that they support Ms. Tsai in standing as much as Beijing’s pugilistic behavior.

Though many within the semiconductor industry would look to the USA for support within the event of a conflict with China, they balk on the impracticality of constructing recent factories in the USA, which is costlier and lacks supporting industries. Mr. Chang, the TSMC founder, has repeatedly and publicly made the purpose.

TSMC, which declined to comment on its role in geopolitics, has maneuvered within the narrow space between American and Chinese interests. It’s constructing recent production facilities in Japan and in Arizona, at the same time as it expanded the capability of its factory within the eastern Chinese city of Nanjing. But, critically, the overwhelming majority of its most advanced production happens in Taiwan, where TSMC continues to construct its leading-edge production facilities, called fabs.

Seen a method, this web of dependencies helps keep the peace. China’s reliance on TSMC and other Taiwanese chip corporations deters the Communist Party from invading the island. The US’ dependence on the identical know-how gives its military support for Taiwan additional credibility.

Within the event of a military conflagration, Taiwan’s importance to global chip supplies also means the damage to all sides — and to the broader world’s digital infrastructure — is hugely amplified. Not for nothing do people in Taiwan call TSMC their “sacred mountain, protector of the nation.”

China’s recent bellicosity, which crescendoed earlier this month with every week of missile tests and fighter incursions, has steadily pushed the island’s sympathies away from China.

“Immediately, they’re moving very much toward the U.S.,” Dieter Ernst, a senior fellow on the Center for International Governance Innovation who studies the semiconductor industry, said of Taiwan’s leaders. “But from the attitude of the Taiwanese economy and most Taiwanese corporations, they should retain a link — and hopefully as close as possible a link — with China.”

Some top semiconductor leaders have spoken out against China after the military drills. Robert Tsao, the founding father of Taiwan’s second-largest chip manufacturer, United Microelectronics, said he would donate $100 million to Taiwan’s military following the exercises. Long seen as friendly to China, Mr. Tsao said in an interview that things had modified.

“They may bring no progress, only destruction,” he said of China’s Communist Party. He also spoke out against the trend in recent times of Taiwanese semiconductor engineers going to work for Chinese corporations for giant salaries, saying they were “servicing the Chinese Communist Party.”

Yet few in Taiwan’s microchip industry imagine Taiwan can walk away from China. The majority of the electronics supply chain continues to run through China. For years, the worth of China’s imports of semiconductors has exceeded those of oil. In 2021, it bought greater than $430 billion in semiconductors, 36 percent of which got here from Taiwan, in accordance with Chinese state media. Much of it goes into devices made for foreign firms which are then exported to the world.

Despite China’s efforts to make more chips domestically — which have had some success, but have also recently been hit by a wave of executive arrests for corruption — Taiwan chip makers have taken pains to not turn into China’s “enemy,” said Ray Yang, consulting director at Taiwan’s government-funded Industrial Technology Research Institute.

“Nobody would have a look at TSMC and say ‘you’re my enemy.’ I believe for Taiwan’s industry, actually, everyone still knows we’re their friends, even China,” he said.

Yet TSMC, and Taiwan, have been increasingly aligned with American policy. The corporate’s cooperation was indispensable to the Trump administration’s efforts to hobble Huawei, the Chinese tech giant. TSMC was a significant supplier for Huawei until recent U.S. rules put an end to that.

TSMC may even receive American chip subsidies linked to pledges to not further expand in China under the recently passed CHIPS and Science Act of 2022. Taiwanese officials have been receptive to a recent U.S.-proposed Chip 4 alliance, which seeks to unite the American chip supply chains with those of Taiwan, South Korea and Japan — on the exclusion of China.

Analysts debate how much protection China’s reliance on Taiwan gives it. Some argue that calculations over supply chains are insignificant in a choice over war, which could bring untold devastation and reshape geopolitics.

“You’ve to fret that those interdependencies look very significant, in peacetime, to the people who find themselves embedded in those relationships,” said Richard J. Danzig, who served as Navy secretary under President Bill Clinton. “But when the momentum for war begins to develop, it tends to swamp those things.”

Nonetheless, few deny that Taiwan’s centrality in the availability chain makes such considerations an element, an idea generally known as the “silicon shield.” An invasion of Taiwan would mean a type of mutually assured destruction, not necessarily of the world, but for the numerous modern gadgets we use daily.

That does confer a dose of security, said Jason Hsu, a former Taiwan legislator and current fellow on the Harvard Kennedy School focused on technology.

“TSMC is in the attention of the storm,” he said. “Sometimes what appears to be probably the most dangerous place will be the safest.”

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