After Ukraine war, Taiwan’s chip supremacy raises economic stakes | Russo-Ukrainian War

The COVID-19 pandemic and the war in Ukraine highlighted the value of semiconductors in the global economy and Taiwan’s crucial role in chip manufacturing.

They have also shown that the island’s role in producing the crucial components, which are used in everything from smartphones to medical devices to automobiles, would be difficult to fulfill.

Taiwan’s vital importance to global supply chains is especially pressing amid growing speculation that China could try to take over the autonomous island, which Beijing considers a renegade province, by force in the coming years.

Among Taiwanese manufacturers, the Taiwan Semiconductor Manufacturing Company (TSMC) alone accounts for more than half of the global revenue generated by semiconductor foundries, thanks in large part to a business model that focuses exclusively on chip manufacturing. designed by other companies.

Douglas Fuller, a technology development expert at the City University of Hong Kong, said Taiwan gained a “first-mover advantage” and retained it by hiring a strong team of engineers, and ensuring its education system emphasize engineering, and by receiving “a lot of government support” in the form of cheap access to water, subsidized loans and low taxes.

Part of how TSMC maintains that support, Fuller told Al Jazeera, is in the implied threat that it might move its operations elsewhere.

Taiwan’s role in semiconductor manufacturing is so important that as demand grew with the onset of the pandemic, during which technology kept education and the professional world running, economies including the United States and Germany, requested help from Taiwan to increase production.

TSMC accounts for more than half of global semiconductor foundry revenue [File: Ann Wang/Reuters]

Experts have pointed to its semiconductor manufacturing industry as a key factor in Taiwan’s growing stature that helps distinguish the island from China.

Such recognition is crucial for Taiwan, which has full diplomatic ties with just 14 states, and many countries have been hesitant to deal with Taipei for fear of angering Beijing in light of its statements that the island should be reunited with the mainland, for the force. if necessary.

Antoine Bondaz, a researcher at France’s Fondation pour la Recherche Stratégique, says European countries, in particular, have started talking about the need for more cooperation with Taiwan, something he attributes specifically to semiconductors. “Semiconductors played a key role in making Taiwan visible,” Bondaz told Al Jazeera.

“It is completely new that Taiwan can be talked about openly.”

Following Russia’s invasion of Ukraine last month, Taiwan joined the US and its allies in imposing economic sanctions on Moscow by playing the highest card in its deck: cutting off semi-conductor exports.

The move is likely to leave Russia scrambling to find alternatives, according to industry experts.

“It’s important to note that semiconductors aren’t just used for computer processors, they’re needed for a variety of other functions, such as data storage, sensing, and signal conversion,” said John Lee, director from the consulting firm East West Futures in Germany. he told Al Jazeera.

“So the potential impact on Russia’s economy is very severe if the current sanctions coalition can be sustained.”

While supply chain disruptions caused by COVID, not to mention the ongoing great power competition between the US and China, may cause other countries to reassess their reliance on Taiwan, analysts question whether TSMC can be replaced in the future. a foreseeable future.

South Korea’s Samsung, the No. 2 player, is a very distant second in terms of semiconductor foundry revenue. Beyond Samsung, United Microelectronics Corporation (UMC), also from Taiwan, competes with GlobalFoundries, from the US, for third place.

‘Can’t be beat’

Chien-huei Wu, a research associate at Academia Sinica in Taipei, questioned whether another country could replicate Taiwan’s role, pointing to the island’s special institutions for training semiconductor engineers and TSMC’s 24-hour research and development operations. .

“This can’t be beat, even compared to Samsung,” Wu said, adding that diversification efforts elsewhere will sooner or later run into obstacles related to energy costs, labor costs, and the inability to replicate the technology. efficiency of Taiwanese engineers.

Eric Yi-hung Chiou, an associate professor of international relations at National Yang Ming Chiao Tung University in Taipei, agreed.

“It’s not about the money, it’s not about the technology,” Chiou told Al Jazeera. “It’s about talent. …working five days a week, eight hours a day, that will be very difficult. We have more engineers more willing to sacrifice their private time.”

There is a potential threat to TSMC’s market position that security analysts are increasingly talking about: the possibility of Beijing launching an invasion of Taiwan.

With Taiwan’s pro-independence president Tsai Ing-wen now in her second term, Taiwan’s political culture becoming more assertive of its distinctive democratic identity, and China’s cooperation and intimidation efforts failing, there is growing speculation that Beijing could choose to attempt force reunification.

Most security analysts believe that the probability of such a scenario is low in the short term, but may increase over time.

Xi Jinping
Chinese President Xi Jinping described Taiwan’s unification with mainland China as “inevitable.” [FILE: Greg Baker/AFP]

Meanwhile, Beijing has tried to claim a larger share of the semiconductor market, though Fuller of the City University of Hong Kong, for his part, questions whether or not it will succeed.

Fuller also expressed doubt that he can seize Taiwan’s capacity for semiconductor production by force, even if he successfully suppresses Taiwanese resistance: facilities like TSMC’s could be destroyed in such a result, and if not, his equipment requires continued service, including from the US and friendly nations.

But Taiwan’s importance in the semiconductor supply chain would not necessarily offer a “silicon shield” should Beijing decide to invade, according to Lee.

“Most countries will not come to Taiwan’s defense against an attack from China because of the role of Taiwanese companies in the semiconductor supply chain,” he said.

Fuller said semiconductors would be “quite low on the priority list for Chinese reasons to attack.”

Such an event would be a blow to the industry as a whole, causing a short-term crisis in supply should operations need to be moved from Taiwan to another location, such as South Korea.

Taiwan’s annexation is also likely to raise important regional security questions: Manufacturers “should be asking if moving capacity to Korea is that safe anyway,” Fuller said.

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