The U.S. is stepping up its campaign to impede China’s pursuit of technology leadership. 

The Biden administration has recently unveiled new export restrictions to hinder the Chinese Communist Party’s (CCP) ability to purchase and use U.S. technology for manufacturing high-end chips for military development, artificial intelligence, and supercomputers.

According to a Financial Times report on October 24, Taiwan Semiconductor Manufacturing Co. (TSMC) has caught up in a tug-of-war with the U.S. and the ongoing tech cold war between two of the world’s largest economies.

The outlet noted that the Pentagon has always been concerned that its strong reliance on Taipei’s technology could likely pose potential risks of chip shortage in its defense industry. 

Eric Schmidt, the former Google CEO, said at a national commission on artificial intelligence last year that the U.S. was “very close to losing the cutting edge of microelectronics which power our companies and our military because of our reliance on Taiwan.”

Due to multiple factors, including global chip shortage caused by disruptions from the COVID-19 pandemic, growing competition in the U.S-China tech war, and a high possibility that Beijing would likely annex Taiwan by force, Washington is pushing harder to “diversify chip manufacturing away from Taiwan.” and revive its own semiconductor manufacturing.

However, this will put Taiwan at risk. The self-ruled island has long viewed its global chip supply chain dominance as a “silicon shield” to ensure national security.

Taipei believes that as long as the country can continue to become the world’s largest contract chip maker, Washington will continue to show support against Chinese military threats.

Jason Hsu, a former Taiwanese lawmaker and now a senior fellow at the Harvard Kennedy School, commented, “If you have something that both sides want, you have leverage. But if you don’t play that card, you become a pawn. We are kind of playing along with what the U.S. wants.”

In addition, Washington’s move will also cloud the future of TSMC as its “success is built on serving customers in all markets and on doing so from a cost-efficient cluster of plants almost entirely in Taiwan.”

Peter Hanbury, a partner and expert in the consultancy’s semiconductor and technology supply chains at Bain, said, “The cost savings and benefits of expertise are part of the TSMC model. There are a lot of benefits to the way they are running things — especially the close connection between R&D and high-volume manufacturing where you can send an engineer to a fab just an hour away.”

Hsu added, “The silicon shield is becoming a tripwire. On the one hand, the U.S. pressures TSMC to move to the U.S. On the other, it is waging technology war on China, pushing tension to a higher level that puts Taiwan at risk.”

Therefore, back in August, when U.S. House Speaker Nancy Pelosi was invited for lunch by Taiwanese President Tsai Ing-wen at a neo-baroque palace in Taipei, TSMC founder Morris Chang frankly told her that the U.S.’s plans to revive its own chip manufacturing would be unsuccessful.

A person familiar with the matter told the Financial Times that Chang’s attitude was pretty blunt, and the honored guests were surprised.

Regarding Washington’s efforts to rebuild chip manufacturing at home, the outlet noted that TSMC is currently building a fab in Arizona that is planned to produce mass output in the next two years.

But this factory does not have the same scale and technological level as that TSMC’s most modern fabs in Taiwan. The chip maker is building a domestic fab for N2 chips, which is seen as the latest generation of chips following mass production of the N3 in Arizona.

Additionally, the chip fabrication plants that TSMC, Samsung, and Intel are building in the U.S. are for advanced chips and thus only benefit the PC, smartphone, and server sectors.

Meanwhile, the U.S. automakers, which require less advanced chips, will face production disruption and struggle to maintain regular operations due to higher costs.

Hanbury explained most of the investment will not support the defense supply chain either as “the only government applications that run on advanced nodes are AI, cryptography and supercomputers, and those account for less than 5 percent of bleeding-edge chips.”

Edlyn Levine, chief science officer at America’s Frontier Fund, which invests in firms that help the U.S. maintain its lead in major technologies, thinks it is “a fantasy” to believe the U.S. could entirely reduce its dependency on TSMC for chip supplies.

She said, “The idea . . . is technically not feasible.”

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