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Is Taiwan's Silicon Shield a Security Guarantee or a Target?

Daniel Nenni

Admin
Staff member
Given the many distracting ongoing wars around the globe currently, geopolitical experts worry that China may seize the opportunity to take over Taiwan, a former province of China, which Beijing insists is part of "One China." The invasion of Taiwan—an economic powerhouse where over 90 percent of the world's superconductors are produced—would set off a global chain reaction, explains Professor of Chinese Studies Kerry Brown in Why Taiwan Matters: A Short History of the Island That Will Dictate Our Future (St. Martin's). In this excerpt from his book, Brown shares the genesis of the Taiwan Semiconductor Manufacturing Company, which produces the "brains of modern electronics."

FEA02_Taiwan Book Excerpt_02

An aerial photo shows the Taiwan Semiconductor Manufacturing Company (TSMC) in Nanjing, Jiangsu province, China, on October 18, 2024. Costfoto/NurPhoto/Getty

Hsinchu Science Park, southwest of Taipei, Taiwan, is not a scenic spot for tourists to wander around. But on days when the temperature is not so searing that it melts the soles of your shoes and drenches you in sweat if you step outside, or when there are no torrential rains or typhoons to send you scuttling back into the welcome shelter of a taxi, it has a certain kind of serene calm.

Science parks like Hsinchu are dotted across the world. They have a certain generic feel, with their box-like buildings mass-producing whatever they do to fill the global markets with goods. In 1987, this science park backed one particular winner. That windowless white monolith and the dark glass-clad block abutting it contain one of the world's most valuable companies, one responsible for 8 percent of Taiwan's overall economic output, and 12 percent of its exports. More than that, this place sits at the center of the global economy, a beating heart that pumps out the chips and semiconductors that power everything from coffee makers and drones, to smartphones and artificial intelligence systems. You may not know it, but you are more than likely to be carrying one of those chips right now in your pocket.

FEA02_Taiwan Book Excerpt_05

Workers gather for a ceremony that marks the beginning of bulk production of advanced 3-nanometer chips at a Taiwan Semiconductor Manufacturing Co. facility in Tainan, Taiwan, on Thursday, Dec. 29, 2022. Lam Yik Fei/Bloomberg/ Getty

By 2023, the Taiwan Semiconductor Manufacturing Company produced over 90 percent of the world's most advanced semiconductors, the critical components that power every computer. Without them—"the brains of modern electronics," as they have been called—there would be no smartphones, computers or advanced medical diagnostic equipment.


Were this a geopolitical thriller, the addition of this factor to the already complicated cross-strait situation between China and Taiwan would be regarded as a plot twist too far. For the dispute between them is not just a geopolitical matter, but a geoeconomic one, too. The "semiconductor wars," as they have come to be called, are a distinct but hugely significant element of this conundrum. It would be tempting to say that this was all in accordance with a deliberate strategic plan on Taiwan's part. But in the early phase of Taiwan's economic development, the aim was merely to be more self-sufficient, and to become a little bit wealthier. The day Hsinchu Science Park was founded, there were no neat blueprints for how economic success would have important national security implications. That was all to unfold later.

Taiwan's Early Development​

The start was not auspicious. After the Nationalist creation of a separate government on the island in the late 1940s, there was precious little advanced industry. What did exist was the result of half a century of Japanese rule. Reasonable infrastructure was in place, with rail, road and functioning ports. War had not decimated this the way it had on the mainland, where the situation was far worse.

By the 1970s, Taiwan had become one of the Four Asian Tigers of the region (the others were Hong Kong, Singapore and South Korea). In concert with Japan and South Korea, it had entered the global economy by manufacturing and exporting goods and components that had become too expensive, or too polluting, to make elsewhere. The markets of Europe and North America were the chief destination for the things it made. Taiwan's agriculture sector remained important, but in a country where most land was mountainous and unusable, high-value production was the key to future wealth creation.

FEA02_Taiwan Book Excerpt_04

Lisa Su, chair and chief executive officer of Advanced Micro Devices Inc. (AMD), not pictured, holds an artificial intelligence processor during the Computex conference in Taipei, Taiwan, on Monday, June 3, 2024. Annabelle Chih/Bloomberg/Getty

Semiconductors offer a classic case study of how the process of state directed development in Taiwan worked. In the beginning, during the 1970s, the Taiwanese government's science and technology administration did not see this sector as a viable one. It was too capital intensive, demanding high levels of investment and financial support. The country did not possess the key technology, and therefore either needed to procure it from elsewhere or put significant resources into research and development to try to create it. There was inevitable reluctance by officials to considering entering an arena where the Japanese, Dutch and Americans seemed well ahead and would do everything they could to prevent competition.

Morris Chang was a key player in changing this situation, which was to have momentous consequences. Born in China in 1931, into a middle-class family, he left during the Communist takeover at the age of 18. In an interview in 2007, he recalled how "China was so poor, most of the people were so poor, even [the] middle class." The U.S., where he moved, "was a paradise when I first arrived," because of its social, political and educational advancement. A quarter of a century of service to Texas Instruments ended in the early 1980s with no new job lined up. But Chang had the rare combination of management skills and technological knowledge, which made him an attractive proposition for other companies and partners. It was understandable why Kwoh-ting Li, Minister without Portfolio in the Chiang Ching-kuo administration in the 1980s, targeted Chang. Li was a talent spotter; seeing the Chinese American at a loose end, he was an obvious figure to recruit. The new ethos in Taiwan took semiconductors seriously, and Chang seemed the perfect man to deliver something.

In the Museum of Innovation at TSMC in Hsinchu, located next to the building named after Chang today, there is an electronic copy of the first business plan he presented to the Taiwanese government, in 1987. It makes the case for what he wanted to do in very simple terms. There were four parts to the process of making semiconductors, as he saw it. First of all was development: IC board design and planning what needed to be made and why. Second was creating the technology to bring these products into existence. Third was the actual manufacturing of them. Finally, they needed to be sold to customers. Companies tended to try to do all of these stages. They'd come up with an idea, then have to invest in the means of making it, go through the production process and after that do the selling. But as technology advanced, it became clear that the levels of investment, and the ever-increasing specialization, meant it was harder and harder to do everything in-house.

FEA02_Taiwan Book Excerpt_03

Founding Chairman of Taiwan Semiconductor Manufacturing Company (TSMC) Morris Chang is interviewed by the Global Head of Citi Private Bank Ida Liu at the Asia Society on October 26, 2023 in New York. JOHN LAMPARSKI/AFP/Getty

Chang's proposal was that TSMC focus only on the second and third parts of the process (designing the machines to make the products and then manufacturing the chips). Its customers would be companies with an idea for a chip and what it could be used for. They'd bring that to Chang's new venture and agree on the best way of manufacturing it. TSMC then simply produced the chips for their client, who then went on to use them for whatever requirement they had. It did not deal with sales to end users such as consumers or smaller retailers. There are no TSMC-branded goods in the world, and yet probably every home has products with key components in them made by the company. Opting out of the first and final stages meant that massive focus was placed on producing the best processes and equipment for making chips and only chips.

A Race to Miniaturize​

When you visit the factory, it is easy to see just what a challenge it is meeting the demands of this very specialist market. The sheer level of technology needed to make these products, and the massive amounts of capital and technical knowledge required, are astounding. A camera shows different parts of the chip-manufacturing process. Standing gazing at it all, I was overcome the sheer complexity of what was involved. Humans barely appeared on the factory floor. Almost impossible levels of cleanliness are required. Suspended from electronic rails on the ceiling, small robotic machines ran with an eerie, almost human purposefulness, sporadically dropping components down on extendable wires in order to add to whatever product was being made. These buildings, which are so simple and featureless on the outside, inside are a symphony of activity and constantly moving parts.

The relentless focus on being just a chipmaker meant that TSMC has been continuously profitable from 1991. By May 2024, it had become the ninth most valuable company in the world, with a market capitalization of $730 billion. In little more than a decade, it had increased its value tenfold. Chang served as the chief executive officer until 2005, and then a second time from 2009 to his full retirement in 2018. A self-effacing man, in an interview with the New York Times in 2023, then well into his 90s, he said that "I would rather stay relatively unknown." At the same time, he showed a clear awareness of what his contribution had brought to Taiwan. "I was literally sure that we had achieved technology leadership...I don't think we'll lose it."

Chang was also a major player in creating something that China clearly wanted. "We control all the choke points," he told the New York Times. "China can't really do anything if we want to choke them." Its dependence on TSMC technology is still high, despite many efforts to accelerate the growth of its indigenous industry. The problems, however, are as much technical as political. The semiconductor business is partly a race to the most miniature. The precision needed to produce the most advanced chips is staggering. So too are the supply chains. TSMC may be one principal source of the industry's best products. But it is dependent on an ecosystem where just one of the most advanced lasers used for producing the chips itself requires 457,329 separate components. Despite vast research and development funding, China still lags Taiwan by a decade or more. It seems to be perpetually chasing a mirage, its object forever receding from it.

Just how much of a security guarantee is this for the island? On that point, there is disagreement. According to one report, "When it comes to semiconductors, China needs Taiwan more than the other way around." But another perspective is simply that the presence of this incredibly valuable and important technology in a territory that China regards as its own only makes Beijing more anxious to take the island. "In the current scenario, TSMC's position makes China covet Taiwan even more," Wu Jieh-min at the Taiwanese research institute, Academia Sinica, was quoted as saying. This is particularly so in view of the increased U.S. investment in producing top-quality semiconductors back home. For all the talk by Taiwanese officials of the "silicon shield" protecting them, reliance on it as an absolute guarantee of the island's safety and security would be foolhardy. After all, an attack by China would not only smash its own source of supply but also those of everyone else. Lose-lose this might be; but in Beijing's eyes, at least, it doesn't cede any advantages to its competitors.

What the presence of TSMC does do is complicate an already complex situation. The scenario planners in foreign governments and international organizations need to factor into the mix not just the military and geopolitical fallout of conflict between China and Taiwan, but also the absolute certainty that it will wreak havoc on the global economy, if only because of the collapse in supply of this one profoundly important component.

 
The true silicon shield of Taiwan is Intel. As long as Intel can mass produce chips in modern technology nodes the loss of TSMC in Taiwan could be compensated by the West - but not China - therefore a strong Intel protects Taiwan the best
 
The true silicon shield of Taiwan is Intel. As long as Intel can mass produce chips in modern technology nodes the loss of TSMC in Taiwan could be compensated by the West - but not China - therefore a strong Intel protects Taiwan the best
An interesting argument.
 

That exactly proves my point: imagine the 62% TSMC gone - who is capable to take over the advanced node stuff? Not UMC or GF, and Samsung will be too close to the war zone if China invades Taiwan - Intel will have to ramp-up production really quick :)
 
That exactly proves my point: imagine the 62% TSMC gone - who is capable to take over the advanced node stuff? Not UMC or GF, and Samsung will be too close to the war zone if China invades Taiwan - Intel will have to ramp-up production really quick :)
Exploring this scenario... if TSMC is destroyed, the chip-making equipment industry will be severely weakened. They'll become financially unviable at their current spending levels, so massive layoffs and perhaps closures will follow soon after TSMC stops buying equipment and paying for support. The disaster won't just be the loss of TSMC's production, it'll be a disaster for the entire ecosystem, and all of the fabless chip companies that won't be able to get their chips manufactured. Apple will lose trillions in market capitalization, so will Nvidia - it'll be a financial disaster, and a cascading disaster for the much of the rest of the economy. I think the loss of TSMC will still be the end of the world as we know it, and Intel won't be a significant factor in stopping it.
 
Exploring this scenario... if TSMC is destroyed, the chip-making equipment industry will be severely weakened. They'll become financially unviable at their current spending levels, so massive layoffs and perhaps closures will follow soon after TSMC stops buying equipment and paying for support. The disaster won't just be the loss of TSMC's production, it'll be a disaster for the entire ecosystem, and all of the fabless chip companies that won't be able to get their chips manufactured. Apple will lose trillions in market capitalization, so will Nvidia - it'll be a financial disaster, and a cascading disaster for the much of the rest of the economy. I think the loss of TSMC will still be the end of the world as we know it, and Intel won't be a significant factor in stopping it.
considering that we will also be in a kind of war, it will be the end of the world as we know it - but in the new world it will be more important than ever who still can produce advanced chips for AI and HPC, even if it may take a decade to replace TSMC. Only some NATO countries, lead by the US, will in this scenario be able to replace advanced compute equipment - I am very sure that China will not risk this outcome, thus Intel is the true silicon shield of Taiwan
 
assume the proposition that TSMC is the silicon shield of Taiwan is true, how does this stop China from invading: all chips gone - better for China than for the West, it would hurt us more than China. And if you start a war by invading Taiwan, it is all about military might. You would not care about the loss of wealth caused by the lack of semiconductors.
 
assume the proposition that TSMC is the silicon shield of Taiwan is true, how does this stop China from invading: all chips gone - better for China than for the West, it would hurt us more than China. And if you start a war by invading Taiwan, it is all about military might. You would not care about the loss of wealth caused by the lack of semiconductors.

Hopefully we have learned lessons from Russia/Ukraine so the US and allies can protect Taiwan BEFORE a war starts. If not, the world economy will literally crash. That is the point of the Silicon Shield and with AI demanding huge amounts of leading edge silicon the shield is stronger than it has ever been.

I think Intel can rebound and it is certainly imperative that semiconductors are a priority for the US, but it needs to be the entire ecosystem, not just logic. Logic is nothing without memory, right? Just as an example. More than 70% of DRAM comes from South Korea and North Korea has the ability to disrupt that at any time.

The best solution is for the world to all get along and work together to make the planet earth a better place. But hey, I'm a big picture type of guy. :) If you put together a coalition of four of the top 5 world GPDs (US, Japan, India, Germany) and a whole host of other smaller GDP countries, would China dare to invade Taiwan? Could they have prevented Russia from invading the Ukraine? I believe so, money talks......
 
Fully agree regarding the importance of keeping Taiwan save. But to keep Taiwan save, it does not only need a strong TSMC on shore, but also a strong Intel and Micron far out of reach of a possible aggression from China.
 
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Samsung foundry revenue is much larger than IFS, but actually both netted a loss of billions. Advanced node foundry is worse field to play in than DRAM.
 
The true silicon shield of Taiwan is Intel. As long as Intel can mass produce chips in modern technology nodes the loss of TSMC in Taiwan could be compensated by the West - but not China - therefore a strong Intel protects Taiwan the best
The mirror argument is that as long as China is economically dependant on TSMC (and the full ecosystem implied here), there is a shield in place ..
 
If both arguments are valid, it implies that the concept of the 'silicon shield' is flawed.

 
An interesting argument.

90% of Intel revenue physically passes through PRC

Could they have prevented Russia from invading the Ukraine? I believe so, money talks......

Russia is completely dependent on external technology imports, and yet they were confident that their stockpile, and banal sanction evasion measures will be sufficient for invasion of Europe.

It is crucial to understand that wars are fought by generals, but the ultimate goals of the war are always planned by the political leadership, and these political goals can be very distant from the military goals. And political goals may look completely insane to people with different political system. This can be as extreme as not caring whether you win or lose, live, or die, or let alone lose material wealth.

The communist politicians don't care about economics as a goal in itself at all. Economics is an instrument of policy, and a resource to expend. Not to say, all of current CPC leaders live in extreme opulence since birth, and have zero regard to money making.

In the communist-mafia fusion of Russia, they obviously don't put human life in any regard at all, but above all, we miss that they consider the terrible 1 million bodycount as a big win, and not a loss. Human lives are a resource, and they think they traded them extremely profitably in the conflict with the West.

Raymondo's level of sanctions enforcement will not stop PRC from being able to wage war on Taiwan, or even US mainland itself. The key mistake is that she only tried to produce "economic pain" while in reality she should've gone for economic destruction. Arm twisting will not work, only arm chopping.

China is economically dependant on TSMC

A communist state with a militarised command economy don't need "economy" in a conventional sense of this word to wage war, but a country with a market economy obviously does. For PRC, only how much missiles they can produce PHYSICALLY matters.

IC factories will be among the first things PRC will try to destroy, along with military bases. I am not sure about how well mainland politicians know how critical semiconductors are, but their generals do, as their defence studies available in open access pretty much say "destroy enemy's military industry at day 1" and then "destruction of enemy production takes precedence over preserving your own"

but in the new world it will be more important than ever who still can produce advanced chips for AI and HPC

No, in that Brave New World, the only thing which will matter will be who can produce the most shells, missiles, and tanks.
 
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90% of Intel revenue physically passes through PRC



Russia is completely dependent on external technology imports, and yet they were confident that their stockpile, and banal sanction evasion measures will be sufficient for invasion of Europe.

Raymondo's level of sanctions enforcement will not stop PRC from being able to wage war on Taiwan, or even US mainland itself.



A communist state with a militarised command economy don't need "economy" in a conventional sense of this word to wage war, but a country with a market economy obviously does. For PRC, only how much missiles they can produce PHYSICALLY matters.
Another argument is that China can manage its economy very efficiently and, therefore, can withstand difficulties introduced by external factors. Hence, I find the conventional "silicon shield" argument less convincing.

I came across this video a few weeks ago, which I found quite impressive:


Some context:
"As of 00:00 on August 6 2024, the Jiquan DC Transmission Project has cumulatively delivered 287.247 billion kilowatt-hours of electricity, with 38.789 billion kilowatt-hours delivered so far this year, representing a 4.59% increase compared to the same period last year. This is equivalent to replacing 114.8988 million tons of standard coal locally and reducing carbon dioxide emissions by 286.3852 million tons."
 
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Another argument is that China can manage its economy very efficiently and, therefore, can withstand difficulties introduced by external factors. Hence, I find the conventional "silicon shield" argument less convincing.

I came across this video a few weeks ago, which I found quite impressive:


Did you really "come across" this video about the wonderful technology being used to transmit electricity generated in Xinjiang several thousand kilometers to Anhui, China?

Many people on this Semiwiki can read and understand Chinese. They can probably conclude quickly that this particular YouTube channel is affiliated with or sponsored by the Chinese Communist Party. If you feel obligated to advocate the CCP's point of view or distribute their propaganda materials on Semiwiki, please spend a little bit of your precious time reading the United Nations Human Rights Office report about what the CCP did/does in Xinjiang, China.

As a human being, I can't look the other way without calling it genocide. I can't stop thinking about those brutal Nazi concentration camps that imprisoned and burned millions of Jews during WWII. I cry for all of them...

 
Did you really "come across" this video about the wonderful technology being used to transmit electricity generated in Xinjiang several thousand kilometers to Anhui, China?

Many people on this Semiwiki can read and understand Chinese. They can probably conclude quickly that this particular YouTube channel is affiliated with or sponsored by the Chinese Communist Party. If you feel obligated to advocate the CCP's point of view or distribute their propaganda materials on Semiwiki, please spend a little bit of your precious time reading the United Nations Human Rights Office report about what the CCP did/does in Xinjiang, China.

As a human being, I can't look the other way without calling it genocide. I can't stop thinking about those brutal Nazi concentration camps that imprisoned and burned millions of Jews during WWII. I cry for all of them...

I came across this video when someone posted the link on WeChat.

I found the content interesting because I am interested in net-zero initiatives, and the video focuses on electrification.

My perspective centers on efficiency and competitiveness in general. I shared this here because many people do not fully understand China's progress. Without a balanced view, it could lead to misjudgments.

For some perspective, in Australia, we have abundant renewable energy resources. However, the most habitable areas of the country are coastal cities. Modernizing the electricity grid is necessary to achieve net-zero, but I am skeptical because progress here is extremely slow. For instance, even a simple project like redeveloping a pier can take several years to complete:
https://www.parks.vic.gov.au/projects/melbourne-region/st-kilda-pier-redevelopment

In addition to the slow pace, human capital costs in Australia are significantly higher than in China. I can imagine that a maintainer like those shown in the video could cost around $1,000 per hour here. Meanwhile, in China, $1,000 to $2,000 could cover an entire month's salary for a similar worker.
 
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