European Union places its chips on a Taiwan deal with TSMC

The 27-nation bloc aims to ramp up semiconductor production as relations with China deteriorate

Taiwan’s Economic Affairs Minister Wang Mei-hua will have a stack of chips on the table when she plays political poker with the European Union.

In a move to break its dependence on super-advanced semiconductors manufactured in China and the rest of Asia, the EU is looking to ramp up production inside the 27-nation bloc.

Plans have already been outlined to boost capacity by producing 20% of the world’s cutting-edge chips amid a global shortage.

To do that, European Commissioner Thierry Breton has made overtures to Taipei and the Taiwan Semiconductor Manufacturing Company.

“TSMC has said repeatedly that the most advanced technology will definitely be [produced] mainly in Taiwan. As for how Taiwan and the EU can cooperate, companies have their arrangements and considerations, and it can be further discussed,” Wang said as reported by media outlets.

The facts:

  • Taiwan dominates the global semiconductor landscape.
  • That is a dangerous situation with tension rising between China’s ruling Communist Party and the island democracy.
  • Beijing considers Taiwan a renegade province and has vowed to take it back by force if necessary.
  • The stakes or chips are sky-high in the industry.
  • TSMC is the world’s leading player.
  • Overall, Taiwan, South Korea and Japan account for about 60% of global production, a report by the Boston Consulting Group and the Semiconductor Industry Association revealed.
  • Europe’s share has dropped to 10% from 44% in 1990.

Big picture: Chips are the building blocks of the modern world, a 21st-century version of oil. Without them, nothing runs in today’s plugged-in society of smartphones, smart cars and smart factories.

What that means: Like the United States, the EU is horrified by its dependency on a supply chain that stretches back to Asia and winds through China. 

Chain reaction: “In the coming years, tensions [are likely to increase] in the field of semiconductors. That can have implications, including geopolitical ones,” EU Commissioner Breton told a media briefing last month.

Sounds familiar? US President Joe Biden warned of the risks to the domestic supply chain in February. 

What he said: “We shouldn’t have to rely on a foreign country – especially one that doesn’t share our values – in order to protect our people during a national emergency,” Biden told the Press corp in a thinly-veiled reference to China.

Friend or foe: Taiwan is in a tough neighborhood with a Communist Party bully in its own backyard. Taipei needs all the friends it can muster, including the EU.

China Factor comment: Taipei’s tech titan TSMC is already planning to build a US$12 billion chip factory in the US. The Arizona plant will be close to key clients such as Apple, Qualcomm and Nvidia. Financially, the deal makes sense as the US is home to major consumer tech firms that need top-of-the-range semiconductors. The EU lacks that scale of operation. Even so, it might be premature to rule out Brussels’ latest move.