US-China tech war bytes amid Taiwan tension

One aspect of Nancy Pelosi’s trip to Taiwan that has been largely overlooked is her meeting with Mark Lui, the chairman of the Taiwan Semiconductor Manufacturing Corporation.

Her visit trip coincided with Washington’s efforts to convince TSMC – the world’s largest chip manufacturer – to establish a manufacturing base in the United States.

The US relies heavily on Taiwanese semiconductors. It also wants the island to stop making advanced chips for Chinese companies.

American support for Taipei has historically been based on Washington’s opposition to communist rule in Beijing, and Taiwan’s resistance to absorption by China.

But in recent years, Taiwan’s autonomy has become a vital geopolitical interest for the US because of the island’s dominance of the semiconductor manufacturing market.

Computer chips are integral to all the networked devices that have become embedded into our lives. They also have advanced military applications.

Transformational, super-fast 5G internet emerged, enabling a world of connected devices of every kind, such as the “Internet of Things,” and a new generation of networked weapons.

Semiconductor design

With this in mind, US officials began to realize during the Trump administration that US semiconductor design companies, such as Intel, were heavily dependent on Asian-based supply chains for the manufacturing of their products.

In particular, Taiwan’s position in the world of semiconductor manufacturing is a bit like Saudi Arabia’s status in OPEC. TSMC has a 53% market share of the global foundry market –factories contracted to make chips designed in other countries.

Other Taiwan-based manufacturers claim a further 10% of the market. As a result, the Biden administration’s 100-Day Supply Chain Review Report said:

The United States is heavily dependent on a single company – TSMC – for producing its leading-edge chips.

The fact that only TSMC and South Korea’s Samsung can make the most advanced semiconductors, known as five nanometers, means this “puts at risk the ability to supply current and future [US] national security and critical infrastructure needs.”

Therefore, China’s long-term goal of Taiwan reunification is now more threatening to Washington’s interests.

In the 1971 Shanghai Communique and the 1979 Taiwan Relations Act, the US recognized that people in both mainland China and Taiwan believed that there was “One China” and that they both belonged to it. But for Washington, it is unthinkable that TSMC could one day be in territory controlled by Beijing

For this reason, the US has been trying to attract TSMC to its shores to increase domestic chip production capacity.

Last year, with the support of the Biden administration, the company bought a site in Arizona on which to build a US foundry. This is scheduled to be completed in 2024.

Technology war

The US Congress has just passed the Chips and Science Act, which provides US$52 billion in subsidies to support semiconductor manufacturing in the world’s largest economy.

But companies will only receive Chips Act funding if they agree not to manufacture advanced semiconductors for Chinese companies.

This means that TSMC and others may well have to choose between doing business with Beijing or Washington as the cost of manufacturing in the US is deemed to be too high without government subsidies.

This is all part of a broader “technology war” between the US and China, in which Washington is aiming to constrain Beijing’s technological development and prevent it from exercising a global tech leadership role.

In 2020, the Trump administration imposed crushing sanctions on the Chinese tech giant Huawei that were designed to cut the company off from TSMC, on which it was reliant for the production of high-end semiconductors needed for its 5G infrastructure business.

Huawei was the world’s leading supplier of 5G network equipment but the US feared its Chinese origins posed a security risk, although this claim has been questioned.

The sanctions are still in place because both Republicans and Democrats want to stop other countries from using Huawei’s 5G equipment.

The British government had initially decided to use Huawei equipment in certain parts of the UK’s 5G network. The Trump administration’s sanctions forced London to reverse that decision.

A key American goal appears to be ending its dependency on supply chains in China or Taiwan for critical technologies. This would include advanced semiconductors needed for 5G systems and other new tech in the future.

Critical importance

Pelosi’s trip to Taiwan was about more than just Taiwan’s critical place in the “tech war”.

But the dominance of its most important company has given the island a new and critical geopolitical importance that is likely to heighten existing tensions between Washington and Beijing over the status of the island.

It has also intensified US efforts to “reshore” its semiconductor supply chain.

Maria Ryan is an Associate Professor in US History at the University of Nottingham in the UK.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.