As tensions grow between China and the US-led West over Taiwan’s status, both sides realise it is not easy to cut trade or manufacturing links with the island nation. It is as if Taiwan has become indispensible for both.
The hypothetical situation doing the rounds in Beijing and Washington is assess how cleanly can either distance themselves from the Taiwan economy in case a conflict situation arises. Forget a war, even a Chinese blockade of Taiwan could cause serious global turmoil. According to a Semiconductor Industry Association estimate, a disruption in the production of logic chips at contract chipmakers in Taiwan could cause nearly $500 billion in lost revenues for electronic device manufacturers that depend on this supply.
The visit of then US House Speaker Nancy Pelosi to Taiwan was the diplomatic low-point between China and the US. Many Western companies, realizing the tensions going up, made preliminary plans to exit Taiwan. Adding to their worries, China responded to Pelosi’s visit by displaying its military might in the South China Sea, threateningly close to the island nation.
That was enough for the industrial and tech giants in Western capitals to realise they would be down in the economic dumps were China to invade Taiwan today or tomorrow. That would lead to a crisis in the global tech industry, threatening the supply chains the world over.
Taiwan is best known for making cutting-edge semiconductors. But its companies also turn out other “crucial components from printed circuit boards to advanced camera lenses, and they run huge device assembly operations” in China. Nikkei Asia reports this “has created a triangle of critical interdependence between Taiwan, China and the US that has deepened even as tensions between Beijing, Washington and Taipei have risen”.
Western media, including Nikkei Asia and Financial Times give the example of iPhone to bolster their argument how Taiwan is an unavoidable investment today.
Its success rests on a sprawling Asian supply chain producing chips, displays, speakers and more on an almost unimaginable scale. At its heart lie both mainland China and Taiwan. The iPhone’s components reveal just how tightly bound the supply chains of the US, China and Taiwan have become. Each iPhone needs some 1,500 components. Nearly 70% of Apple’s top suppliers, making everything from processors to casings, are headquartered in either China (26%), Taiwan (23%) or the US (18%). Japan (17%) and South Korea (7%) round out the top five.
The most valuable components — including core processors, 5G modems, Wi-Fi chips and premium camera lenses — are made in Taiwan by Taiwanese companies, Nikkei Asia reports. All told, the “island’s suppliers account for nearly $200, or 36%, of the total materials bill for each iPhone”. These chips, however, are designed by Apple, or other US, Japanese or European chip developers, such as Qualcomm, Sony and Bosch.
On the other hand, Chinese suppliers are concentrated in less technologically demanding areas, like product assembly and mechanical parts. The number of China-based suppliers has overtaken all other countries and regions to become the largest supplying source by number of companies over the past few years. They have also started to move up the supply chain.
China is also where 95% of all iPhones are assembled, a figure that has changed little since its launch. The country is a major market for Apple, too, providing around a fifth of its total annual revenue. Complicating the picture is the fact that many Taiwanese and US suppliers serve Apple from hundreds of facilities in mainland China.
The Americans are now intent in getting back control over advanced chip production from Asia. IN contrast, China is busy becoming a tech giant in the region. If this continues, Taiwan will invariably get caught in the middle of this situation.
G7 leaders meeting in Japan this month vowed to “reduce excessive dependencies in our critical supply chains. Washington is determined to claw back advanced chip production from Asia, while Beijing is racing to establish its own tech supremacy. Taiwan is caught in the middle of this contest.
What worries China, however, is a move by Taiwan to move its semiconductor making plant to the US. Taiwan Semiconductor Manufacturing Co (TSMC) had decided to move equipment into its new $40 billion chip plant in Phoenix — the Taiwanese contract chipmaker’s first plant in the US in more than 20 years.
The US was elated realizing this move gives it an edge over China in chip making technology. But this is not all. Nikkei Asia reported: “Since the middle of last year, Intel, AMD, Nvidia, Meta, Google and Amazon have all requested additional production capacity outside of China and Taiwan, several tech executives told Nikkei Asia. HP and Dell — the world’s second and third biggest makers of notebook computers — told their suppliers specifically to start building capacity in Southeast Asia. Dell even aims to phase out made-in-China chips by 2024.”
The US plans to speed up the process of building chip making industries. It is offering incentives to encourage companies like TSMC and Samsung of South Korea to help build up America’s semiconductor industry. TSMC’s plant in Arizona, which will make ultra-advanced 3-nanometer chips that can be used in supercomputers, smartphones, cars, fighter jets and military equipment, is seen as one of the crowning achievements of this push.
By revenue, TSMC is the largest semiconductor company in the world. The company also has the world’s biggest logic chip manufacturing capacity and produces, by one analysis, a staggering 92 percent of the world’s most avant-garde chips—the ones inside the nuclear weapons, planes, submarines, and hypersonic missiles on which the international balance of hard power is predicated.
TSMC makes a third of all the world’s silicon chips, notably the ones in iPhones and Macs. Every six months, just one of TSMC’s 13 foundries carves and etches a quintillion transistors for Apple. In the form of these miniature masterpieces, which sit atop microchips, the semiconductor industry churns out more objects in a year than have ever been produced in all the other factories in all the other industries in the history of the world.
All this is good. But what if in a conflict situation China blocks Taiwan from connecting with its manufacturing arms in the US? Western companies thinking of running away from Taiwan is at one level as impractical as Taiwanese companies relocating themselves outside their country. It all depends on the level of the conflict everyone is speculating about but has no idea when it will come about.