Chip superpower Taiwan


Taiwan is a world leader in the development and production of state-of-the-art chips. A strategic trump card against the mainland, which the island state will not lose anytime soon, according to experts.

TSMC's headquarters in the Hsinchu Science Park in Taiwan

The news triggered anticipation in Saxony: The world's largest computer chip manufacturer TSMC is planning its first European production plant in Dresden,  reported the business magazine “Nikkei Asia”. The Taiwanese group primarily wants to supply the German auto industry from the factory. TSMC has now confirmed the plans.

And investments are not only made in Germany, TSMC is also planning new chip factories in the USA. The group is expanding worldwide, probably also for political reasons: An attack by China on Taiwan  is increasingly seen as a realistic scenario. Accordingly, TSMC and its customers are looking for an exit strategy in order to have a future despite this existential threat.

< p>Taiwanese Chip Champion TSMC Revenue Distribution

Computer chips are at the heart of all modern devices. They can be found in smartphones, televisions, refrigerators, cars, computers, drones or fighter jets. 70 percent of all computer chips are now manufactured in East Asia, in Japan, South Korea or China. The Taiwanese TSMC group plays a special role: it produces 92 percent of the particularly important so-called logic chips that are smaller than ten nanometers (one nanometer = 1 millionth of a millimeter). The majority of production has so far taken place on Taiwanese soil.

Global economy depends on the chip

The chip or semiconductor industry has so far been something like Taiwan's protective shield against China. Because if Beijing actually attacks the island state, the global economy is threatened with catastrophe. Cars, smartphones, medical devices and high-tech weapons could no longer be manufactured. Even China itself, which has so far been dependent on Taiwan's microchips, would have a huge problem.

TSMC boss Mark Liu announces massive expansion of advanced chip production in Taiwan

Not least during the pandemic, humanity had become aware of how dependent it is on computer chips. Several million cars could not be built, and the need for electronics for the home office could not be met. This is one of the reasons why many countries are now striving for greater domestic chip production, including China. Beijing wants around 70 percent of all chips to be produced domestically from 2025.

USA invests in chip industry

The USA is also investing billions in setting up its own chip production in order to become independent. In early August, US President Joe Biden signed the $280 billion Chips and Science Act. Around 53 billion of this goes into promoting chip production in the USA. TSMC, which plans to start mass production of the modern five-nanometer chips in 2024 in the US state of Arizona, is also involved. At $40 billion, it is one of the largest foreign direct investments in United States history.

TSMC founder Morris Chang is considered the “Steve Jobs of Taiwan”

In his speech in Arizona on this occasion, the now 91-year-old TSMC founder Morris Chang sounded anything but euphoric. “Globalization and free trade are almost dead,” he said, also criticizing the ongoing trade war between the US and China. President Biden has imposed sanctions on China's chip industry and stopped the relevant technology exports from the USA. This is another reason why China is now investing an enormous amount of money in its own production.

Forced takeover by China unlikely

In this situation, wouldn't it be tempting for China to take over Taiwan's state-of-the-art semiconductor industry by force of arms? Theoretically yes, but in practice Roy Lee, a semiconductor expert at the Taiwan WTO Center research institute, thinks this is unlikely. “US export restrictions pose major challenges for China in its efforts to advance technologically.” Because almost all materials, chemicals or spare parts that are needed for semiconductor production come from the USA, Europe and Japan. These would no longer be supplied, at least from the USA, if Taiwan were occupied by China. China also lacks the specialist staff to run a company like TSMC.

A so-called wafer made of semiconductors -Material silicon in a Bosch system

China needs Taiwan to produce modern semiconductors until it can make them itself. But this will take a long time, says Lee. China's largest chipmaker, SMIC, was blacklisted under the US administration of Donald Trump and has had limited access to much-needed American technology ever since.

In his office in central Taiwan, Benjamin Hein holds up what is known as a silicon wafer, a circular plate that is the starting material for chip production. Hein heads the East Asia business of German semiconductor supplier Merck, which has around 1,000 employees in Taiwan.

Chip -Production on Taiwan

It takes three to six months to manufacture a single chip, Hein explains. One aspect is crucial: “Nothing works without perfect hygiene. A single speck of dust can contaminate and destroy everything,” he says. Customers know that Taiwan meets the extremely high standards and that this is not the case everywhere else. Hein thinks it is unlikely that China will take over the production of chips itself in the near future.

“The semiconductor industry is a global industry, it would be very complicated to produce everything locally,” he says. Building a single factory takes three to five years and costs up to $10 billion. “It's unrealistic to set up this entire ecosystem in one country,” says Hein.

As long as China and the USA don't achieve this autonomy in chip production, Taiwan will keep its “semiconductor protective shield”. Its supremacy in this indispensable commodity gives the small island state threatened by China additional scope for international negotiation and a hearing. But the shield is not bulletproof. The Russian invasion of Ukraine showed that autocratic countries can make irrational decisions regardless of the cost.