China, Taiwan and the US clash over control of the semiconductor market

The growing tensions between China, Taiwan and the US may be motivated not only by nationalistic and geopolitical interests. At the base there would also be another goal: the control of an increasingly precious resource, semiconductors. Taiwan is the world’s leading producer. But a possible Chinese invasion of the island would have the immediate consequence of blocking production with disastrous effects. Following the war-related commodity and energy crisis in Ukraine, another threat looms over the global economy: a technological lockdown.

Semiconductor manufacturing has increasingly shifted to Taiwan in recent years. Today, 63% of semiconductor production on a global scale takes place on the island. This is where the Tsmc (Taiwan Semiconductor Manufacturing Company) is based, the leading company in the business, capable of holding 54% of all market shares in the world alone. Mostly, all the companies that produce hardware and technological devices, source in Taiwan, for the wafers required for the operation of graphics cards, processors and microchips. Tsmc is one of two manufacturers in the world with foundries capable of producing the highly advanced and highly sought after 5 nanometer chips. The other is Samsung. But the Taiwanese company is preparing to beat the competition by launching a more advanced 3-nanometer version on the market.

China produces just 6% of semiconductors on a global scale. The production is not even sufficient to satisfy the demands of the internal market which depends for more than 90% on imports from outside and therefore from Taiwan. In 2014, the Chinese government launched a program to finance a national integrated circuit manufacturing chain. But the project stalled due to a series of corruption and fund management scandals. After spending $ 30 billion without achieving the desired results, China could change its strategy and step up its efforts to gain political control of Taiwan. In the short term, however, a possible Chinese invasion would lead to an interruption of semiconductor production. A global economic crisis perhaps worse than the one triggered by the lockdown would unleash during the conflict.

To further complicate relations between China and Taiwan, the United States intervened. The US is also partly dependent on Taiwanese semiconductors and, worried by China’s expansionist aims, has expressed its support for the democratically elected government in Taipei. They have also started to push for the construction of new production plants in America in order to increase the national production capacity. The US Congress has enacted the “Chips and Science Act” to control the funding that is awarded to semiconductor manufacturers. The US federal program provides investments for 52 billion dollars but the companies that receive them must also commit themselves for 10 years not to allocate the production of more advanced 28 nanometer chips to China and Russia. Tmsc is one of the companies benefiting from US grants. It has already started the construction of a production plant in Arizona worth 12 billion and is evaluating the possibility of expanding the project underway in the US. According to the agreement with the US, however, it will no longer be able to supply the technologically advanced chips to Chinese companies.