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While Russian gas can be replaced by other forms of energy, Taiwan-made microchips cannot. The chip giant TSMC there has achieved global market dominance of truly systemic proportions. But why is that?

During her whirlwind tour of Taiwan, Speaker of the House of Representatives of the US Congress Nancy Pelosi did not only talk about geopolitics with the political leaders of this Asian country; but also dealing in the island’s most valuable company, Taiwan Semiconductor Manufacturing Company, also known as TSMC.

Pelosi’s meeting with TSMC Chairman Mark Liu on Wednesday underscored the chipmaker’s technological disproportionate weight in the global economy. From aerospace to consumer electronics, the world relies heavily on TSMC semiconductors in almost every sector.

TSMC is located in the Hsinchu Science Park in northwestern Taiwan, and even the slightest disruption in the company’s production, for example, is sure to stop the assembly lines of the global automobile industry, putting thousands of workers worldwide out of work.

But how did one company’s product become so indispensable?

Taiwan is home to leading chip factories and an industrial base that supplies key components to the industry

30 years on the cutting edge of technology

Founded in 1985, the Hsinchu Science Park is divided into six satellite parks — Hsinchu, Zhunan, Tonglu, Longtan, Yilan and the Hsinchu Biomedical Park — employing a total of about 150,000 people. Its main sector is the integrated circuit industry, which accounts for 70% of the total output value of the park.

“Taiwan’s Silicon Valley,” as the area is also called, is only about 150 kilometers (93 mi) from mainland China. This may interest you : How China-US collaborations continue, despite politics. It has also successfully created companies in other technology sectors such as telecommunications, optoelectronics, precision machinery and biotechnology.

Hsinchu’s 20 chipmakers — first and foremost TSMC and UMC — are the world’s largest contract semiconductor manufacturers. For example, TSMC is the exclusive supplier of Apple’s silicon processors for iPhones and Mac PCs, as well as a manufacturing partner of other US companies such as AMD, Broadcom and Qualcomm.

Semiconductor Policy
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‘Systemic foundry’ with ambitions

In apparent retaliation for Pelosi’s visit to the island, China halted some trade with Taiwan on Wednesday, escalating existing tensions between Taipei and Beijing over the island’s self-governing status. Read also : “Chinese Tesla” to run lifestyle-based Nine houses across Europe.

As part of its “one China policy”, Beijing has refused to recognize Taiwan as a sovereign state for more than half a century.

In a rare public interview, TSMC Chairman Mark Liu told CNN on Monday that everyone would lose in a war between China and Taiwan.

“If you use military force or an invasion, the TSMC factory will be rendered inoperable,” he said, adding that TSMC’s sophisticated manufacturing facility “depends on real-time connectivity with the outside world” and that “no one can control TSMC by force.” .”

Nancy Pelosi’s visit to Taipei also sparked strong pro-China sentiment among Taiwanese

Many of the world’s big tech companies are “fab-free,” meaning they don’t have their own manufacturing sites. They commission TSMC and other so-called foundries to manufacture the chips they design.

Peter Fintl, a chip market analyst at consultancy Capgemini, recently told German business daily Handelsblatt that TSMC has “gained a systemically important position” in the global market.

The semiconductor industry as a whole was heavily influenced by Pelosi’s visit to Taiwan. A global shortage of chips as a result of the COVID-19 pandemic has slowed the production of cars, televisions and computers and contributed to accelerating global inflation. A larger conflict between China and Taiwan, where the US is likely to take sides, could cause further disruption.

Global race for chipmaking dominance

During the meeting between Liu and Pelosi, the two sides discussed the recently passed US Chip and Science Act, which aims to reinvigorate the semiconductor supply chain. The new legislation includes a $52 billion (€51. Read also : China adds science lab to its orbiting space station.1 billion) package to support US chip manufacturing, and TSMC is likely to benefit from the program because of a $12 billion chip factory it plans to build in Arizona.

The factory will not be the first for the company on American soil. TSMC has already established silicon wafer manufacturing on the US West Coast and a chip design and research center in Texas. Washington, however, emphasized that the subsidies will only flow if the manufacturers ensure that the sensitive chip technology does not end up in the hands of China.

Alexander Görlach, an expert on China at the University of Oxford, said there is probably no other country in the world that is striving for technological dominance more than China.

“China has a great interest in gaining access to Taiwan’s chip-making know-how because it would perfectly match China’s large deposits of rare-earth minerals,” he recently told private German TV station Welt.

“That’s why countries like Germany and the US must not sit idly by when the People’s Republic tries to take over Taiwan. No more cars will roll off the assembly lines if Taiwan stops supplying its microchips.”

Meanwhile, the European Union is also drafting legislation that seeks to strengthen the continent’s chip-making industry. His European chip law will include €43 billion in subsidies aimed at increasing European chip production from the current 10% of the global market to 20% by 2030.

EU subsidies have attracted chipmaker Intel to the eastern German city of Magdeburg, where it wants to build a factory

For the foreseeable future, however, Taiwan will remain the world’s largest chip-making location, supplying about 90% of the world’s high-end semiconductor demand, according to recent data released by lobby group the Semiconductor Association of America.

When CNN asked TSMC chairman Mark Liu why China still isn’t capable of producing the same quality chips as Taiwan, he smiled and replied, “Oh, yes, but a few years later.”

This article was originally written in German.

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