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After the war in Ukraine, Taiwan’s chip supremacy raises economic stakes | Russia–Ukraine War

The COVID-19 pandemic and the war in Ukraine have shed light on the value of semiconductors to the global economy and Taiwan’s crucial role in chip manufacturing.

They also showed that the island’s role in producing the crucial components, which are used in everything from smartphones to medical devices and cars, would be difficult to fulfill.

Taiwan’s vital importance to global supply chains is particularly pressing amid growing speculation that China may attempt to forcibly take over the self-governing island, which Beijing sees as a renegade province, in the coming years. .

Among Taiwanese manufacturers, the Taiwan Semiconductor Manufacturing Company (TSMC) alone accounts for more than half of the global revenue generated by semiconductor foundries, largely thanks to a business model that focuses exclusively on chip manufacturing. designed by other companies.

Douglas Fuller, a technology development expert at City University of Hong Kong, said Taiwan had gained a “first-mover advantage” and kept it by recruiting a strong team of engineers – and ensuring its system education emphasizes engineering – and receiving “a lot of government support” in the form of cheap access to water, subsidized loans and low taxes.

Part of how TSMC maintains such support, Fuller told Al Jazeera, is the implicit threat that it might move its operations elsewhere.

Taiwan’s role in semiconductor manufacturing is so important that, as demand grew with the onset of the pandemic – during which technology kept education and the professional world going – economies such as the United States and Germany have requested assistance from Taiwan to speed up production.

TSMC accounts for more than half of global semiconductor foundry revenue [File: Ann Wang/Reuters]

Experts have pointed to its semiconductor manufacturing industry as a key factor in Taiwan’s growing stature that helps distinguish the island from China.

Such recognition is crucial for Taiwan, which has full diplomatic ties with just 14 states, and many countries have been reluctant to deal with Taipei for fear of angering Beijing in light of its statements that the island must be reunited with the mainland, by force. if necessary.

Antoine Bondaz, a researcher at the Foundation for Strategic Research in France, explains that European countries, in particular, have started talking about the need for greater cooperation with Taiwan, which he attributes specifically to semiconductors. “Semiconductors have played a key role in Taiwan’s visibility,” Bondaz told Al Jazeera.

“It’s completely new that we can talk openly about Taiwan.”

After Russia invaded Ukraine last month, Taiwan joined the United States and its allies in imposing economic sanctions on Moscow by playing the highest card of its game – cutting exports of semiconductors.

The move will likely leave Russia struggling to find alternatives, according to industry experts.

“It is important to note that semiconductors are not just used for computer processors – they are needed for a range of other functions such as data storage, sensing and signal conversion,” John Lee, director of the East West Futures consultancy firm in Germany, told Al Jazeera.

“The potential impact on the Russian economy is therefore very serious if the current sanctions coalition can be maintained.”

While the supply chain disruptions wrought by COVID — not to mention the current great-power competition between the United States and China — may cause other countries to reassess their dependence on Taiwan, analysts wonder if TSMC can be replaced in the foreseeable future.

South Korea’s Samsung, number 2, lags far behind in terms of semiconductor foundry revenue. Beyond Samsung, United Microelectronics Corporation (UMC), also from Taiwan, vies with GlobalFoundries, from the United States, for third place.

“Cannot be exceeded”

Chien-huei Wu, a research associate at Taipei’s Academia Sinica, wondered if another country could replicate Taiwan’s role, pointing to the island’s special institutions for training semiconductor engineers and the TSMC’s round-the-clock research and development operations.

“It can’t be outdone, even compared to Samsung,” Wu said, adding that diversification efforts elsewhere will sooner or later run into pitfalls related to energy costs, labor costs and the inability to replicate the efficiency of Taiwanese engineers.

Eric Yi-hung Chiou, associate professor of international relations at National Yang Ming Chiao Tung University in Taipei, agrees.

“It’s not about the money, it’s not about the technology,” Chiou told Al Jazeera. “It’s a question of talent. … working five days a week, eight hours a day will be very difficult. We have more engineers more willing to sacrifice their private time.

There is a potential threat to TSMC’s position in the market that security analysts are increasingly talking about: the possibility of Beijing launching an invasion of Taiwan.

As Taiwanese pro-independence President Tsai Ing-wen serves her second term, Taiwan’s political culture increasingly asserts its distinct democratic identity, and China’s cooperative and bullying efforts crumble. , there is growing speculation that Beijing may choose to attempt reunification in Force.

Most security analysts believe that the likelihood of such a scenario is low in the short term but may increase over time.

Xi Jinping
Chinese President Xi Jinping called Taiwan’s unification with mainland China “inevitable”. [FILE: Greg Baker/AFP]

Beijing has, meanwhile, sought to claim a bigger share of the semiconductor market, though Fuller of the City University of Hong Kong, for his part, questions whether or not that will succeed.

Fuller also expressed doubts about her ability to seize Taiwan’s semiconductor production capacity by force, even if she succeeds in suppressing Taiwanese resistance: facilities such as TSMC could be destroyed in such a result, and otherwise their equipment requires ongoing maintenance, including from the United States. and partner countries.

But Taiwan’s prominence in the semiconductor supply chain wouldn’t necessarily offer a “silicon shield” if Beijing decided to invade, according to Lee.

“Most countries will not come to the defense of Taiwan against an attack from China because of the role of Taiwanese companies in the semiconductor supply chain,” he said.

Fuller said semiconductors would be “pretty low on the priority list for Chinese reasons to attack.”

Such an event would be a blow to the industry as a whole, inflicting a short-term shortage of supply if operations were to be moved from Taiwan to another location like South Korea.

Taiwan’s annexation would also likely raise major regional security questions — manufacturers should “consider whether moving capacity to Korea is that safe anyway,” Fuller said.