Semiconductors And Taiwanese Security: A Blessing or A Curse?
TSMC office at night. Photo courtesy of Wikimedia.
Taiwanese economic power is based on the production of one key resource—semiconductors. The essential microelectronic, which serves to connect and direct our devices, has recently sent the globe into panic.
Controlling an outsized share of the market in production, even foreign corporations that design their own semiconductor chips turn to Taiwan as the only viable option to produce cutting-edge chips. The chips are so instrumental to the world economy that shortages cause production problems worldwide. This fortune is at once a boon and a potential danger: with Taiwan less than 100 miles off the coast of China, American and Taiwanese policymakers alike often worry that the concentration of such a valuable resource on China’s border may invite attack. However, it is more likely that Taiwan’s semiconductor fabrication plants, far from undermining Taiwan’s safety, enhance its security. The historical analogues bode well for the Taiwanese, and America’s vested interest in protecting its supply lines far outweighs the improved inducement of Chinese interest.
This technological power has been nearly a half-century in the making. Taiwan’s semiconductor industry kicked off in 1974 when the Radio Corporation of America advised a Taiwanese economic minister to develop integrated circuits. In 1976, the plan agreeing to the first transfer of American semiconductor technology was approved. Over time, Taiwanese plants grew in number and sophistication. Key to their exponential growth was the innovation of the fabless manufacturing model pioneered by Taiwanese Semiconductor Manufacturing Company (TSMC)—prior to TSMC, semiconductor companies generally both designed and manufactured their chips. A corporation that wanted to produce more chips had to increase their capacity or outsource to a rival who might expect technology sharing in exchange. TSMC changed that, pioneering the model of only production. Companies could outsource production to its high-end manufacturing without fearing that TSMC would use it to compete in their design space. Moreover, without resources being spent on design, TSMC could afford to continually improve their production. 45 years later, Taiwanese semiconductor firms sit atop the market in production.
Semiconductors are increasingly valuable and utilized in everything from consumer cars to military-grade airplanes. This high demand has caused a shortage that is wreaking havoc in the American auto industry. Both GM and Ford have estimated that the shortage will lower their operating profit by at least $1 billion this year. More broadly, some economists predict a cost of $15 billion in lost economic output for the US this year. Normally, when price rises along with demand, producers, motivated by the high profits, increase supply. Expansion of supply is not a short-term option in the semiconductor industry, where high startup costs and setup time preclude quick growth. In fact, even existing players have trouble keeping up with the “More Moore Race”, the drive by semiconductor firms to continually produce smaller and more sophisticated chips. Moore’s Law, the name’s inspiration, holds that until now, the number of transistors in a dense integrated circuit (IC) doubles about every two years. The number of firms who have been able to keep up with the race have dwindled drastically. Down from 20 firms in the 1990s, today only TSMC and Samsung can produce the cutting-edge 5-nanometer chips.
Ultimately, this technological and industrial race has resulted in Taiwanese stewardship of a valuable strategic resource in demand by all. Even Germany is engaging in talks with Taiwan in hope of urging TSMC and others to increase production by any means necessary. This global dependency is at once lucrative and potentially dangerous: many fear that Taiwan’s concentration of a valuable resource just outside China’s borders invites aggressive behavior.
The US recently supplied Taiwan with Harpoon Missiles. Photo courtesy of Wikimedia.
Examination of a historical analogy, the evolving role of oil, can help us better understand Taiwan’s situation. Oil, like semiconductor chips, is an invaluable strategic resource necessary for industrial life. Production of oil was also concentrated in just a few regions, especially before oil was discovered in the North Sea. The Middle East in general held a dominant share of worldwide oil production. The case of the Middle East can be used to argue in two separate directions. The case of Iran would appear to augur terrible things for Taiwan. Conversely, the case of Saudi Arabia augurs further successes. Each of the two nations held a large supply of a resource with strategic value to the US. In the case of Saudi Arabia, the US helped with aid and arms sales in a tacit exchange of protection for oil. At first, the Iranian deal looked similar: the Shah received American aid and protection in exchange for oil. However, propping up the Shah enabled widespread repression and terror in Iran. When the Shah was overthrown in the Iranian Revolution, the new government was not disposed to be friendly to the United States. The calculus for America changed overnight, and oil in the hands of an enemy became a liability rather than an asset.
Given that Taiwan is an American ally, and that there is currently no systematic repression or broad-based resistance movement, the case of Saudi Arabia is a more apt analogy. Saudi Arabia has become a rich nation, an American ally, and a regional power with influence across the Middle East. A large part of Saudi dominance is a direct result of its vast oil reserves. America’s vested interest in protecting an ally with a valuable resource led Saudi Arabia to become the largest customer for American arms, including its most sophisticated weaponry. This weaponry allows Saudi Arabia not only to protect itself, but extend its influence across the region, including in Iraq and Yemen. Far from a strategic liability, Saudi Arabia’s reserves made it a regional power.
Taiwan benefits from the same factor that guarantees Saudi safety—American interest. Ultimately, it is not just China that understands Taiwan’s strategic value. American commitment to Taiwan’s protection is undergirded by the vast arm sales America concludes with the island republic, the same commitment that America continually shows Saudi Arabia. Over the course of 2020, Taiwan and America exchanged $5 billion in arms sales, bolstering Taiwanese defense with drones, coastal defense, missiles, and rocket launchers. Taiwanese companies like TSMC reward this commitment not only with the valuable chips, but with plans to build a chip factory in the US. The resulting plant would both create thousands of jobs and commit America to continue its policy of supporting Taiwan for several more years. Semiconductor plants take years to build—if America wants to see the plant completed, TSMC must still be around to construct it. The highly visible economic relationship between Taiwan and the US serves as a powerful deterrent to Chinese aggression.
The US recently supplied Taiwan with Harpoon Missiles. Photo courtesy of Wikimedia.
Another promising sign is China’s drive for chip self-sufficiency. Simply put, China’s large investment into its own semiconductor production capabilities indicates they do not consider the seizure of Taiwan and its plants to be a viable option. China would not need to expand its own semiconductor production if it believed they could seize the more-than-sufficient capabilities of Taiwan and use those. Because semiconductor manufacturing has high entry barriers of time and cost, Chinese investment in the field can be considered to be a significant bet against their ability to seize control of Taiwan.
Taiwanese semiconductor production may have increased Taiwan’s wealth and security, but nothing comes without a price. The price Taiwan pays for its bounty has taken the form of water shortages. In 2019, TSMC’s water consumption alone was 156,000 tons per day. That number only increased, and, when paired with a lack of typhoons making landfall this wet season, a water crisis was practically guaranteed. President Tsai Ing-wen is already advising citizens to conserve water in the face of its most severe drought in 56 years—but why should the needs of industry be prioritized over the people? Beyond water shortages, national prosperity comes at the price of environmental harm. The semiconductor industry generates a substantial amount of toxic waste and directly contributes to air and water pollution.
As Taiwan continues its tightrope act of balancing American interest and Chinese business, the country should move forward without unnecessary recklessness, which only adds environmental concerns to a delicate calculus.
Benjamin Eyal is a Staff Writer and freshman at Columbia College studying Economics and Political Science.