Pelosi Taiwan visit puts TSMC back in spotlight of U.S.-China rivalry

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest contract chip manufacturer. But it has come amid geopolitical tensions between the US and China. logo displayed on the screen.

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US House Speaker Nancy Pelosi may have left Taiwan, but the visit has once again highlighted the island’s critical role in the global chip supply chain and, in particular, the chipmaker the world’s largest, Taiwan Semiconductor Manufacturing Co., or TSMC.

The controversial visit, which angered Beijing, saw Pelosi meet with TSMC Chairman Mark Liu in a sign of how critical semiconductors are to US national security and the integral role played by the company in the manufacture of the most advanced chips.

Semiconductors, which include everything from our smartphones to cars and refrigerators, have become a key part of the U.S.-China technological rivalry in recent years. More recently, semiconductor shortages have spurred the US to try to catch up with Asia and maintain a lead over China in the industry.

“Taiwan’s unresolved diplomatic status will remain a source of intense geopolitical uncertainty. Even Pelosi’s trip underscores Taiwan’s importance to both countries,” Reema Bhattacharya, head of Asia research, said on Wednesday to Verisk Maplecroft, on CNBC’s “Street Signs Europe.”

“The obvious reason is its crucial strategic importance as a chipmaker and in the global semiconductor supply chain.”

Pelosi’s visit to Taiwan and meeting with TSMC show that the US cannot do it alone and will require collaboration with Asian companies that dominate the most advanced chips.

The crucial role of TSMC

TSMC is a foundry. That means it makes chips that other companies design. TSMC has a long list of customers Apple to Nvidia, some of the biggest tech companies in the world.

As the U.S. lagged behind in chip manufacturing over the past 15 years or so, companies like TSMC and Samsung Electronics in South Korea moved forward with cutting-edge chip-making techniques. While they still rely on tooling and technology from the United States, Europe and elsewhere, TSMC in particular managed to cement its place as the world’s leading chip maker.

TSMC accounts for 54% of the global foundry market, according to Counterpoint Research. Taiwan as a country accounts for about two-thirds of the global foundry market alone when TSMC is considered along with other players such as UMC and Vanguard. This highlights the importance of Taiwan in the global semiconductor market.

When you add Samsung to the mix, which has 15% of the global foundry market share, Asia really dominates the chip manufacturing sphere.

That’s why Pelosi set out to meet with TSMC’s chairman.

Fears of invasion of Taiwan

China views democratically self-governing Taiwan as a renegade province that it must be reunited with the continent. Beijing spent weeks telling Pelosi not to come to Taiwan.

During his visit, China escalated tensions by holding military exercises.

There are concerns that any kind of invasion of Taiwan by China could massively affect the power structure of the global chip market, giving Beijing control over technology that it has not previously had. In addition, there are fears that an invasion could choke off the supply of cutting-edge chips to the rest of the world.

“Most likely the Chinese would ‘nationalize’ it (TSMC) and start integrating the company and its technology into their own semiconductor industry,” Abishur Prakash, co-founder of the advisory firm, told CNBC Center for Innovating the Future. by e-mail.

What is the USA doing?

How is China doing?

SMIC is crucial to China’s ambitions, but sanctions have stripped it of the key tools it requires to make cutting-edge chips like TSMC does. SMIC remains years behind its rivals. And China’s semiconductor industry is still heavily dependent on foreign technology.

TSMC has two chip manufacturing plants in China, but they are producing less sophisticated semiconductors unlike the Arizona manufacturing facility.

Chip manufacturing alliances

The US has been looking for it form semiconductor partnerships with allies in Asia, such as Japan and South Korea, as a way to secure supplies of crucial components and maintain a lead over China.

TSMC, meanwhile, is caught in the middle of the US-China rivalry and could be forced to choose sides, according to Prakash. Its commitment to an advanced semiconductor plant in the US could already be a sign of what country it is facing.

“In fact, a company like TSMC has already ‘picked sides’. It is investing in the US to support US chipmaking and has said it wants to work with ‘democracies’ like the EU in chipmaking Prakash said.

“Increasingly, companies have an ideological tone to who they work with. The question is, as tensions rise between Taiwan and China, will TSMC be able to maintain its position (by aligning with the West) or will it be forced to recalibrate its position? geopolitical strategy”.

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