Are Taiwanese chip firms decoupling from China?

The U.S. has been stifling China’s advances in building technology using American intellectual property. In October, the US Commerce Department passed new semiconductor export restrictions on dozens of Chinese companies and research institutions.

This move came just days after the Pentagon expanded its own blacklist. Companies worldwide were also barred from exporting AI and supercomputing chips to China that are made using American software or hardware.

If these trade barriers weren’t enough, China shot itself in the foot with COVID-related lockdowns that have significantly disrupted global supply chain for electronic components and consumer electronics.

In April, truck drivers transporting products from factory to factory, or from factory to port, across city boundaries had been ordered to take daily COVID-19 tests. Those at risk of infection have been asked to quarantine themselves. Such policies have delayed customs clearance at ports.

The country’s “zero COVID-19” policy is continuing to hurt supply chains, and the ones most affected are those in the business of semiconductors. Caught between the two countries are Taiwanese chip firms as both China and the U.S. are keen to curry favour with companies that count major technology firms like Apple, Nvidia and Qualcomm as their customers.

Despite large-scale investments in the U.S. by Taiwan Semiconductor Manufacturing Company (TSMC) and Apple supplier Foxconn Technology, some analysts note Taiwanese manufacturers shun the U.S. due to its relatively high business costs.

“The U.S.-China trade conflict and the escalation of cross-Strait tensions have brought more serious challenges to all industries, including the semiconductor industry,” TSMC Chairman Mark Liu said at an industry group event on Wednesday, according to Reuters.

TSMC alone accounts for 54% of total foundry revenue globally last year, according to data from TrendForce. In advanced semiconductor category, Taiwan accounts for 92% of production, according to a report by Boston Consulting Group.

Some top semiconductor firms are now eyeing India, Vietnam, and in some cases, Japan for alternative foundry sites. In September, Foxconn and Vendanta signed a Memorandum of Understanding (MoU) with a state government in India to invest ? 1,54,000 crore to set up the plant in Gujarat. TSMC is reported weighing a potential expansion in Japan to counter tensions between China and the U.S.

Taiwanese chip makers have been investing in mainland China since the 1980s, and thousands of firms operate there today. Decoupling from China won’t be an easy affair, but the process has begun with top semiconductor firms looking forward to new horizons to ensure global supply chains run smoothly and efficiently.

This column first appeared in The Hindu's newsletter on emerging themes at the intersection of technology, business and policy. Written by John Xavier, Technology Editor at The Hindu.

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Twitter handle: @johnXavier777