Taiwan’s Defense Shield – The Chip Shield

A small thriving democracy – on one hand claimed to be a part of a rising global power bent on territorial gains and on another hand supported by the sole superpower with commitments to protect the islands sovereignty. How did Taiwan get to this scenario ?

• 1930’s and 1940’s : Attack on Pearl Harbour awakes the sleeping giant, America. US steel and heavy machinery dominance and ability to scale production wins WW2. Automation played a key role in production. Automation was mostly mechanical. For the next round, a better and more reliable automation will be required.
• 1950’s – USSR moves ahead in the space race. They launch Sputnik catching the Americans by surprise. The sleeping giant awakens again – this time responding to JFK’s call to put a man on the moon. This combined with the need for guidance system for the Inter Continental Ballistic Missiles kick starts integrated circuit development and manufacturing.
• 1960’s – The US marches along with Integrated Circuit and semiconductor development. USSR ( similar to what China will adopt a few decades later) took on the less costly “ copy it” strategy. So, the foundation to accelerate or overtake America was never present. Both were more interested in a " getting rich quick" philosophy.
• 1970’s – America is bruised by its war in Vietnam. Although never acknowledged, it was considered a defeat after an 8 year engagement – to stop the march of communism. America needed a less costly and more effective way of controlling the march of communism. Capitalism comes into play.
• 1970’s and 1980’s - ?America found that it can leverage the lower manufacturing cost of Asian countries – initially starting with Japan (who had excess capital as they were prevented from spending on military) and later on South Korea and other Asian countries. The economic dependence of these countries on America played into US hands.
• 1980 - 1990 – Morris Chain of Texas Instruments was tasked by the Taiwanese govt to look into building foundries for the semiconductors/chips. Phillips along with other local Taiwanese capitalists founded TSMC in 1987. TSMC later on collaborates with the Dutch company ASML which makes the lithography machines required for chip making. The company makes rapid strives and with the growth of chip demands for cars to microwaves to crypto mining to avionics – TSMC now account for 60% to 70% of all advanced chip manufactured on the world.
• 2000’s – China puts forward “Made in China” and aims to reduce chip dependency from 85% to 30% by 2025. But they lack the technical know how to make advanced chips. Is there an easier and more quick put ? What about our neighbor? Isn’t Taiwan part of One China ? The Chinese naval exercise around Taiwan (see pictorial) reflects this thought process.
• Current status – America says “Not so fast” ?to China's get “chipped” fast strategy. America imposes sanctions on advanced chips, restricts what companies like Huawei can do or compete in the global market and flexes its muscle on what machines can be sold to China. It is also believed that ASML machines in Taiwan can be “turned off” in case of an invasion by China. America passes the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of ~ $40B dollars. TSMC even has now plans to start a factory in Arizona !!.
• So what does these all mean for Taiwan – Democracy is great. But the Chips you make are better and as long as Taiwan is the Chip manufacturer of the world, they can sleep easy. The rest of the world has your back .. or your foundries. Make sure you stay ahead of the manufacturing curve.

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Map from https://www.riskintelligence.eu/

Information based on Chip War by Chris Miller and author's historical information of world events.