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Taiwan dominates the world in the supply of computer chips – no wonder the US is concerned

One aspect of Nancy Pelosi’s trip to Taiwan that was almost overlooked was her meeting with Mark Louie, chairman of the Taiwan Semiconductor Manufacturing Corporation (TSMC). Pelosi’s trip coincided with US efforts to persuade TSMC, the world’s largest chipmaker on which the US is heavily dependent, to establish a manufacturing base in the US and stop making advanced chips for Chinese companies.

US support for Taiwan has historically been based on Washington’s opposition to communist rule in Beijing and Taiwan’s resistance to Chinese absorption. But in recent years, Taiwan autonomy has become a vital geopolitical interest for the US due to the island’s dominance in the semiconductor manufacturing market.

Semiconductors – also known as computer chips or simply chips – are an integral part of all networked devices that have become part of our lives. They also have advanced military applications.

The advent of the transformative super-fast 5G Internet opens up a world of connected devices of every kind (the “Internet of Things”) and a new generation of networked weapons. With this in mind, U.S. officials began to realize during the Trump administration that U.S. semiconductor development companies like Intel are heavily dependent on Asian supply chains to manufacture their products.

In particular, Taiwan’s position in the world of semiconductor manufacturing is a bit like Saudi Arabia’s position in OPEC. TSMC has a 53 percent market share in the global foundry market (factories contracted to produce chips designed in other countries). Other Taiwanese manufacturers are claiming another 10% market share.

As a result, the Biden administration’s 100-Day Supply Chain Review report says, “The United States is heavily dependent on one company – TSMC – for its cutting-edge chips.” The fact that only TSMC and Samsung (South Korea) can produce the most advanced semiconductors (known as five nanometers) “compromises the ability to supply current and future [US] national security and critical infrastructure needs.”

This means that China’s long-term goal of reunification with Taiwan is now more of a threat to US interests. In the 1971 Shanghai Communiqué and the 1979 Taiwan Relations Act, the US recognized that people in both mainland China and Taiwan believe that there is a “One China” and that they both belong to it. But it is unthinkable for the US that TSMC will one day be in Beijing-controlled territory.

“Technological war” For this reason, the US is trying to attract TSMC to the US to increase chip manufacturing capacity at home. In 2021, with support from the Biden administration, the company bought a site in Arizona on which it built a US foundry. This is planned to be completed in 2024.

The US Congress just passed the Microchips and Science Act, which provides $52 billion (roughly Rs. 4,11,746 crores) in subsidies to support US semiconductor manufacturing. But companies will only receive Chip Law funding if they agree not to produce advanced semiconductors for Chinese companies.

This means that TSMC and other companies may have to choose between doing business in China and the US, as the cost of manufacturing in the US is considered too high without government subsidies.

This is all part of a broader “technology war” between the US and China, in which the US seeks to limit China’s technological development and prevent it from playing the role of a global technology leader.

In 2020, the Trump administration imposed tough sanctions on Chinese tech giant Huawei that were meant to cut the company off from TSMC, on which it depended to produce high-tech semiconductors needed for its 5G infrastructure business.

Huawei was the world’s leading supplier of 5G network equipment, but the US feared its Chinese origins posed a security risk (although this claim has been questioned). The sanctions are still in place because both Republicans and Democrats want to prevent other countries from using Huawei 5G equipment.

Initially, the British government decided to use Huawei equipment in certain parts of the UK 5G network. The Trump administration’s sanctions forced London to reverse the decision.

It appears that a key US goal is to end dependence on supply chains in China or Taiwan for critical technologies, including advanced semiconductors required for 5G systems, but may include other advanced technologies in the future.

Pelosi’s trip to Taiwan was about more than just Taiwan’s important place in the “tech war.” But the dominance of his most important company has given the island a new and critical geopolitical importance that is likely to exacerbate existing tensions between the US and China over the status of the island. It has also stepped up US efforts to “rebuild” its semiconductor supply chain.

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