Taiwan's 'silicon shield': Why island may not be the next Ukraine

Taipei, Taiwan – Since Russia invaded Ukraine, Taiwan's security has been on the lips of policymakers and analysts the world over, ... Taiwan'sdominanceinmanufacturingsemiconductorsisseenbysomeanalystsasadeterrentagainstaninvasionbyBeijing[File:AnnWang/Reuters]By LiamGibsonPublishedOn1Apr20221Apr2022facebooktwitterwhatsappTaipei,Taiwan–SinceRussiainvadedUkraine,Taiwan’ssecurityhasbeenonthelipsofpolicymakersandanalyststheworldover,amidpredictionsChinacouldonedayfollowMoscow’sleadandattempttotakeovertheislandnation. BothTaiwanandUkraineareyoungdemocracies,whosenationalidentityandpoliticalindependencefacethethreatofaggressionfromaneighbouringsuperpower. Taiwan,however,hasalittle-discussedsecretweaponthatUkrainedidnothave–adominanceinmanufacturingsemiconductorsthatsomeanalystssaycouldprovecrucialindeterringaninvasionbyBeijing. AninvasionofTaiwancouldtriggerunprecedentedglobaleconomicfalloutduetotheisland’spositionasarguablythemostvulnerablesinglepointoffailureinthetechnologyvaluechain. Taipei’s“siliconshield”makesthestakesespeciallyhighforChina.WhileChinesePresidentXiJinpinghaspledgedtoreclaimtheself-ruledislandbyforceifnecessary,BeijingreliesheavilyonTaiwanesetechnologytopowerkeyindustriesthatitisbankingontodoubleitsgrossdomesticproduct(GDP)by2035. “Taiwan’sintegrateddeterrencestrategymustkeepthisstarkchoicebetweennationalobjectivesforBeijingclear,”JaredMcKinney,ascholaratAirUniversity,toldAlJazeera.“EitherconquerTaiwanormaintaineconomicprosperity.” “Aquestiondelayedisaninvasiondenied,”McKinneysaid. ChinesePresidentXiJinpinghaspledgedtoreunifyTaiwanwiththeChinesemainlandbyforceifnecessary[File:AndyWong/APPhoto] Taiwanaccountsfor92percentofglobalproductionforsemiconductorprocessnodesbelow10nanometres(1nanometreisone-billionthofametre),makingitthemainsupplierofthevastmajorityofchipsthatpowertheworld’smostadvancedmachines,fromAppleiPhonestoF-35fighterjets. Aone-yeardisruptiontotheTaiwanesechipsupplyalonewouldcostglobaltechcompaniesroughly$600bn,accordingtoastudybytheBostonConsultingGroup.Intheeventitsmanufacturingbasewasdestroyedinawar,rebuildingproductioncapacityelsewherewouldtakeatleastthreeyearsand$350bn,thestudyfound. “Chinaisgoodatalgorithms,software,andmarketsolutions,”RayYang,aconsultingdirectoratTaiwan’sIndustrialTechnologyResearchInstitute,toldAlJazeera.“Buttheirindustryneedsmanyhigh-performancecomputer(HPC)chipsthattheydonothave.” “Ifaconflictinterruptedtheirsupply,itwoulddramaticallyslowdownChina’sAIand6Gambitions,”Yangsaid.“Theywouldhavetoreordertheirentireindustrialstrategy.” ThatdependencecouldbefurtherexploitedbyTaipeitobuttressitsnationalsecurity,accordingtosomemilitaryanalysts. ‘WarningsignalChinesepolicymakerscan’tignore’ McKinney,whostressedhisviewsdonotnecessarilyrepresentthoseofAirUniversityortheUSAirForce,saidTaiwan’s“siliconshield”shouldbelessa“commitmentdevice”forAmericandefencethanadeterrentagainstChineseaggression. LastyearMcKinneyandPeterHarris,anassociateprofessorofpoliticalscienceatColoradoStateUniversity,publishedapaperona“brokenneststrategy”fordeterringChina.TheyproposedTaiwancouldcrediblythreatentodestroyindustryleaderTSMC’sinfrastructureattheonsetofaninvasion,whichwoulddenyBeijingaccesstoitschipsandinflictseriousdamagetoitseconomy. McKinneysaiddeterrencecouldbeboostedfurtherbyinstitutingamultilateralsemiconductorsanctionsregimewherebytheUnitedStates,SouthKorea,andJapanjoinedwithTaiwantohaltsemiconductorexportstoChinaifitstartedawar. “IftheaskistosanctionthewholeChineseeconomy,youmightnotgetenoughbuy-in,”hesaid,expressingdoubtthatconglomerateswithdeepexposuretoChina’smarketwouldpullout. “Thecomparativelymodestscopeofsemiconductorsanctionsmakesthemmorecredibleasadeterrent,makingitawarningsignalChinesepolicymakerscan’tignore.” ThoughChinaremainsdependentonTaiwanesetechfornow,itisworkinghardtoturnthetablesamidallegationsoftalentpoachingandintellectualpropertytheft.TaiwanbansChinese-fundedcompaniesfrominvestinginhigh-endtechnologyandthosewhoviolateincoming“economicespionage”lawscouldspendupto12yearsbehindbars.Lastmonth,TaiwanraidedeightChinesetechcompaniesandinterrogated60ChinesescoutswhowereallegedlytryingtopoachTaiwan’stopengineers. “ThebiggestthreattoTaiwan’scontinuedtechnologicaldominanceistalentpoachingfrommainlandChina,”JamesLee,anexpertonUS-TaiwanrelationswhowilltakeupanacademicpostwithTaiwan’sAcademiaSinicalaterthisyear,toldAlJazeera. “Sofar,it[China]hasn’tsucceededforhigh-endchips…butitisplausiblethattheymaysucceedatsomepoint,andgiventhesheeramountofresourcesthatBeijinghasatitsdisposal,Taiwan’sgoingtobeunderconstantpressure.” RossFeingold,aTaipei-basedlawyer,toldAlJazeeraIPtheftisaparticularconcern. “Duetodrawn-outcourtproceedingsandslightpenalties,thelawdoesnotinspireenoughfeartodeterindividualsfromroutinelystealingtradesecretsorinsiderinformationfromfirms,”Feingoldsaid. However,YangdoesnotseethisasabigworryforleadingfirmslikeTSMC. “Theyareverysmartandhaveaverysophisticatedsystemtoprotecttheirmostsensitiveinformation,”hesaid. Washingtonhasfordecadeshadanofficialpolicyof‘strategicambiguity’towardsdefendingTaiwan[AlDrago/Reuters] Taiwan’stechdominanceaffectsWashington’sriskcalculus,too.TheUShasnodefencetreatywithTaiwan,whilethedebateisheatingupinWashingtonoverwhetheritshouldmaintainitslong-heldpolicyof“strategicambiguity”orswitchto“strategicclarity”. “IseeUStechnologicaldependencyonTaiwanasaneffective–andevenpreferable–substitutetoapolicyofstrategicclarity,”Leesaid. “ItlockstheUnitedStatesintodefendingTaiwantoprotecttheisland’ssemiconductorindustry,butitdoesn’tmeanthattheUnitedStatesistreatingTaiwanasanallyorsupportingTaiwan’sindependence.” Yet,withWashingtoninvesting$52bnintoreshoringchipmanufacturingandhomegrownheroInteledgingtobecometheworld’smostadvancedchipmakeragain,theUSmaynotbetechnologicallydependentonTaiwanforlong. “IftheUnitedStatesstartedmanufacturingtheworld’smostadvancedchips,thatwouldmakeTaiwanlessimportanttotheUnitedStatesandwouldconsequentlymaketheUSlesslikelytodefendTaiwan,butthatisstillverymuchatheoreticalscenario,”Leesaid. “IntelmightbeabletoreachthistierofelitemanufacturersifthereissubstantialpublicandprivateinvestmentintheUnitedStatesoverthecourseofthenext10-20years,butevenifthathappens,it’snotlikelytodisplaceTSMCaltogether.” ‘De-globalisation’ EvenifIntelcatchesuptechnologically,thereisnoguaranteeindustryplayerswillnotstillpreferTSMC. “ThisiswhatIntelneedstodealwith,”Yangsaid.“TSMCisfullytrustedbyitsinternationalpartnerssince[unlikeIntel]itdoesnothaveitsownproductanddoesnotcompetewiththem.” “Globalsemiconductormakingconcentratedontheislandthankstothreedecadesofglobalisationthatprioritisedlowcostsandeconomiesofscale.Butnowde-globalisationisverymuchunderwayasindustrialandnationalleadersworldwidewakeuptotherealityofblackswanevents.” Adjustingtothenewrealityofsupplychainvulnerability,leadingfirmsaremovingprocesscapacityoutsideofTaiwan.TSMCwillkick-starttheconstructionofsemiconductorfabricationplantsinArizonaandJapan’sKumamotoin2024.Taiwan’sUMC,theworld’sthird-largestchipmaker,isduetoopenaplantinSingaporethesameyear. YangbelievesinternationalfirmsthatpreviouslysavedbyoffshoringmanufacturingwillseektooffsetthecostsofreshoringthroughtechnicalbreakthroughsthatwillbeachievedwiththeassistanceofTaiwan. “MoreandmoreplayersfromupanddownthesupplychainarecomingandsettingupheretogetclosertoTaiwan’secosystem,beitDutchlithographicequipmentmakers,Japanesechemicalsuppliers,andothers,”hesaid. “Taiwanwillstillleadthewholeecosystembecauseinternationalplayersneedtojoinwithustoinnovatethenextgenerationofchips.” Source:AlJazeera