By Thomas J. Shattuck
28 minutes
This article was originally published in Volume 65, Issue 1, in January 2021.
The Trump administration has worked to restrict the People’s Republic of China’s ability to manufacture and acquire semiconductor chips since 2018. Caught in the crossfire of this burgeoning tech war is Taiwan, which is home to Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor chip manufacturer. With the United States banning companies that use U.S. technology in their chip manufacturing process from doing business with Huawei, TSMC can no longer do business with the Chinese tech company, one of its most important clients. Until the Trump administration announced the license restriction on Huawei, TSMC had managed to walk the fine line of doing business with both China and the United States, without riling either.
This article argues that the TSMC example is indicative of how great power competition between the two countries will play out for the foreseeable future. TSMC has announced that it will build a new factory in Arizona as it faces Chinese firms poaching its employees and Chinese actors hacking its systems and code for trade secrets—all actions demonstrating how great power competition will play out for tech dominance. Avoiding direct live-fire conflict, China and the United States will work to restrict the other’s actions and development by forcing important tech companies, such as TSMC, into picking a side.
Taiwan and the world’s leading semiconductor chip manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), have taken center stage in international politics. TSMC has made headlines across the world for its immense importance in the functioning of everyday life. Without the chips that TSMC makes, computers and smartphones would not function at their high speeds. For a fleeting moment at the end of July 2020, it became the 10th most valuable company in the world, surpassing Johnson & Johnson and Visa, when its value hit $410 billion.[1] Since 2015, Taiwan has been the world’s leading producer of semiconductors, accounting for almost 22 percent of global capacity. [2] In the second quarter of 2020, TSMC accounted for over 50 percent of the global foundry market share, [3] and Taiwan’s entire integrated circuit (IC) sector’s export in the first eight months of 2020 increased by 21 percent (to $76.022 billion). [4] Nevertheless, Taiwan and TSMC have needed to navigate a fine line between the United States and the People’s Republic of China so as not to draw the ire of either power.
Taiwan (and its status) is one of the most important issues in international relations, but never really gets the same amount of attention as other issues of lesser importance. With the ongoing competition between the United States and China, Taiwan has become even more critical to U.S. interests in the region. Yet, all of this newfound publicity for Taiwan and TSMC does not mean things are going smoothly.
As summer 2020 began to transition to fall, it seemed like each week the Trump administration announced some new restriction or sanction on a Chinese government official or company. The flurry of news stories on U.S.- China developments was nearly impossible to follow. Concurrently, National Security Advisor Robert O’Brien, Attorney General William Barr, Federal Bureau of Investigation (FBI) Director Christopher Wray, and Secretary of State Mike Pompeo gave a series of speeches on the administration’s approach and views on China. The speeches cast the competition between the United States and China as an ideological one that spans across all aspects of society. Many of the Trump administration’s actions—especially the developing restrictions on Chinese tech giant Huawei—have affected TSMC and its business. Beyond its bottom line, these restrictions have placed TSMC in an awkward position as it does business with both American and Chinese companies. TSMC’s position in the tech war mirrors that of Taiwan’s larger dilemma with China: a tension between reliance and threat. In 2019, Huawei accounted for 14 percent of TSMC’s revenue [5] and sold $7 billion of chips in China. [6] China is Taiwan’s largest trading partner, accounting for almost 28 percent of its exports and over 20 percent of its imports in 2019, with a total trade value of $149,205,406,670. For context, the United States accounts for more than 14 percent of exports and over 12 percent of imports, with a total trade value of $81,076,301,661. [7] At the same time, China has laws on the books that threaten Taiwan’s security, “The state shall employ non-peaceful means and other necessary measures to protect China’s sovereignty and territorial integrity.”[8] Successive governments in Taiwan have dealt with this apparent contradiction for decades.
This article explores TSMC’s place in the U.S.-China trade/tech war and how the company—like the rest of Taiwan—navigates this fraught relationship. TSMC has a stake in continuing its business relationship with both sides just as much as the United States and China rely on TSMC to produce semiconductors for them. U.S. policies and restrictions have added wrinkles into TSMC’s relationships, and attempts to remain neutral may eventually force the company to take a side. In an era of so-called great power competition between the United States and China, Taiwan and TSMC are caught in the middle and could become victims of any escalation. The article delves into the actions by the Trump administration that have further complicated TSMC’s business dealings with China and what that may mean for the future. As summer 2020 has demonstrated, this competition will play out in the tech realm, and not necessarily on the high seas or air in a hot war. Just as the United States and the Soviet Union never directly engaged in conflict during the Cold War, the United States and China will find other ways to compete, and TSMC has become one of these proxy battles. Whether it is building new factories, poaching employees, or introducing economic restrictions, the TSMC case encapsulates the likely future for how the United States and China will compete for global dominance.
Understanding TSMC’s Global Importance
Founded in 1987 by Morris Chang, TSMC was the first dedicated semiconductor foundry company. TSMC’s business model is not to design semiconductors, but to manufacture chips designed by other companies. Building the infrastructure to manufacture chips is an expensive undertaking, and not every company can afford to build its own foundry. TSMC fills that gap. Even large companies, such as Apple, do not have their own foundries, but work with a foundry like TSMC to produce the chips that they design. It does not compete with large tech companies, but, instead, is contracted to help in the process. This model allows TSMC to focus on increasing production scale, quality, and efficiency since the model only works at an immense scale due to the multi-billion dollar investment that a “fab,” or factory, requires. According to TSMC’s website, “[Chang’s] innovative business model greatly lowered the threshold needed to establish an IC design company by solving challenges of the increased complexity of technology development and the sizable investment for building wafer manufacturing fabs.”[9] This model allows TSMC to serve tech companies around the world, including ones in the United States and China, and really only compete with other foundries. Since TSMC produces the most advanced chips in the world and has a solid reputation as the most reliable foundry in the industry, it has earned the trust of major companies, specifically Apple, Nvidia, Qualcomm, Google, and Huawei— though the company announced that it will no longer take orders from Huawei in mid-September 2020 to obey U.S. restrictions.
TSMC’s dominant position in the industry makes it Taiwan’s most important company. It accounts for about one-third of Taiex, Taiwan’s stock exchange. According to an Asia Times report, in 2020, “Taiex is up 5%, but without TSMC it would be down about 2%.”[10] When TSMC was briefly the 10th most valuable company in the world, Taiex hit its highest point in decades. In the first half of 2020, TSMC was Taiwan’s leader in invention patents, filing 375 applications. In total, it applied for 33,954 patents in that time period. [11] This dynamic makes it important for Taiwan to ensure that TSMC keeps its best production fabs in the country, and every major industry has a keen interest in ensuring that peace is maintained in the Taiwan Strait.
TSMC is a leader in the field because of the sheer scale of the company’s operation. In 2019, it “deployed 272 distinct process technologies, and manufactured 10,761 products for 499 customers.”[12] In Taiwan alone, TSMC has nine factories, as well as subsidiaries in China and the United States. These fabs allowed TSMC to produce its billionth 7-nanometer chip in July 2020, which is enough silicon to cover 13 blocks in Manhattan.[13] These chips have been in production since April 2018. The company also has begun production on 5nm chips and is prepping to manufacture 3nm chips by 2021-22. The tech giant is conducting research and development (R&D) on 2nm chips, with a plan for production by 2024.[14] In August 2020, the company announced that it was going to open an R&D facility specifically for 2nm development and plans to build a fab for 2nm production. The R&D facility would employ 8,000 people.[15] Without the 7nm chips, the iPhone 11 would not be able to function, and Apple is set to use the 5nm chip for the iPhone 12. Most 5G devices use a chip manufactured by TSMC. TSMC also produces chips for the F-35 fighter jet program even though Taiwan is not a member of the program. Taiwan’s neighbors—South Korea, Japan, and Singapore—are participants and expected to purchase the jet.
With the increase in virtual schooling and working due to the COVID 19 pandemic and global reliance on these cutting-edge chips, TSMC experienced immense financial growth in 2020. From January to July 2020, TSMC’s revenue increased 33.6 percent (NT$727.26 vs NT$544.46 year-on year). The company also announced that it expects revenue to increase by at least 20 percent in 2020.[16] Another reason that TSMC is such an important company is that Intel, a company that both designs and manufactures chips, had announced that its production of 7nm chips was behind schedule and that it would have to order the chips from companies like TSMC [17] And whereas TSMC expects double-digit growth, Intel only projects four percent. [18] Intel’s delays have the potential to open up billions of dollars in new business for TSMC just as it will no longer have Huawei as a customer.
The fact that so many companies, critical infrastructure, and the U.S. military rely on TSMC for chip production makes it one of the most important companies in the world. Its location in Taiwan, a geopolitical flashpoint, and not the United States, complicates matters.
Trump’s Actions against China and Huawei
The Trump administration’s restrictions on Huawei have not just affected the Chinese tech company. As mentioned earlier, Huawei was TSMC’s second largest customer in 2019 accounting for 14 percent of its revenue. After September 2020, TSMC must acquire a licensing waiver from the United States to continue to work with Huawei. The various restrictions placed on Huawei have escalated the ongoing trade war between the United States and China.
While Candidate Trump focused his ire on China throughout the 2016 presidential campaign, the first major, official salvo against China came in 2017 with the release of the National Security Strategy that announced the return of “great power competition,” with China and Russia as the primary competitors against the United States. Then, in 2018, Vice President Mike Pence delivered the administration’s first fully developed China policy speech at the beginning of the now-ongoing trade war. Semiconductors had been a target of some of Trump’s tariffs on Chinese goods, but Huawei became the target of the trade war and Trump’s China policy in 2019 when the Department of Commerce announced that Huawei would be added to the Entity List for involvement “in the activities contrary to the national security or foreign policy interests of the United States.”[19] The designation was applied to Huawei and 68 affiliates, and it “imposes additional license requirements on, and limits the availability of most license exceptions for exports, reexports, and transfers (in-country) to, listed entities.”[20]
In May 2020, the Commerce Department’s Bureau of Industry and Security further refined the restrictions to target Huawei’s ability to acquire semiconductors.[21] A company seeking to manufacture chips designed by Huawei (like TSMC) that uses U.S. technology would need to receive a license. However, the licensing restrictions had loopholes that Huawei exploited to continue receiving equipment that it needed. Companies were restricted from producing Huawei’s custom-designed chips, but Huawei could still purchase chips designed and sold by other companies. This loophole prevented Huawei from doing business with TSMC. Yet, a company like MediaTek—another Taiwanese semiconductor company—could sell Huawei chips that it had designed in-house.[22] This restriction essentially meant that Huawei could use other companies’ chips in its own equipment.
Then, in August 2020, a new designation restricted Huawei from acquiring “items produced domestically and abroad from U.S. technology and software. . . . This amendment further restricts Huawei from obtaining foreign made chips developed or produced from U.S. software or technology to the same degree as comparable U.S. chips.”[23] It also added another 38 affiliates to the list. This announcement essentially ended TSMC’s—or any other foreign chip manufacturer’s—ability to do business with Huawei. Under this new rule, neither TSMC nor MediaTek can do business with Huawei without receiving a license from the U.S. Commerce Department because while they are foreign companies, they use U.S. technology to manufacture their chips. The restrictions put Huawei into a bind because one report estimates that TSMC provides 98 percent of Huawei’s smartphone chips.[24]
These designations affect Huawei and its chip manufacturers. This potential death-knell received condemnation from the Semiconductor Industry Association (SIA),
These broad restrictions on commercial chip sales will bring significant disruption to the U.S. semiconductor industry. We are surprised and concerned by the administration’s sudden shift from its prior support of a more narrow approach intended to achieve stated national security goals while limiting harm to U.S. companies. We reiterate our view that sales of non sensitive, commercial products to China drive semiconductor research and innovation here in the U.S., which is critical to America’s economic strength and national security.[25]
The SIA represents 95 percent of the U.S. semiconductor industry, with U.S. members like Intel, IBM, AMD, Texas Instruments and international members like TSMC, Samsung, and MediaTek. As a result of the new U.S. rules, TSMC announced that it would stop doing business with Huawei in mid-September 2020 in order to follow the U.S. rules. The Commerce Department’s restrictions on Huawei essentially stop its ability to make its products because it relied on TSMC’s advanced chip-manufacturing capabilities. The only “way out” for Huawei is to purchase non-U.S-made chip-manufacturing development technology, but it is unlikely that these companies would sell the equipment out of fear of crossing the Trump administration’s red line and out of their own views on Chinese intellectual property theft. Purchasing one of these machines may also not solve the problem because so much intricate equipment is needed to make a fab fully operational, and some of the technology may still need to come from the United States.
In late September 2020, the Trump administration continued its offensive against Chinese tech companies. The Commerce Department notified American companies that they would require licenses to export products to Semiconductor Manufacturing International Corporation (SMIC), China’s answer to TSMC.[26] The announcement comes as the U.S. government believes that SMIC has close connections to the Chinese military and that American technology could be used by its military. As with the restrictions placed on Huawei, it is very likely that the administration will expand on these new restrictions in order to curb SMIC’s development as China’s leading chipmaker before President-elect Joseph Biden takes office in 2021. Preventing SMIC from acquiring U.S. technology to develop more chips would significantly impact China’s ability to produce chips domestically.
Great Power Competition and TSMC
The Trump administration’s restrictions on Huawei have put TSMC in a precarious position. Huawei was TSMC’s second-largest customers in 2019, so the restrictions are removing millions of dollars from the company’s bottom line. The restrictions also demonstrate how critical TSMC is to the world’s most important tech companies. Without TSMC, Huawei cannot function in its current state, but the same could be said of Apple or any other leading company that needs the most advanced semiconductor chips. Before these new restrictions were put into place, it was in the best interest of both the United States and China to maintain the status quo in the region. Neither side could afford to lose TSMC. Chinese government officials consistently use Taiwan as a bit of “red meat” to throw to nationalists, but what goes unsaid is how Huawei needs Taiwan and peace across the Taiwan Strait to stay in business. It is taboo to acknowledge any reliance on something Taiwanese. The larger geopolitical ramifications of cutting TSMC out may do more harm than good for Taiwan. The country will attempt to work within the legal box created by the United States without roiling one side too much. The same could be said for any other country caught up in great power politics: balance when possible, pick a side when required. For Taiwan and TSMC, the Trump administration forced their hands.
TSMC Arizona Factory
However, the prospect of the new factory should not be overstated. TSMC Chairman Mark Liu noted that the cost of the fab was quite steep, and the “cost gap [was] hard to accept.”[31] The factory’s production rate is dwarfed by TSMC’s domestic production. Three of the fabs in Taiwan each produce 150,000 chips per month, and the company makes over two million chips per month. The Arizona plant’s 20,000 chips per month production rate is not really a game changer for TSMC.[32] Also, as explained earlier, TSMC is developing both 3nm and 2nm chips. If all goes according to plan for TSMC, by the time that the Arizona plant is online and producing the 5nm chips, fabs in Taiwan will be manufacturing 2nm chips. Last, the factory news might go the way of the much-hyped Foxconn factory in Wisconsin. At the time, that plant was portrayed as a big win for President Trump as the project would create 13,000 jobs. However, at the time of writing, the plans have not come to fruition, with fewer than 200 jobs coming out of it.[33] The backlash since the collapse of the Foxconn deal should be an instructive lesson for TSMC in Arizona. The TSMC board approved a “fully-owned subsidiary in Arizona with paid-in capital of US$3.5 billion”[34] in late 2020, so plans are moving forward with the Arizona factory despite President Trump’s electoral loss.
While the factory likely will be outdated by the time it comes online, the announcement is a good case study for how great power competition will manifest in the United States. The Trump administration has emphasized domestic economic security and bringing jobs back home, and the TSMC factory example is a win on multiple fronts. It “on-shores” something that the United States needs to bring back home, and it shows China that it can strong arm companies into investing in the United States while it works to add international restrictions on Chinese companies. The TSMC example is likely to continue under the Biden administration. The tone and tactics will likely change, but President-elect Biden has emphasized bringing jobs back home and further developing the middle class. The TSMC factory is set to achieve that goal and will create greater economic security in the semiconductor supply chain.
China’s Poaching of TSMC Employees
While the United States has worked to restrict Huawei’s business dealings and persuaded TSMC to announce a factory in the homeland, China is not sitting idly by. China is working to develop its own domestic semiconductor industry. Much has been written about the “Made in China 2025” program that seeks to increase China’s domestic production capacity in critical industries. This program includes the development of China’s hi-tech industry, particularly the semiconductor industry. Through employment programs, tax incentives, and other inducements, China seeks to produce 70 percent of semiconductors domestically by 2025.[35] Currently, it estimated that China will not meet its goal of 70 percent by 2025—it will likely only get to around 21 percent by 2024.[36] One piece of the puzzle that is less discussed and fits in the mold of great power competition is China’s poaching of Taiwanese semiconductor talent. While the United States has the general know-how in chip design and manufacturing equipment but lacks Taiwan’s know-how in the advanced manufacturing process, China is still behind on these fronts, and one way to catch up is by hiring the best. Since TSMC is the world leader in chip manufacturing, it only makes sense that Chinese companies would seek to poach as much of Taiwan’s top talent as possible. If the United States can secure a factory in Arizona, then China can get the employees needed to make the chips and equipment in that factory before it comes online.
In 2020, Chinese companies have worked to poach as many TSMC employees as possible. According to a Nikkei Asian Review report, over 100 TSMC employees have been hired by Chinese chip companies Quanxin Integrated Circuit Manufacturing (QXIC) and Wuhan Hongxin Semiconductor Manufacturing (HSMC). Both of these companies are also headed by former TSMC employees. Even though these two companies have hired some of TSMC employees, they are still far behind TSMC in quality: they are working to produce 14nm and 12nm chips. Right now, TSMC is producing 5nm chips, so QXIC and HSMC are several generations behind TSMC. Taiwan law prevents Taiwanese companies like TSMC from producing current generation chips and mandates that any production in China be at least one generation behind. This gap potentially could be closed if Chinese companies can poach more talent, which is a possibility since “Hongxin offered some amazing packages, as high as two to 2.5 times TSMC’s total annual salary and bonuses.”[37] TSMC boasts an annual turnover rate of five percent. HSMC has encountered financial issues, with the company abandoning a fab construction project in Wuhan because it could not acquire more funding after receiving $20 billion in investments.[38] The firm is likely to go bankrupt from this failure. The failure to finish this project and the probable collapse of HSMC are additional shortfalls in China’s development of its domestic semiconductor industry. Any Taiwanese employees laid off as a result should not have a hard time finding new employment. While employees can be replaced at TSMC, there is the potential for outgoing employees, particularly managers, to bring with them trade secrets. To prevent China from making up ground this way, TSMC has made its equipment makers sign a pledge that they will not sell its customized tools to its competition in China. [39] These custom, specialized machines are what makes TSMC the industry leader, so the danger does not necessarily lie in losing employees, but rather in what information they are willing to bring with them. In total, Chinese companies reportedly have poached more than 3,000 chip makers from Taiwan as part of the Made in China 2025 push, which is almost one-tenth of the workforce.[40] Some of the most prominent semiconductor executives hail from Taiwan. Chiang Shang-yi, who served as TSMC’s chief operating officer, moved to SMIC in 2016 and now serves as chief executive officer of HSMC. Former TSMC employee Richard Chang moved on to create SMIC in 2000 and resigned in 2009. Another TSMC executive, Liang Mong song, is considered a traitor in the country for taking a job at Samsung and leaking trade secrets; in 2017, he left Samsung to join SMIC as co-CEO. [41] TSMC sued Liang in 2011 for leaking trade secrets to Samsung. The secrets he provided to Samsung allowed the company to improve the quality of its chips and become a serious competitor. The threat of employees leaving and leaking trade secrets to new employers in China is a grave threat to TSMC and its business model. However, it is possible for China to acquire trade secrets but not be able to use them since the machinery needed to develop advanced chips are a part of the Commerce Department restrictions.
China’s Hacking of Taiwanese Semiconductor Companies
In addition to poaching employees and gaining their expertise, Chinese actors have not shied away from using another method to acquire TSMC’s knowledge: hacking. Taiwanese cybersecurity firm CyCraft released a report that outlined how Taiwanese semiconductors companies had been compromised by a Chinese hacking group between 2018 and 2019. In 2018, a WannaCry ransomware attack cost TSMC $256 million. The attacks that CyCraft discovered were likely conducted to steal trade secrets, documents, chip designs, and source code. Cycraft did not reveal the companies that were hacked, but the affected entities were all located in Hsinchu Science-based Industrial Park in Taiwan, home to many TSMC factories. Over seven vendors were victims of the hacking campaign. CyCraft concluded that the attacker was based in China because the hacks followed Chinese work schedules of twelve-hour shifts, six days per week, took Chinese holidays off, and used simplified Chinese characters. [42] Dubbed Operation Skeleton Key for the hacking methods used, the hacks have the potential to bring semiconductor companies to their knees. If a limited attack on TSMC can cost over $200 million, then an even more sophisticated attack has the potential to cripple the entire industry. A TSMC fab going offline for more than a week or if code is corrupted and made unusable would have global implications. The Arizona factory made for a great news story, but it could be brought offline with one hack. Also, if Chinese hackers could acquire any important chip-making information, that might boost China’s semiconductor industry more than poaching Taiwanese employees. This example demonstrates that Chinese actors are willing to use illicit means to compete with other companies in the tech industry. Such actions may increase in frequency with the Trump administration’s attempt to take Huawei off the board.
Implications of Great Power Competition on TSMC
As these three examples demonstrate, the United States and China are fighting for supremacy at all levels of the tech industry by building factories, poaching talent, and hacking companies. The United States has used its financial toolkit to restrict Huawei’s ability to conduct business, and the Trump administration was able to compel TSMC into announcing plans to open a factory in the American homeland. Nevertheless, Chinese semiconductor companies have been able to hire talent away from TSMC and even hack the company to bring production to a halt and steal trade secrets. Great power competition does not mean that the United States and China are destined for war; it may yet happen, but the everyday competition will be fought on the fringes and in areas below the threshold of direct conflict. In the twenty-first century, that means competition in tech industry—and for the purposes of this article, the semiconductor industry— will take a prime position. Disrupting semiconductor production at TSMC for an extended time could cause a greater impact on the financial markets and functioning of everyday life than a small skirmish in the South China Sea.
Outlook for the Future
TSMC’s importance to the United States will only increase over the next decade as the company continues to outpace its American competition. With the development of the 3nm and 2nm chips only set for development in Taiwan, TSMC ensures that companies around the globe will be invested in cross-Strait stability. But is the status quo guaranteed to continue if tensions between the United States and China continue? With Huawei essentially banned from doing business with TSMC, is there a possibility for conflict?
One potential compromise to maintain peace has already been speculated. There are rumors that the U.S. government gave TSMC a private assurance that it would offer some licensing waivers during the Arizona factory negotiations. Such a move would continue to allow TSMC to “stay neutral,” and, more importantly, it would reduce the likelihood of a conflict over Taiwan. In a June 2020 National Interest article, political scientist Graham Allison argued that the Trump administration’s move to box out Huawei would increase the chance of a Chinese takeover of Taiwan. Allison argues that the United States’ embargoes on Japan in the 1930s forced Japan’s hand into attacking Pearl Harbor. He uses that historical lesson and posits: “A third option foresees Chinese agents and sympathizers on the island, perhaps assisted by a Chinese version of Russia’s ‘little green men’ who seized Crimea in 2014, taking over airports, ports, communication centers, and even key factories and headquarters including TSMC.” [43] He contends that seizing TSMC would solve China’s semiconductor problems. It is unlikely that such a scenario would occur so smoothly. This scenario is plausible, but it does not end with a TSMC takeover—that is just the beginning. A “little green men” takeover of Taiwan would be the beginning of a war between China and Taiwan, which would almost certainly draw in the United States. It is entirely possible that the United States gets drawn into a war for the same reason that China would start it: to prevent TSMC from getting into the hands of Beijing, and if victory were not possible, then destroying TSMC’s factories to prevent a Chinese takeover.
At present—and for the foreseeable future—keeping TSMC out of Beijing’s hands is in the U.S. national interest. The United States cannot rival TSMC’s production capabilities and needs it for military hardware. Would the U.S. government and military risk a scenario in which Beijing gains access to chips designed for the F-35? And more broadly, would the United States sit idly by as the chip-making equipment and other intellectual property falls under Beijing’s orbit? No TSMC might be considered a better option. It is very unlikely that Allison’s hypothetical scenario would occur with his envisioned endgame of Chinese control of TSMC. And Chinese companies and actors have already demonstrated a more peaceful version: poaching employees and hacking information.
Taiwan has long been considered an “unsinkable aircraft carrier” for its important location in the heart of East Asia. It is the cork keeping China bottled within the first island chain. And if Taiwan holds that distinction in geopolitics, then the same could be said for TSMC in the semiconductor industry—“a very difficult-to-sink aircraft carrier” since it has many vulnerabilities. But the comparison holds in that just as the United States and its allies cannot afford to lose Taiwan to China, the United States (and the rest of the world) cannot lose TSMC to any number of threats, particularly those of hacking or invasion. While TSMC’s current situation is not ideal, being stuck in the middle of a tech war is perhaps the best, most stable situation available for now.
During the Cold War, great power competition manifested in various ways, through proxy wars in Asia and through the proliferation of nuclear weapons. In the twenty-first century, it is likely that great power competition will continue with weapons proliferation and development. Yet, those weapons cannot work without semiconductor chips that are nanometers in size. The future will be decided by the small, and the U.S.-China competition will almost certainly focus on supremacy of the small.
