Taiwan leverages US-China standoff: Semiconductors


House Speaker Nancy Pelosi reportedly plans to travel to Taiwan on Tuesday, although her office has not confirmed. China isn’t too happy with Pelosi’s planned visit – remember that the Chinese Communist Party has basically viewed Taiwan as a missing piece of the People’s Republic since the island broke away in 1949. Chinese President Xi Jinping threatens retaliation if the speaker makes it to Taipei.

It would be a mistake to think that Taiwan is just a pawn in a growing US-China rivalry. This is because Taiwan has serious leverage. One word: semiconductors.

In the 1960s and 1970s, Taiwan’s economy looked a lot like China’s today. It made consumer goods like shoes and toys for export, said Shelley Rigger, a professor of East Asian politics at Davidson College.

“Then in the 1980s, this traditional manufacturing started to cross the Taiwan Strait” to China, which had cheaper labor.

Taiwan has therefore bet on technology, injecting resources into engineering schools and science parks.

A result ? Taiwan Semiconductor Manufacturing Co., or TSMC for short.

“Today, TSMC is just generations ahead of any other manufacturer in terms of being able to make something you need for higher-end computing,” Rigger said.

TSMC produces more than 90% of the world’s advanced semiconductors.

If you need a tiny computer chip to power your missile defense system, quantum computer, or artificial intelligence research, you’ll get it from Taiwan, even if you’re in China or the United States.

“The metaphor people use is the ‘silicon shield,'” said Mary Lovely of the Peterson Institute for International Economics. “You know, Taiwan has made itself indispensable on both sides.”

But recently, China has been developing smaller, more sophisticated semiconductors, and Congress just approved $52 billion to subsidize domestic chipmaking.

Still, David Sacks of the Council on Foreign Relations said Taiwan had an advantage.

“Much of the knowledge about this incredibly complex and delicate process belongs to the engineers themselves who live in Taiwan,” said Sacks – engineers the government is working to keep on the island.

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