In Targeting China With Chips Act, America Actually May Be Slowing Taiwan

Is Washington trying to hurt the wrong China? While the Creating Helpful Incentives to Produce Semiconductors and Science Act was aimed at protecting America from over-reliance on goods that originate in the Communist giant’s factories, it could instead end up damaging the economy of our ally, Taiwan. The Chips and Science Act will “lower costs, create jobs, strengthen supply chains, and counter China,” a White House fact sheet from last August claims. That was when the bipartisan legislation was signed into law by President Biden.New details emerging this week indicate that the $280 billion boondoggle is so beset with government regulations and dictates designed to promote politicians’ pet causes that it is unlikely to seriously lower costs, create jobs, or even have much of an effect on supply chains.Also, will it really “counter” the Communist People’s Republic of China, which is far from a major chip manufacturer, or in fact the Republic of China? The latter, an American-allied democracy also known as Taiwan, dominates the global market and chip manufacturing is its most prized industry. Ninety percent of the world’s advanced semiconductors are made in Taiwan. Chip manufacturing and related industries is by far the country’s most profitable industry, comprising 40 percent of total exports. People refer to it as “the mountain that will defend Taiwan.”Taipei officials are too polite, and too dependent on Washington for their protection, to criticize the new law. Yet, opposition leaders express widely held fears that the Chips act will eat into Taiwan’s top industry, cause a loss of national revenue, and lead to a brain drain. The impetus for the on-shoring of the semiconductor industry was the Covid pandemic. As foreign-made items like baby formula disappeared from supermarket shelves, policymakers realized how vulnerable supply chains have become. They laser-focused on the items that run everything from coffee makers and cellphones to F-35 fighter jets.After all, if the semiconductor supply is interrupted, modern communications, computing, healthcare, military systems, and transportation all could come to a screeching halt. Yet, rather than concentrating on the rare earths and minerals that are mostly being processed in Communist China, the Biden administration went after semiconductors. While not often said out loud, part of the thinking behind the Chips act was the fear that Beijing would invade Taiwan and take over the semiconductor industry.Taiwanese industry leaders downplay the possibility of a Beijing takeover. Yet, Washington managed to convince President Tsai to authorize the island’s largest manufacturer, Taiwan Semiconductor Manufacturing Company, to build a factory in Arizona. The $12 billion initial investment, and a subsequent plan to open a second, $40 billion TSMC Arizona factory under the Chips act, has irked lawmakers of the Taipei opposition. Officials of the Kuomintang, the National Party known as KMT, accuse Ms. Tsai of “gifting” the country’s crown jewel industry to America.The government “ruined TSMC as well as Taiwan’s economy,” a KMT leader, Tseng Ming-chung, said during a December press conference. Ms. Tsai “caved in to pressure from the U.S. government on the pretext that TSMC’s cutting-edge technology for producing advanced chips must not fall under China’s control,” another Kuomintang leader, Alex Fai, added. A decade ago under Ms. Tsai’s KMT predecessor, Ma Ying-jeou, Taiwan’s relations with the Communist neighbor seemed to flourish. The Ma government authorized TSMC to open manufacturing factories on the Communist-controlled mainland, where labor is cheaper.To prevent the loss of its edge, though, Taiwanese factories on the mainland were only allowed to manufacture older-generation semiconductors. The Arizona-based joint venture with Washington, in contrast, will make next-generation chips, which increases Taiwanese fears of losing global dominance over the lucrative niche market. The 91-year-old TSMC founder, Morris Chang, is an industry legend. Born at Shanghai and educated at Harvard and MIT, he rose in the ranks of the electronics giant Texas Instruments before leaving for Taiwan. There, he cultivated government ties that helped him corner the global market of advanced semiconductor manufacturing. TSMC became known in Taipei as “our silicon shield” against Communist China. “Because our company provides a lot of chips to the world, I think maybe somebody will refrain from attacking it,” Mr. Chang told “60 Minutes” when asked if he fears a Beijing takeover. In a CNN interview, his successor at TSMC, Mark Liu, reiterated the view that Beijing will avoid killing Taiwan’s golden goose. “Nobody can control TSMC by force,” Mr. Liu said. “If you take a military force or invasion you will render TSMC’s factory non-operable, because this is such a sophisticated manufacturing facility” that depends on ties with Europe, Japan, South Korea, and America. Can Washington subsidies do what Beijing’s military can’t? Perhaps not. With all the strings attached to the Chips act, it might increase the U.S. market share of the global chip market by no more than 1 percent, the Wall Street Journal reports.If so, fears in Taiwan, and similar trepidations in South Korea and elsewhere in the chip manufacturing world, may fizzle. Yet, Washington seems to be hedging on its bet that Taiwan could ultimately survive independently of Beijing — and that is a dangerous signal to send.

In Targeting China With Chips Act, America Actually May Be Slowing Taiwan

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