U.S. Finally Discovers Folly Of Outsourcing Microchips

Exactly one year ago today, Bloomberg published a story with a prescient headline: “The World Is Dangerously Dependent on Taiwan for Semiconductors.”

Photo Insert: A TSMC factory in Taichung's Central Taiwan Science Park

The investigation explored the perils of Taiwan Semiconductor Manufacturing Co. (TSMC), fabricating about 90% of the world’s most technologically intricate chips, including those found in iPhones and other major Apple products.

The monopoly not only gives TSMC and Taiwan remarkable geopolitical leverage but also spotlights the potential economic fallout of an invasion by China, which claims the island as its own territory, Jacob Carpenter reported for Data Sheet.

The Wall Street Journal reported Tuesday that TSMC is now the most valuable company in Asia, surpassing China’s Tencent with a market cap topping $600 billion. Semiconductors rank among the world’s most in-demand commodities amid a pandemic-induced shortfall, leading to higher chip prices that are padding TSMC’s bottom line.

Recognizing the economic and national security threat posed by TSMC’s dominance, President Joe Biden and many members of Congress are pushing to back the CHIPS Act, which would funnel $52 billion in subsidies for domestic semiconductor manufacturing. The US Senate passed its version of the bill in July, and House Speaker Nancy Pelosi said last week that the lower chamber will soon take up the legislation.

Biden and CHIPS Act supporters have turned the proposed subsidies into a straightforward argument: The US needs more chips, we’ve fallen way behind foreign competitors on semiconductor manufacturing, and we need to catch up. The federal funds wouldn’t solve immediate chip supply problems, which the Biden administration predicts will last at least through the second half of 2022.

However, the legislation would bring the US in line with other countries that heavily subsidize the chip industry. Still, Biden and legislators have yet to make a strong public case for exactly how the US should regain strength on the semiconductor front. The US produces only 12% of chips worldwide, decades after it allowed advanced US chips to be produced overseas to maximize the profits of US firms.

The ideal nationalist outcome involves California-based Intel, with the help of CHIPS Act money, re-establishing itself as the world’s dominant semiconductor player after losing ground to TSMC and South Korean giant Samsung. In theory, Intel could become a high-volume, sand-to-silicon chip maker, cutting off as many foreign supply-chain chokepoints as possible in the process.

“Every aspect of defense, intelligence, government operations is becoming more digital,” Intel CEO Pat Gelsinger wrote in a CNN op-ed last month. “And we want to rely on foreign technology for those critical aspects of our defense and national security? I don’t think so.”

Intel heralded an early part of its planned rebirth last week, announcing its intention to spend $20 billion to $100 billion on a manufacturing development in Ohio.

The problem: there’s a reason Intel lost ground to TSMC. TSMC had superior management, staffing, and domestic support in recent years. CHIPS Act money could help TSMC bring more production to American soil, building on the company’s in-motion plans to open a $12 billion fabrication plant in Arizona by 2024.

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