Is Taiwan’s Silicon Shield Enough To Protect It From Chinese Aggression?

The global shortage of semiconductors, or microchips — the "brains" in all electronic devices, has heightened the geopolitical significance of Taiwan and its chip-making sector. The island is home to the world's largest contract chipmaker: Taiwan Semiconductor Manufacturing Co (TSMC).

Many describe Taiwan's strength in microchips as its "silicon shield," which can protect it against Chinese aggression.

But others suspect the sector, coveted by China, may also trigger China to accelerate its efforts to take advantage of Taiwan's tech prowess.

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'Not let war happen'

When asked to explain the shield, TSMC chairman Mark Liu told CBS News' "60 Minutes" program last week that it means "the world all needs Taiwan's high-tech industry support. So, they will not let the war happen in this region because it goes against the interest of every country in the world."

While refusing to comment on whether the industry will keep Taiwan safe, Liu added that he hoped no war would occur in Taiwan. It is widely believed that any war fought in Taiwan could disrupt the global supply chains of microchips.

More than 1 trillion chips are currently being produced annually. Industry watchers, including the National Bank of Canada, estimated earlier that TSMC alone accounts for one-fifth of the world's chip production and up to 90% of the supply of the most advanced chips.

In an "extremely hypothetical scenario," such a disruption in Taiwan's chip production could cause $490 billion in annual losses for electronic device makers worldwide, according to estimates by the U.S.-based Semiconductor Industry Association last month.

All shutdown

American tech giants including Apple, major European automakers, and even Chinese companies would have to halt production in the event of a TSMC collapse, said Frank Huang, chairman of Taiwan's third-largest chipmaker Powerchip Semiconductor Manufacturing Corp.

That, he said, will make China think twice about using force against Taiwan, the self-ruled island Beijing views as a renegade province.

"China likes [to]… threat [threaten] Taiwan. But realistically without Taiwan, they cannot move either. Their semiconductors also shut down. So, the problem is: can you take over Taiwan without [triggering] impact [on] semiconductors? That is not [going to] happen," Huang told VOA.

The term "silicon shield" was first coined by Craig Addison in late 2000, who argued in his book "Silicon Shield: Taiwan's Protection Against Chinese Attack" that the island's rise as the key supplier for the world's digital economy would serve as "a deterrent against possible Chinese aggression."

The debate over such a deterrent has heated up now that the pandemic has seriously disrupted most supply chains. The U.S. has also placed restrictions on exports of chips and chip-making equipment using U.S. design and technology to China — a development that some observers also fear may end up provoking China to increase aggression toward Taiwan.

But Darson Chiu, a research fellow at the Taiwan Institute of Economic Research (TIER) in Taipei, disagreed, saying that he believes the world will stand behind Taiwan.

"The world's superpowers will view TSMC as a key driver behind the future global economic revival, which belongs to no one but the world. Hence the world will not tolerate China's use of force to control TSMC," Chiu told VOA over the phone.

Double layer of protection

The island's dominance in chip-making has fueled the debate over its silicon shield, but the U.S. is more concerned that the shield may "have holes in it" and the technology is being used by China's military, according to Alexander Neill, a former Shangri-La Dialogue senior fellow for Asia Pacific security at the International Institute for Strategic Studies.

An earlier Washington Post report alleged that a Chinese firm had used TSMC chips in the Chinese military's development of hypersonic missiles. But the company denied the charges.

The U.S. is also concerned about vulnerabilities caused by TSMC production being concentrated in Taiwan. The island's water and electric supply shortages could disrupt production.

"What the United States wants to do is to help TSMC diversify its production base so that there's a double layer of protection. So, if the first shield is being penetrated, the second [reinforcement] shield is to nurture the chip production base in friends and ally countries including the United States," Neill told VOA over the phone.

Surging demand

TSMC has planned to invest $100 billion in the next three years on new production facilities including a state-of-the-art wafer fabrication plant in the U.S. state of Arizona and expansions of its Nanjing, China-based fab to produce 28-nanometer chips for automakers.

The move aims to increase TSMC's capacity, which is currently working at full capacity, to meet surging demand and support future growth in the global economy, TIER's Chiu said.

In a stock exchange filing last month, TSMC said it "is entering a period of higher growth as the multiyear megatrends of 5G and HPC (high-performance computer) are expected to fuel strong demand for our semiconductor technologies in the next several years. In addition, the Covid-19 pandemic also accelerates digitalization in every aspect."

But Powerchip's Huang questions if overseas wafer fabs will be as cost-effective as those based in Taiwan. He said that many fabs in the U.S. and Germany have proved to be too expensive to sustain.

Expansion in China

For years, China's attempts to manufacture chips have failed since China lacks access to the intellectual property required for the process.

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Hence, TSMC's expansion plan in its Nanjing plant is welcomed by many in China despite worries that the survival of homegrown chipmakers may be threatened by the Taiwanese chipmaker, according to Song Hong, assistant general director at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences.

"28nm chips aren't high-end. But mid-to low-end chips are in higher demand. So, I think this shows TSMC's optimism in China's future demand. It is in our hope to bolster homegrown chipmakers, but we also welcome competition," Song told VOA.

Song, however, shrugged off the geopolitical implications of Taiwan's silicon shield, saying that China views Taiwanese issues as domestic affairs and will not be deterred from its goals by U.S. action. (VOA/KB)