Pelosi’s visit to Taiwan brings TSMC back into the spotlight from the US-China rivalry

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest chip manufacturer. But it is caught in the middle of geopolitical tensions between the United States and China. The logo displayed on the screen.

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US House Speaker Nancy Pelosi may have left Taiwan, but the visit once again highlighted the island’s crucial role in the global chip supply chain, and in particular on the world’s largest chip maker, Taiwan Semiconductor Manufacturing Co. , or TSMC.

The controversial visit, which angered Beijing, saw Pelosi meet TSMC President Mark Liu, in a sign of how important semiconductors are to US national security and the company’s essential role in making the most advanced chips.

Semiconductors, which go into everything from our smartphones to cars and refrigerators, have become a major part of the US-China rivalry over technology in the past few years. Recently, the shortage of semiconductors has prompted the United States to try to catch up with Asia and maintain the lead over China in this industry.

“Taiwan’s unresolved diplomatic status will continue to be a source of intense geopolitical uncertainty. Even Pelosi’s trip underscores how important Taiwan is to both countries,” Reema Bhattacharya, head of Asia research at Verisk Maplecroft, told CNBC Wednesday.

“The obvious reason is its critical strategic importance as a chip manufacturer and in the global semiconductor supply chain.”

Pelosi’s visit to Taiwan and her meeting with TSMC show that the United States cannot do it alone and will require cooperation with the Asian companies that dominate the latest chips.

TSMC’s critical role

TSMC is a foundry. This means that they make chips that other companies design. TSMC has a long list of customers from Apple to Nvidia, some of the largest technology companies in the world.

As the United States has lagged behind in chip manufacturing for the past 15 years or so, companies like TSMC and Samsung Electronics in South Korea, have gone ahead with cutting-edge chipmaking technologies. While they still rely on tools and technology from the US, Europe and elsewhere, TSMC in particular, has managed to cement its position as the world’s top chip maker.

TSMC accounts for 54% of the global foundry market, according to Counterpoint Research. Taiwan as a country accounts for about two-thirds of the global foundry market alone when considering TSMC alongside other players such as UMC and Vanguard. This highlights the importance of Taiwan in the world’s semiconductor market.

When you add Samsung to the mix, which has a 15% global market share for the foundry, Asia really dominates the chip industry.

That’s why Pelosi made it clear that she would meet with the president of TSMC.

Taiwan invasion fears

China views democratically self-governing Taiwan as a breakaway province that needs to be reunified with the mainland. Beijing spent weeks telling Pelosi not to come to Taiwan.

During her visit, China heightened tensions by conducting military exercises.

There is concern that any kind of Chinese invasion of Taiwan could significantly affect the power structure of the global chip market, giving Beijing control over technology it did not have before. Moreover, there is a fear that the invasion could stifle the supply of advanced chips to the rest of the world.

“Most likely, the Chinese will “nationalize” it (TSMC) and start integrating the company and its technology into their semiconductor industry,” Abishor Prakash, co-founder of consultancy firm Future Innovation Center, told CNBC. By email.

What is the United States doing?

How does China stack up?

SMIC is crucial to China’s ambitions, but sanctions have isolated it from the key tools it requires to make the latest chips as TSMC does. SMIC remains years behind its competitors. China’s semiconductor industry is still highly dependent on foreign technology.

TSMC has two chip-making plants in China, but unlike their manufacturing facility in Arizona, they produce less sophisticated semiconductors.

chip industry alliances

The United States has been looking to forge semiconductor partnerships with its Asian allies including Japan and South Korea as a way to secure the supply of critical components and maintain a lead over China.

According to Prakash, the TSMC team is stuck in the midst of the US-China rivalry and may have to take sides. Its commitment to an advanced semiconductor manufacturer in the United States can already be a sign of the country you stand with.

“In fact, a company like TSMC has already made a ‘choice between the two sides.’” Prakash said he is investing in the US to support the US chip industry, and he has said he wants to work with “democracies,” like the European Union, in the chip industry.

“Increasingly, companies are striking an ideological tone in the people they work with. The question is, with rising tensions between Taiwan and China, will TSMC be able to maintain its position (aligning itself with the West), or will it have to readjust a geopolitical strategy.”

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