What you need to know
TSMC's proposed factory in Arizona would grant one of Taiwan's most important companies direct access to the U.S. market.
Taiwan Semiconductor Manufacturing Company (TSMC), the latest front in the U.S.-China trade war, has hitched a large part of its future growth to the U.S. market.
With the move, TSMC will break with its practice of retaining its cutting-edge manufacturing capacity in Taiwan.
TSMC is one of the most important companies in the global tech production chain. It has been able to profit by manufacturing complex computer chips, an expensive process, for companies that do not have their own fabrication facilities. TSMC is the largest company in Taiwan and is seen as a bellwether of Taiwan’s stock market.
The manufacturer has mostly retained its core technology in Taiwan. Its operations in China are limited to using more dated engineering processes. Unlike its existing overseas ventures, TSMC intends to bring the , used for Apple’s new A14 chip, to its Arizona factory.
Wedged between China and the U.S.
TSMC has come under pressure by the U.S. because it has been supplying integrated chips to Huawei before the U.S.-China trade conflict. The U.S. government sees Huawei as a threat, , and has to impose a “Huawei Ban.”
In 2019, the U.S. added Huawei to its , which bans the exports of American products to the company and its entities. It prohibited Huawei from acquiring parts made by U.S. companies, selling its phone in the U.S., and participating in the race to build 5G infrastructure.
But TSMC appears to have cut Huawei off to preserve business with U.S. companies. Huawei, the second largest client for TSMC only behind Apple, accounts for 15-20 percent of TSMC’s annual revenue.
Business marching to the tune of politics
The announcement is a sign that the U.S.-China trade conflicts are beginning to substantively affect Taiwan. As the Tsai government has cooperated closely with the U.S., private companies like TSMC have had to maneuver as the political situation it operates in shifts.
The U.S. also voiced support of Taiwan’s democracy, while Taiwan has taken a firm yet non-provocative stance towards China’s acts of economic coercion.
Despite warming relations with the U.S., business with China remains critical to Taiwan’s economy. , and companies like TSMC profited from the tension between China and the U.S. by playing off both sides. Analysts say that TSMC building a plant in Arizona is
In the U.S., Republicans have generally been supportive of the announcement, while Senate Democrats have sought more details on how the deal was inked. The Trump administration is trying to take credit for TSMC’s announcement, claiming Trump’s agenda has led to “” Democratic senators are demanding more transparency and asked that no progress be made until “relevant authorization and appropriations committees” are briefed with the proposal.
With TSMC’s plan cautiously worded as an “intention,” uncertainty in Washington can lead to its delay or scrapping.
Opportunities and Challenges
TSMC has traditionally proceeded with caution in expanding its operations abroad. However, amid intensifying trade conflicts, TSMC as a crucial component in the global semiconductor production chain must pick a side.
U.S. policy to block off Huawei’s suppliers will likely have some success. Even though Chinese firms are quickly developing their own production capability and technology level with companies like the Semiconductor Manufacturing International Corporation (SMIC), they are still far less competitive than Taiwan’s TSMC, despite
For TSMC, a base in the U.S. may be a beachhead for selling to the American defense industry. Currently, TSMC produces computer chips for use in F-35 fighter jets, the company’s new plant would be well-positioned to supply more components for U.S. military use. Phoenix, Arizona is home to many U.S. defense firms, like Raytheon, Honeywell, and others. Since the U.S. has many export restrictions on arms-related products with regulations like International Traffic in Arms Regulations (ITAR), parts not produced in the U.S are subjected to extra scrutiny when used for military purposes.
A U.S. base makes it easier for Taiwan to cooperate on arms production and purchases with the U.S. government. Contracts to produce parts for the U.S. military can also offset the costs of setting up a plant in the U.S., which is likely to be less profitable than the densely clustered facilities in Taiwan.
Nothing currently on the table is certain, however. In the past, a plan publicized as a blue-collar jobs initiative in Wisconsin was announced by Foxconn. But after securing billions of tax incentives for a manufacturing plant, it . Foxconn’s plan change was seen as a “bait and switch,” and the precedent set by Foxconn could undermine TSMC’s intentions to build a similarly styled plant.
Nevertheless, the announcement is likely a sign that a reshuffling of the global semiconductor production chain is underway. Taiwan is seeking to place its manufacturing industry under the protection of the United States.
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TNL Editor: Daphne K. Lee, Nicholas Haggerty (@thenewslensintl)
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