Does the U.S. Need to Reduce Its Dependence on Taiwan for Semiconductors?
Are U.S. high-tech manufacturers dangerously dependent on Taiwan as a source of semiconductors?
The raw numbers suggest that the answer is yes. Taiwan accounts for around 65% of global semiconductor supply, and nearly 90% of the smallest and most sophisticated chips.
Don’t expect the balance of power in global chip production to alter significantly anytime soon, however. “Taiwan is and will remain, as far as we can tell, one of the leading producers of chips in the world,” says Anthony Rapa, partner and lead of the National Security Team of Blank Rome LLP. “For that reason, Taiwan continues to be viewed as a global crown jewel of semiconductor production.”
Even with passage of the CHIPS Act, there’s a way in which the U.S. doesn’t want to jeopardize its dependence on Taiwan. The Biden Administration is reportedly considering the imposition of further controls on exports of certain high-tech products, including advanced computing chips, to China. To do that successfully, Rapa says, it needs “local compliance and cooperation around the world, including in Taiwan.”
“Over the last few years,” Rapa says, “the role of Taiwan has been very important in terms of complying with U.S. export-control laws. It matches up with U.S. national security priorities vis-a-via China.”
Can the U.S. simultaneously restrict high-tech exports to China while sharing sensitive intellectual property with Taiwan? “Taiwan is treated differently in terms of licensing requirements,” says Matthew Thomas, a partner with Blank Rome. For the moment, there doesn’t seem to be much concern that advanced technology deployed in Taiwan would leak to mainland China, despite the fact that a number of companies in Taiwan have manufacturing facilities there. In such cases, Rapa says, U.S. export controls would cover more than the first port of call, to embrace the entire lifecycle of a product.
Rapa notes that the U.S. is attempting to put together a multilateral coalition for semiconductor production — a so-called Chips 4 Alliance that would include Japan, South Korea and Taiwan. But progress toward that end has been slow, with private companies based in those countries unwilling to share trade secrets with giant TSMC, let alone American manufacturers that might be keen on ramping up domestic production of semiconductors. The prospective members of such a club are also worried about alienating China, on which they depend for a broad range of critical raw materials.
Any major shift in semiconductor sourcing patterns will take time. In the short term, Thomas says, U.S. manufacturers can only diversify supply as much as possible, to lessen the potential impact of a disruption in Taiwanese factories.
What producers seem not to be overly worried about right now is China invading Taiwan, and bringing global high-tech production to a standstill. “I don’t know if I subscribe to the thesis that the situation at this moment is especially volatile,” Thomas says. “Talking to people in Taiwan, we didn’t hear from anyone a sense of extraordinary alarm.”
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"Does the U.S. Need to Reduce Its Dependence on Taiwan for Semiconductors?" by Robert J. Bowman was published in Supply Chain Brain on November 14, 2022.