As the world sues TSMC, Taiwan worries about losing its ‘silicon shield’.

Hong Kong

Semiconductor giant TSMC was welcomed this week by US President Joe Biden and Apple CEO Tim Cook at the unveiling of a $40 billion manufacturing facility in Arizona – a major investment designed to ensure America’s supply of cutting-edge chips.

But back home in Taiwan, there is deep concern about the growing political and commercial pressure on the world’s most important chip maker to expand internationally. The company is building a facility in Japan and is considering investing in Europe.

“They are like the Hope Diamond of semiconductors. Everybody wants them,” said G. Dan Hutcheson, vice president of chip research firm TechInsights. (The Hope Diamond is the world’s largest blue diamond and is currently housed in the Smithsonian Institution’s National Museum of Natural History in Washington, DC.)

“Customers in China want them to build there. Customers in the US want them there. Customers in Europe also want them there,” he added.

Apart from the risk of TSMC taking its most advanced technology with it – depriving Taiwan of one of its unique assets and reducing local job opportunities – there are fears that the company’s reduced presence could expose Taipei to greater pressure from Beijing. vowed to take control of the self-governing island by force if necessary.

TSMC is considered a national treasure in Taiwan and supplies tech giants including Apple ( AAPL ) and Qualcomm ( QCOM ). It mass-produces the world’s most advanced semiconductors, components essential to the proper functioning of everything from smartphones to washing machines.

The company is so valuable to the global economy, as well as to China, which claims Taiwan as its territory, although it has never controlled it, and is sometimes referred to as part of a “silicon shield” against the country. A potential military invasion of Beijing. TSMC’s presence gives the West a strong incentive to defend Taiwan against China’s attempt to take it over by force.

“The idea is that if Taiwan becomes a powerhouse in semiconductors, America will have to support and defend it,” Hutcheson said. “The strategy has been very successful.”

A day before Tuesday’s Phoenix ceremony, opposition Taiwan People’s Party lawmaker Chiu Chenyuan grilled Foreign Minister Joseph Wu about whether there was a “secret deal” with the United States to neutralize Taiwan’s chip industry.

Chiu claimed the chip giant was under political pressure to move its operations and cutting-edge technology to the US. He cited the relocation of 300 people, including TSMC engineers, to the Arizona plant. In response, Wu said there was no collusion and no attempt to downplay Taiwan’s importance to TSMC.

Patrick Chen, Taipei-based head of research at CL Securities Taiwan, said there was general concern on the island about TSMC’s growing international importance, the pressure it faces to expand and what that means for Taiwan.

“This is similar to what happened in the United States in the 70s and 80s when manufacturing jobs were moved from the United States to other countries. Many local jobs were lost and cities went bankrupt,” he said.

CNN asked TSMC for comment on its expansion plans.

Its CEO CC Wei previously said, “Every region is important to TSMC,” adding that it will “continue to serve all customers around the world.”

Founded in 1987 by Morris Chang, TSMC is not well-known outside of Taiwan, even though it makes about 90% of the world’s super-advanced computer chips.

Semiconductors are an indispensable part of almost every electronic device. Due to the high cost of development and the level of knowledge required, they are difficult to manufacture, meaning that much of the production is concentrated among a few suppliers.

Concerned about losing access to crucial chips, especially amid rising tensions between China and the United States, as well as between Beijing and Taipei, governments and major consumer companies such as Apple have asked semiconductor companies to localize their operations, experts say.

“TSMC’s decision to expand its Arizona investment is evidence that politics and geopolitical risks will play a bigger role in supply chain decisions than ever before,” said Chris Miller, author of The Chip War: The Battle for the World’s Most Critical Technology.

“It also shows that TSMC’s customers are demanding more geographic diversification, something that previously wasn’t a major concern of major customers.”

On Tuesday, TSMC said it was increasing its investment in the United States by building a second semiconductor factory in Arizona, raising its total investment there from $12 billion to $40 billion.

Chang previously said his Arizona plant will produce 3-nanometer chips, the company’s most advanced technology, as advances in chip manufacturing require smaller transistors to be etched onto silicon wafers.

The announcements are exciting politicians like Chiu of the Taiwan People’s Party. He worries about the loss of the island as TSMC flirts globally.

CL Securities’ Chen said national security concerns among governments globally are driving TSMC’s expansion. But he believes the company will continue to produce its most advanced technology in-house.

“It would make a given economic sense [the] low salaries [and] The higher quality of Taiwanese engineers,” he said, adding that the company needs approval from Taiwan’s Ministry of Economic Affairs to transfer its most advanced technologies overseas.

Many experts believe that TSMC’s Taiwan operations will produce smaller, more advanced chips while 3-nanometer chips are made in Arizona.

Hutcheson also believes TSMC will keep its most advanced development teams in Taiwan.

“When you have a development team, they work very closely together. You don’t want to mess it up. This is not an easy task,” he said.

— CNN’s Wayne Chang contributed to this report.

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