Former US President Donald Trump raised eyebrows last week when he accused Taiwan of snatching America’s crown in the $500 billion business of making computer chips.
In an interview with Bloomberg Businessweek, the Republican presidential nominee repeated his assertion, first made last year, that the island democracy and US ally had taken “almost 100%” of the industry from the United States. “We should have never let that happen,” he added.
Except, it didn’t. Industry experts tell CNN that, far from stealing, Taiwan grew its own semiconductor industry organically through a combination of foresight, hard work and investment.
School children on the island know that the father of its world-beating chips sector is Morris Chang, a 93-year-old Chinese-born American, who started Taiwan Semiconductor Manufacturing (TSMC) in 1987 at age 55 after a long career working with semiconductors in the US.
At the time, the industry leaders were Intel (INTC), Motorola (MSI) and Texas Instruments (TXN), where Chang had previously worked. But in starting TSMC (TSM), Chang had an entirely different business model in mind, which was completely revolutionary at the time.
“We had no strength in research and development, or very little anyway. We had no strength in circuit design,” he recalled in a 2007 oral history project recorded for the Computer History Museum in Mountain View, California.
“We had little strength in sales and marketing, and we had almost no strength in intellectual property. The only possible strength that Taiwan had, and even that was a potential one, not an obvious one, was semiconductor manufacturing,” he said.
Thus, the idea of a “pure-play foundry,” or manufacturing semiconductors according to designs provided by clients, was born. That model was dismissed at the time, when having both design and manufacturing capabilities in-house was the norm.
An effective model
It was this new approach that reshaped the landscape of the global electronics sector and laid the foundation for Taiwan to be the industry leader. It now produces more than 90% of the world’s advanced chips, according to the Semiconductor Industry Association.
“Because of it, TSMC could focus on manufacturing and be very good at it, and more importantly, it could manufacture for multiple different customers, which would let the company scale up,” said Christopher Miller, author of “Chip War: The Fight for the World’s Most Critical Technology.”
Scale is critical to TSMC’s success, Miller said, as it tends to generate more revenue — which can be funneled into improving chip production technologies — and drive down manufacturing cost, making the entire operation more efficient.
Today, the tech behemoth possesses the most advanced chip production technologies in the world and plans to keep investing in the area. Last July, TSMC opened its global research and development center in Hsinchu, where it is headquartered.
Experts said the contract manufacturing model, something Taiwan had used in other sectors such as textiles and consumer electronics before chips, worked particularly well.
“The combination of top-tier engineers, relatively lower labor cost and long working hours have led to better productivity,” Konrad Young, a former research and development director at TSMC, told CNN, adding that Taiwan’s comprehensive tech ecosystem is another crucial component of the island’s chip prowess.
“These are factors that are nearly impossible to duplicate,” Young said.
But that doesn’t mean competitors aren’t trying. Intel and Samsung Electronics are both trying to emulate TSMC’s success in making chips for other companies.
A ‘protection fee’
When asked by CNN what the Taiwanese government would do if Washington presses Taiwan to move some of its chip-related research and development functions to the US, Premier Cho Jung-tai said the island has no plan to change its playbook.
“Taiwan has very good tech talent and an environment for research, development and investment. We are confident that keeping research and development of cutting-edge technologies in Taiwan is the best choice for these enterprises,” Cho told CNN.
In the Bloomberg Businessweek interview, Trump additionally indicated that Taiwan should pay Washington for its defense.
“Taiwan should pay us for defense. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything,” he said, while suggesting that the US would have difficulty defending the island because of its distance, stating “Taiwan is 9,500 miles away (from the US). It’s 68 miles away from China.”
Within Taiwan, Trump’s remarks are being compared to demands for a “protection fee.” It has caused unease about how the Republican presidential nominee, if elected president, may affect ties with the US, the island’s most important security guarantor, at a time when the risk of China invading Taiwan looms ever larger.
Persistent tension in the Taiwan Strait has put pressure on TSMC to expand outside of Taiwan to diversify its production base. Within the US, the chip shortage during the Covid-19 pandemic, as well as the increasingly strategic importance of the industry due to the rivalry between the US and China, have prompted calls to revive chip manufacturing domestically.
In 2022, President Joe Biden signed the CHIPS and Science Act into law, aiming to boost domestic production of chips, which stands at about 10% of the global supply, and reduce reliance on Taiwan and South Korea for the most advanced ones.
While it is unclear what a potential Trump presidency could mean for Taiwan, Young says chip firms should strive to find a better way to work together for a mutually beneficial relationship. This is particularly important for TSMC, which is building three factories in Arizona but has faced headwinds in getting its facilities on track because of reasons ranging from different labor laws to work culture.
“TSMC would have to figure out a way to put in place a manufacturing system that fits the culture of wherever it is building its fabs,” Young said, referring to fabrication plants where chips are made. “Only by doing so can TSMC truly become a global company.”
— CutC by cnn.com
