Donald Trump’s comments that Taiwan hollowed out the US semiconductor industry are incorrect. That misunderstanding could impact the future of one of the world’s most important relationships, and end up aiding China at a time it is working hard to push its own tech sector to catch up.
“Taiwan took our chip business from us,” the returnee US presidential contender told Bloomberg Businessweek in an interview published this week. The remarks came after the Republican nominee was asked whether he’d defend Taiwan against China.
It’s not the first time he’s said this about the island’s chip sector, but comes amid heightened military, trade and technology rivalry between the two superpowers. In truth, Taiwan accounts for less than a quarter of the global semiconductor market, trailing the US, but has more than a 90% share in the fabrication of the most-advanced chips¹.
Right now, the global semiconductor space ought to be celebrating a boom driven by skyrocketing demand for artificial intelligence. Netherlands-based ASML, maker of the world’s most important semiconductor manufacturing equipment, on Wednesday reported bookings for new machines that surpassed estimates by almost 30%. On Thursday, Taiwan Semiconductor Manufacturing Co, which controls more than 90% of leading-edge production capacity, lifted its revenue outlook for the year.
Instead of rising in recent days, shares of both companies dropped. In addition to Trump’s comment, investors are worried about the possibility of tighter regulations on China from the current Biden administration. The White House is considering the imposition of the foreign direct product rule on the chip sector, which would apply to foreign-made products that use even a tiny amount of US technology. Such a move would extend an existing series of restrictions aimed at limiting China’s technological advance.
Damaging
Trump’s broader view of the US-Taiwan relationship, though, could be far more damaging in the long run than another round of export curbs. In his defence, the belief that Taipei took from the US is a common misperception, but the former president happens to be the loudest voice and may soon be back in the White House to act on it.
In fact, the seed of Taiwan’s technological rise was planted by US foreign policy dating back to 1950, before semiconductors were invented. At the time, President Harry Truman directed his administration to pump money into the island’s economy. The US was also there at the birth of Taiwan’s chip sector. In 1976, Radio Corporation of America agreed to license its semiconductor technology to Taiwan, for a fee. United Microelectronics came from this programme, and was one of the first companies globally to make its factories available to external clients who needed chips made-to-order.
A decade later, Morris Chang, a US citizen and former senior executive at Texas Instruments, founded TSMC. It was the first to only make chips for external clients. Intel was among the earliest customers. Since then, the US-Taiwan technology relationship has been one of symbiosis and co-dependence. In the 1990s, when fledgling US chip designers couldn’t find a local factory to make their products, TSMC and UMC were on hand to help. Qualcomm, Nvidia and Xilinx, giants of the US semiconductor industry, wouldn’t exist today if not for the Taiwanese.
In the last 20 years, as US firms dropped the ball on technological advancement and capacity expansion, Taiwanese companies have put up the money to research and develop new processes and bet more than $250-billion on the factories needed to churn out American-designed chips. At the same time, Chinese companies, America’s true rivals, have been accused of stealing technology from Taiwanese and US businesses to aid that nation’s technological development².
If not for the risks taken by Taiwanese enterprises, and cooperation — instead of unbridled competition — with US companies, Qualcomm and Broadcom couldn’t have dominated the global market for communications chips. And Nvidia, Intel and AMD wouldn’t be ahead of China in the AI chip race.
To view Taiwan-US economic history as anything but mutually beneficial risks fracturing one of the world’s most important industrial relationships, opening the door for China to take advantage of an unnecessary fissure. Instead, the White House, no matter who occupies it, needs to understand that Taipei is not a rival, it’s one of the biggest cheerleaders for US technology leadership.
¹The US still dominates thanks to companies like Nvidia, AMD, Qualcomm, Intel and Apple as well as through equipment and design-software providers. ²A US court found Fujian Jinhua not guilty of stealing from Micron because prosecutors failed to prove that the defendants misappropriated proprietary data. Taiwan’s UMC pleaded guilty in a related case.