In the high-stakes world of technology, where digital capabilities define national strength and economic growth, chip manufacturing has emerged as the ultimate battleground. This arena is no longer merely a race for commercial superiority, but a contest of national pride, strategic geopolitical manoeuvring, and economic survival. At the heart of this struggle is the intensifying competition between China and the United States, the continuing prominence of Taiwan's chip industry, and the ripples of impact across the Pacific nations.
Taiwan Semiconductor Manufacturing Co. (TSMC), the leading force in this industry, recently announced an investment of 90 billion New Taiwan dollars (roughly $2.87 billion) towards the construction of a new plant in western Taiwan. This investment underlines the importance of advanced packaging in high-performance semiconductors, which are indispensable for the propagation of generative artificial intelligence (AI).
Advanced packaging is a sophisticated process that involves interlocking multiple chips within a single package, enabling them to work seamlessly as one unit. This process is crucial for creating semiconductors for AI applications, as seen with TSMC's clientele that includes Nvidia and Advanced Micro Devices. Such technology is fast becoming a linchpin in the development of cutting-edge AI tools, including generative models like OpenAI's ChatGPT.
This new plant, slated to start construction in the latter half of 2024 and reach mass production by 2027, represents an ambitious move by TSMC. This project follows the company's recent setup of another large-scale plant at an industrial park in Miaoli, reinforcing its commitment to advanced packaging technology. Despite the tight capacity outlined by TSMC's CEO, C.C. Wei, during a press conference in July, the company is demonstrating its resolve to increase capacity as quickly as possible to meet the rapidly growing demand.
On the other hand, China's domestic chip companies, feeling the squeeze of escalating tensions with the U.S., are imploring Beijing for greater support. The U.S.'s increasingly stringent export controls on semiconductors to China have left domestic chip manufacturers seeking ways to navigate the turbulent geopolitical waters. Chinese companies are urging for enhanced dialogue between the two superpowers to prevent further exacerbation of the situation.
Last year, the U.S. Department of Commerce's Bureau of Industry and Security introduced a 139-page export control regulation. This document outlined the specifics of chip computing power, bandwidth, and process technology. When equipment reaches these parameters, it is barred from export to China. These new restrictions reflect America's attempts to keep Beijing's ambitious chip industry in check while simultaneously bolstering its own domestic chip production.
China's chip industry is now advocating for the government to devise more effective measures to mitigate the impact of these restrictions. In a recent meeting hosted by China's Ministry of Commerce with key domestic semiconductor companies, participants called for the government to take stronger actions to address the challenges posed by U.S. and allied sanctions.
They added that repercussions have not been limited to China, but have also adversely affected the global semiconductor industry, including players in the U.S. Global industry cooperation should not be blocked by political factors, they said, urging Beijing and Washington to resolve differences and concerns through consultations, business news media group Caixin has reported.
The calls come after the China Semiconductor Industry Association, which represents more than 700 Chinese chipmakers, last week said that "any damage to the current global supply chain ... could create inevitable and irreparable harm to the global economy."
The CHIP Act - Creating Helpful Incentives to Produce Semiconductors - passed in the U.S. has further added to the tensions, manifesting itself as a potential game-changer. This legislation aims to support domestic chip manufacturing, while indirectly creating more barriers for China's aspirations in the semiconductor industry. The impact of the CHIP Act extends beyond the U.S. and China, affecting the geopolitical dynamics across Taiwan and the Pacific nations.
Amidst the regional tensions the Semiconductor Industry Association (SIA) the voice of the semiconductor industry, one of America’s top export industries and a key driver of America’s economic strength - made a number of statements to place hand brakes on ongoing sanctions.
“Recognizing that strong economic and national security require a strong U.S. semiconductor industry, leaders in Washington took bold and historic action last year to enact the CHIPS and Science Act to strengthen our industry’s global competitiveness and de-risk supply chains. Allowing the industry to have continued access to the China market, the world’s largest commercial market for commodity semiconductors, is important to avoid undermining the positive impact of this effort” announced by Semiconductor Industry Association (SIA).
Amid these tensions, demand for AI semiconductors continues to surge. Server AI processor demand is predicted to rise at an annual rate of nearly 50% in the next five years, significantly increasing its share in TSMC's total sales. This expanding market share further solidifies the role of AI-driven technology in shaping the future of the global economy.
The statement released by the U.S. Semiconductor Industry Association on July 17, that group also called on both governments to "ease tensions and seek solutions through dialogue, not further escalation."
The unfolding situation reveals an increasingly complicated and fiercely competitive landscape for the chip manufacturing industry. With the intersection of technology, politics, and economy, nations are battling on a terrain that combines national security, competitive behaviours, and the quest for technological supremacy. As the stakes continue to rise, the chip manufacturing industry remains a focal point of intense scrutiny, national strategy, and burgeoning investments.
