The Disillusion of the Silicon Shield Myth

Severus Xisheng Wang 王希聖
Taiwan Semiconductor Supply Chain Becomes a Battlefield between the US and China Via Los Angeles Times

Since 2017, the strategic competition between the United States and China has intensified considerably, with a notable shift in focus. While the Trump administration prioritized trade matters, such as trade deficits and tariffs, the Biden administration’s primary strategy towards China centres on technology competition. Analysts in Washington and Beijing alike recognize that the party that achieves greater innovation in technology will significantly impact both nations’ economic foundation and strategic resource mobilization capability during the long-term competition. The US is endeavouring to secure an advanced position with China in the high-end semiconductor industry, including chip manufacturing and chip design software, and China is still suffering with how to get rid of the choke point on semiconductor manufacturing that is held by the US.

The emphasis on technology in this great power competition is primarily a result of the profound interdependence between the US and China in the industrial and technological supply chains, which makes it difficult to sever ties. If not for this extensive interdependence, it would be far easier for the US to achieve unilateral “decoupling.”

Semiconductor Industry as a Silicon Shield

The tech war between the US and China on chip manufacturing, as well as the shortage of chips in 2022, showed the importance of the semiconductor industry. Taiwan has a leading edge in the foundry in terms of advanced manufacturing processes. The country’s companies account for more than 50% of the world market. TSMC accounts for over 90% of the world’s production of advanced process chips. For this reason, Taiwan has somehow become the centre of the US and China competition in this industry.

Taiwan as the top semiconductor exporter Source: Al Jazeera

Today, global semiconductor production is heavily reliant on Taiwan. Recently, there has been a viewpoint that the semiconductor industry in Taiwan can help the country achieve international support if mainland China decides to attack it. The international community will not let mainland China to annex Taiwan so easily. Using Craig Addison’s words: “the semiconductor industry is a “silicon shield” for Taiwan. Therefore, the Taiwanese government should work hard to keep its advanced position in the supply chain”.


The US government is certainly aware of the importance of Taiwan in the semiconductor industry. However, the US will not increase its willingness to protect Taiwan just because the world is so dependent on Taiwan’s semiconductors. On the contrary, the US is trying to reduce this dependence and prevent Taiwan’s semiconductor industry from one day falling to mainland China.

On the one hand, President Joe Biden signed the CHIPS and Science Act of 2022, a rare single-industry and heavily subsidised bill, to strengthen US domestic chip manufacturing on August 9th, 2022. The core purpose of the CHIPS Act is to strengthen US semiconductor production and manufacturing capabilities. At the bill’s signing ceremony, Biden said that while the US remains a leader in chip design and development, only 10% of the world’s semiconductors are produced in the US. According to the Semiconductor Industry Association, the US produced 12% of the world’s semiconductors in 2020, down 25% points from 30 years ago.

Ideally, the Act will provide funding for critical investment in research and development across the country. Fearing that the US is losing its technological edge to China, the Act includes $52.7 billion for the semiconductor industry, a 25% investment tax credit for US semiconductor and equipment manufacturing, and provisions for exclusionary policies for the Chinese chip industry. For $52.7 billion in subsidies, the biggest part -$50 billion- was allocated to the Chip America Fund to stimulate the semiconductor manufacturing industry. However, the founder of TSMC, Morris Chang, commented that “all billions of subsidies being ring-fenced by the US for increased domestic semiconductor assembly will still fall far short of the necessary amount needed to boost homegrown chip manufacturers.”

US Commerce Secretary Raimondo explain the CHIPS Act at the White House. Source: PC

On the other hand, the US is reducing its dependence on Taiwan’s semiconductor industry. At the insistence of the US government, Taiwan Semiconductor Manufacturing Co (TSMC) was asked to build a new 5nm plant in Arizona in the first phase. The 3nm process, which is currently the most advanced in Taiwan, will also be produced in the US in the second phase. All of TSMC’s most advanced processes will be relocated to the US. In an interview with The Brookings Institution, Chang questioned the CHIPS Act and TSMC’s decision to set up factories in the US: “The US will increase onshore manufacturing of semiconductors somewhat, all that will be at a very high-cost increase, high unit costs, but non-competitive in the world market.” Not just high cost, TSMC’s investment in the US is also facing a shortage of talent. Some TSMC engineers say that in Taiwan, employees work long hours and weekend shifts, joking that they are “selling their livers” to work for the chipmakers. They said that US engineers may be less willing to make such sacrifices.

The founder of TMSC said that “the US’ efforts to increase onshore manufacturing of semiconductors is a wasteful and expensive exercise in futility due to the lack of manufacturing talent and high costs” Source: Taipei Times

Because of the shortage of engineers, TMSC had to move talent from Taiwan, creating an “exodus” as batches of talent went to the US. Radio Free Asia reported that TSMC chartered flights to send nearly 300 engineers to the US in early November 2022 and expects to continue sending more than 1000 TSMC engineers and their families to the US.

Biden Joins Tim Cook to Hail TSMC’s $40 Billion US Chip Venture. Source: Yahoo Finance

American Anxiety: Deterring Beijing from Invading Taiwan

After Russia’s invasion of Ukraine, the international community pays more and more attention to Taiwan and fears that Beijing’s resolve to reunite Taiwan is not just propaganda. Considering the US technology blockade on China and Taiwan’s leading position in the semiconductor industry, many people are beginning to worry whether Beijing will attack Taiwan to break the US’ isolation of China in chip manufacturing.

In Broken Nest: Deterring China from Invading Taiwan, McKinney and Harris suggest the Taiwanese government adopt a “scorched-earth” policy which includes the destruction of TSMC to deter the Chinese People’s Liberation Army from attacking Taiwan. They argue: “if the US cannot prevent China from seizing Taiwan by force, it should instead develop a strategy to convince China’s leaders an invasion would produce a peace more injurious than the status quo… Beijing must also be made to believe conquering Taiwan, while satisfying one core goal of the Chinese state, cannot be done without jeopardizing other core interests. In practice, this strategy means assuring China an invasion of Taiwan would produce a major economic crisis on the mainland, not the technological boom some have suggested would occur as a result of the PRC absorbing Taiwan’s robust tech industry.”

Taiwan’s semiconductor fabrication plants are located in cities near beaches along the island’s west coast (potential landing sites in the event of a Chinese invasion). Source: Reuters
  • US CHIPS and Science Act will hollow out Taiwan’s semiconductor industry. How should Taiwan counteract this without harming its relationship with the US?
  • US CHIPS and Science Act is surely not enough for the US to promote its semiconductor manufactory domestically. What should the US do to reduce domestic costs and improve competitiveness?
  • Is the semiconductor supply chain in Taiwan still a “silicon shield” for Taiwan?

Suggested Readings:

Liu, John and Mozur Paul. “Inside Taiwanese Chip Giant, a U.S. Expansion Stokes Tensions.” The New York Times

Wang, Lisa. “US’ chip bid “futile,” Morris Chang says.” Taipei Times

McKinney, Jared M. and Harris, Peter. “Detering China from Invading Taiwan”. The US Army War College Quarterly: Parameters

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The Disillusion of the Si…

by Severus Xisheng Wang 王希聖 time to read: 5 min