Taiwan's semiconductor industry is stuck between Trump and Huawei
Taiwan is caught between Washington and Beijing on a
complicated geopolitical matter: the island's status as a hotbed of
semiconductor innovation and production.
As part of his campaign to stop Chinese telecom giant Huawei
Technologies' fifth-generation, or 5G, technology gaining ground around the
world, U.S. President Donald Trump wants to block Taiwan's semiconductor
companies from selling microchips to it. More broadly, he wants to frustrate
the Chinese Communist Party's ambitions to dominate industries of the future.
He cannot directly stop these businesses, like Taiwan
Semiconductor Manufacturing Co. (TSMC), by far the world's largest contract
manufacturer of microchips. Instead, he wants to prevent their American
suppliers from exporting specialized manufacturing and tooling equipment to
them if the Taiwanese companies continue to sell finished microchips to Huawei
or any other blacklisted Chinese businesses.
But is a gambit of this magnitude feasible? That depends on
three factors: alternative suppliers for Taiwanese companies; a U.S. corporate
backlash; and effective political pressure on U.S. allies. It is going to be a
difficult, but not necessarily impossible task for Trump.
TSMC plays a vital role in Huawei's production. No Chinese
company can produce the chip Huawei's HiSilicon subsidiary has designed to
compete with rival Qualcomm's 5G-compatible processors. The chip would also
enable Huawei to match Apple's smartphone technology.
New U.S. export licensing conditions imposed on TSMC,
however, could shut down HiSilicon's primary source of microchips, overnight.
So are there substitutes for U.S. technology available to
TSMC? On paper, yes.
Japan's Hitachi High-Technologies, Tokyo Electron and
Kokusai Electric, for example, have the requisite technology. South Korea's
Samsung Semiconductor recently rolled out cutting-edge etching machinery, while
ASML, the Dutch company, continues to make unique ultraviolet lithography
technology, which TSMC has been using.
Despite this, in the short term, replacing American
technology would be a difficult task for TSMC. Plugging the gaps in what is
arguably the world's most complex manufacturing process, where specialized
etching and testing equipment has to be fine-tuned and slowly brought online,
could take months or even years.
The next complication is whether American companies will
lobby to block Washington's plan on the grounds that it would inflict
collateral damage on their own global value chains and destroy their market
share. In 2019, for example, more than half of TSMC's revenue came from Apple,
Qualcomm, Broadcom and other American companies.
This is significant because after TSMC produces these chips,
China is the biggest buyer for most U.S. semiconductor companies. Despite a
drop from 2018 numbers, more than half of Qualcomm's revenue came from China in
2019; for Broadcom it was about 40%; for Intel, 45%.
As such, lobbying efforts are underway to get the White
House to walk back its plans. This approach was successful in 2018, when U.S.
industry effectively lobbied its government to lift a technology ban on Chinese
telecoms equipment maker ZTE.
The third variable involves diplomacy and how successful
Washington is in prodding Japan, South Korea, the Netherlands and other
historical allies to acquiesce to its China policies.
Because of U.S. pressure, Dutch authorities are withholding
the approval of export licenses for equipment from ASML, which is said to be
destined for SMIC, the Chinese semiconductor company.
Given the historic tensions between China and Japan, Tokyo
needs its alliance with Washington to remain strong. Thus it is not
inconceivable that Shinzo Abe's government would override the wishes of
Japanese companies wanting to do business with TSMC, in exchange for
Washington's support for Tokyo's wider geopolitical needs.
Washington is applying similar logic to South Korea, where,
for example, Moon Jae-in's government might dissuade Samsung from doing a deal
with TSMC. Unlike Japan, however, which blocked Huawei 5G technology from its
national networks, South Korea has been open to working with Huawei and would
likely rebuff the White House.
Finally, there is Taiwan. Washington has been looking to
exploit its relationship with Taipei and, among other things, leverage the 1979
Taiwan Relations Act, which allows the U.S. to provide Taiwan with
"military arms of a defensive nature."
In 2019, the U.S. sold Taiwan $8 billion worth of military
technology, including F-16 jets and advanced radar systems. This arrangement
would seem to give the U.S. ample political influence over President Tsai
Ing-wen, whose Democratic Progressive Party has an adversarial relationship
with Beijing.
Whether or not Tsai would go so far as to prevent, arguably,
the country's most important company from supplying chips to Huawei is an open
question, given the internal political ramifications this would unleash. And,
of course, Beijing would retaliate with economic and other means that would
impact many of Taiwan's companies.
All of these variables make the outcome of Washington's
latest Huawei gambit very uncertain. What is clear, however, is that Taiwan's
semiconductor sector will remain stuck in a geopolitical minefield between
China and the U.S. for years to come.
Comments
Post a Comment