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Home Electronics: Technology, News & Trends Joint Statement by Experts in Taiwan Industry: US CHIPS Act Harms Taiwan

Joint Statement by Experts in Taiwan Industry: US CHIPS Act Harms Taiwan

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US CHIPS Act
Although the intention behind the CHIPS Act is commendable, its design is flawed. Instead of establishing a sustainable semiconductor manufacturing cluster in the United States, it may cause long-term damage to TSMC and ultimately harm Taiwan's economy.

Recently, Lin Benjian, former Deputy General Manager of Research and Development at TSMC, and former Director-General of Industrial Technology Research Institute (ITRI) Shih Chintai, among others, pointed out in an international column for Project Syndicate that “the design of the US CHIPS Act is very poor, weakening TSMC’s strength and making the entire semiconductor industry more fragile.”

Project Syndicate post

They emphasized that today’s semiconductor industry is dominated by specialized companies worldwide. While TSMC focuses solely on manufacturing high-end chips, other equally important entities include US IC design companies such as AMD, Nvidia, and Qualcomm (which solely design chips), as well as Dutch lithography expert ASML, Japanese semiconductor equipment manufacturer Tokyo Electron, and British company Arm.

Advantages and Disadvantages of Specialization

All these specializations offer two main benefits.

  • Firstly, it means that each part of the global supply chain can focus on and improve its area of expertise, which benefits other parts of the supply chain.
  • Secondly, global production capacity at various stages of the supply chain increases, making the industry more resilient to demand shocks.

However, the cost of specialization is that the industry is vulnerable to supply shocks. Considering geopolitical issues, the United States and Japan have provided substantial subsidies for TSMC’s relocation. TSMC currently plans to establish its first chip manufacturing plant in Kumamoto, Japan, and build a new factory in Phoenix, Arizona.

TSMC’s JASM factory in Kumamoto, Japan, may open in February and begin mass production by the end of the year, so many of TSMC’s suppliers will also set up there. However, the Phoenix project has fallen significantly behind schedule, and fewer and fewer of TSMC’s suppliers plan to locate there.

TSMC’s experience in Camas, Washington, over the past 25 years further casts doubt on the prospects for the Phoenix factory. Although initially hoped to be a stronghold for TSMC in the US market, the company struggled to find the workers needed to remain competitive. Even with the same training and equipment over a quarter of a century, production costs are still 50% higher than in Taiwan. Therefore, TSMC chose not to expand its business in Camas.

Commentators point out that the fundamental problem in this situation is that while Americans excel in chip design, the country lacks workers with the desire or necessary skills for electronic sector. However, specialized skills are crucial in this field. Workers must be meticulous, detail-oriented, committed to consistency, perfection, and timely production. They must have a strong grasp of how equipment works (much of which is highly advanced or customized) and on-site data.

The Phoenix factory of TSMC will continue to face difficulties because there are too few American workers with the skills required for semiconductor manufacturing. Therefore, as warned by TSMC founder Zhang Zhongmou in 2022, seeking economic security by relocating semiconductor manufacturing to the United States is a “costly and futile practice.” The $52 billion in the CHIPS Act seems like a significant number, but it is not enough to create a self-sustaining semiconductor ecosystem in Phoenix.

Three Major Risks of the US CHIPS Act

“Electronic Engineering Journal” previously pointed out in an article titled “The US CHIPS Act may have big moves, but chip repatriation plans face many challenges.” Taiwanese experts also pointed out three major risks of the CHIPS Act in their comments.

  • Firstly, if TSMC does indeed lose its focus on innovation, the biggest losers will be its customers and suppliers, most of which are American companies. The broader artificial intelligence revolution—largely driven by chips manufactured by TSMC—will gradually stall.
  • Furthermore, TSMC may reduce its investments in Taiwan, leading to a decrease in the industry’s resilience to demand shocks.
  • Lastly, TSMC may lose its direction to the extent that another company replaces it as the leader in advanced semiconductor manufacturing. Many people in Taiwan have already seen the CHIPS Act as an attempt by the United States to seize Taiwanese technology.

TSMC losing its leading position will further strengthen the feeling in the United States that Taiwan ultimately does not matter. However, if Taiwan’s economy and security are weakened, the damage to US national security will outweigh any benefits of achieving greater (and more expensive) semiconductor capacity in the United States.

They concluded in their comments that although the intention behind the CHIPS Act is commendable, its design is flawed. It not only fails to establish a sustainable semiconductor manufacturing cluster in the United States but may also cause long-term damage to TSMC and ultimately harm Taiwan’s economy.

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