TSMC’s US Investments Spark Political Controversy in Taiwan

The construction of a plant in Arizona by the Taiwan Semiconductor Manufacturing Company (TSMC), at a cost of $12 billion, has been the subject of controversy in Taiwan. Namely, the opposition Kuomintang (KMT) has accused the ruling Tsai administration to “give away” TSMC to the United States, suggesting that this will erode the advantages that Taiwan currently enjoys in terms of international support due to its pre-eminence in semiconductor manufacturing.

The ‘tooling-in’ ceremony for the Arizona plant, which marks the first installation of semiconductor manufacturing equipment, It took place on December 6. The importance of the event for the company can be seen in the dignitaries who were present. In addition to TSMC founder Morris Chang and CEO DY Liu, US President Joe Biden was present. Apple CEO Tim Cook, AMD CEO Lisa Su, Esmer CEO Nick Wen, Micron Technology CEO Sanjay Mehrotra and NVIDIA CEO Jen-Hsun Huang joined They were among the other leaders of major technology companies in attendance.

The Arizona plant, TSMC’s Fab 21, will be for advanced four nanometer processes and will be online by 2024. Plans for the factory were originally announced in May 2020, with the intention of building a plant for five nanometer processes. At the time, the then-Trump administration was calling on tech companies to move manufacturing to the United States, in keeping with growing protectionist sentiment.

The Biden administration, which took office in January 2021, has continued calls to bring high-tech manufacturing back to the United States, particularly with regard to the semiconductor industry. CHIPS and the Science Act it was an important piece of legislation intended to boost semiconductor manufacturing in the US, in order to avoid dependence on foreign manufacturers. That being said, US politicians have sometimes touted the CHIPS Act as a potential avenue for US-Taiwan cooperation, as the former House speaker said. Nancy Pelosi did during his August 2022 visit to Taiwan.

Shortly before the tool delivery ceremony took place. TSMC announced that it would build a second factory in the United States to three nanometer processes, scheduled to come online in 2026. This will increase TSMC’s investment in the US to $40 billion, making this one of the largest foreign investments in US history.

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In his remarks at the ceremony, Biden touted that the factory will create 10,000 new high-tech jobs, as well as 10,000 construction jobs. Biden also highlighted Morris Chang’s upbringing in the United States and his time at Texas Instruments, describing TSMC as a kind of American company coming home.

Currently, the world economy is heavily dependent on Taiwan for semiconductor manufacturing, with Taiwan produces more than 90 percent of high-end chips and 65 percent of semiconductors in the world. This is believed to increase incentives for Western countries like the US to defend Taiwan from Chinese military threats, given their reliance on Taiwanese semiconductors.

China is also dependent on Taiwanese semiconductors, to the extent that reported by the Washington Post in April 2021 that Taiwanese chips are used in missiles that China has aimed at Taiwan, although the Taiwanese government has denied this. The fact that China’s supply chains are also dependent on Taiwanese semiconductors is believed to be a deterrent to a Chinese invasion of Taiwan. That semiconductors encourage Western powers to defend Taiwan and deter China from an invasion has been called Taiwan’s “silicon shield”.

As such, Taiwan views maintaining its advantages in semiconductor manufacturing as of key importance to national defense. But as the world has become increasingly aware of its reliance on Taiwanese semiconductors, particularly after the COVID-19 pandemic, there has been a new push towards “resilient” and diversified supply chains. That, in turn, has led to further political spat in Taiwan over the industry.

TSMC’s increasing investment in the United States and the use of advanced processes at its Arizona plants have raised concerns that the US will pressure the company to relocate key facilities and personnel outside of Taiwan, thus eliminating the benefits of “silicon shield”.

For its part, TSMC has stated that it will maintain its key facilities and retain the most advanced processes in Taiwan; For example, it plans to build its one-nanometer plant. in Hsinchu. But because of such concerns, the KMT has increasingly questioned the Tsai administration over the construction of the Arizona plant. The KMT legislative caucus held a press conference on December 26, led by caucus convener Tseng Ming-chung, to criticize the Tsai administration several weeks after the “induction” ceremony.

The Tsai administration that allowed the construction of the Arizona plant was criticized not only in light of national security but also because of TSMC’s contribution to Taiwan’s economy. The company’s capital expenditure from 2019 to 2021 of NT$1.8 trillion constituted about 12 percent of total domestic capital expenditure in Taiwan. Consequently, the Tsai administration has been accused of allowing the United States to undermine an important pillar of Taiwan’s economy.

KMT lawmakers further suggested that TSMC’s fabulous construction in the US would contribute to the problem of brain drain from Taiwan to the US. They claimed that a nearby Intel-built factory would lead Intel to remove talent from TSMC with higher salaries, which are three to five times those offered by TSMC. This would lead to the loss of critical technologies.

On the other hand, the founder of TSMC, Morris Chang, has stated on numerous occasions in public comments – And it seems when meeting with Nancy Pelosi during his visit to Taiwan, that US efforts to compete with TSMC are futile.

Either way, such criticisms are not new. The KMT previously held a press conference in October 2021, accusing the Tsai administration to turn over intellectual property, trade secrets, and technologies to the United States. This came after the US Department of Commerce asked domestic and foreign semiconductor companies, including South Korea’s TSMC and Samsung, to deliver data in inventory and chip sales in September 2021.

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TSMC’s role in Taiwan has become increasingly politicized of late. In the election campaign for the November 2022 local elections, the KMT accused the Tsai administration of order TSMC to build facilities in parts of Taiwan where their support was weak, in order to create job opportunities that would boost the position of the DPP at the local level. Candidates from both parties pledged to attract TSMC to develop high-end facilities in their constituencies to stimulate the local economy with high-tech jobs.

It has become common for the pan-Blue camp to accuse TSMC of acting at the behest of the Tsai administration. During the COVID-19 pandemic, TSMC helped negotiate vaccine purchases from BioNTech, along with FoxConn founder Terry Gou’s Yonglin Foundation and the Buddhist organization Tzu Chi. TSMC was accused of having been involved so that the purchase of the vaccine would not be credited solely to the pan-Blue camp, as Gou had sought the KMT’s presidential nomination in the past.

At the same time, the KMT has tried to claim TSMC’s current successes as an achievement of the past party policies when he held power. TSMC’s founding and initial growth occurred during the authoritarian era, when the KMT ruled Taiwan as the sole party.

However, the controversy over TSMC’s Arizona plant has been much more significant in public discourse than before, perhaps reflecting broader anxieties about the US relationship with Taiwan. Although the current party chairman, Eric Chu, has said that he intends to rebuild relations between the KMT and the United States, the KMT has been increasingly inclined to criticize the strengthening of ties between Taiwan and the US under the Tsai administration, in order to sow mistrust of the US and portray the DPP as uncritically pro-American.

Pan-Blue politicians like Gou have framed US arms sales to Taiwan while Washington foists unwanted, expensive and useless weapons on Taiwan. The DPP raising the long-standing ban on exports of ractopamine-treated pork from the US, long a stumbling block to a potential trade deal, it was similarly criticized as a case of the Tsai administration caving in to pressure from the United States. Allowing imports of ractopamine-treated pork not only endangered the food safety of the Taiwanese public, but also allowed the United States to undermine the domestic agricultural industry.

In this sense, the KMT’s criticism of the Tsai administration over the fabulous construction of TSMC in Arizona follows the line of other angles of attack that the pan-Blue camp leans into. But more broadly, the construction of the Arizona plant reflects how Taiwanese tech companies like TSMC, caught between the US and China, have had to choose sides.

In fact, in a series of widely circulated remarks at the tooling ceremony, TSMC founder Morris Chang stated that globalization was “almost dead”. Although this may have been an odd comment to make on the occasion of the construction of a TSMC plant abroad, Chang was probably reflecting on the demise of his ambitions for the company to steer clear of political loyalties.

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