TSMC head says drive to onshore chip supply chain is 'unrealistic'

China is a weaker strategic threat despite being a stronger local conventional threat. That would seem to me to make outside direct intervention more likely (though not necessarily more likely than not.)

> The US would be going it comparatively alone against China in a Taiwan conflict

There is nothing as centralized as NATO or the EU in the region, but there are numerous US bilateral and a few small multilateral security arrangements, and China is one of the main things motivating those arrangements.

"Hmm, I wonder who that sign is for..."

https://archive.ph/kvlnp / https://www.bloomberg.com/news/articles/2022-03-28/tsmc-sams...

It started with getting TSMC to build a fab in Arizona, but to be fair it's a small fab (25k wafers/month) and 5nm will not be leading-edge by the time it's operational. Presumably the point of that fab is traceability/domestic sourcing for the defense/intelligence community - I'd expect that to mostly be used for products to be sold to the USG, and that's how it's sized, just what they'll need for defense. But this new initiative looks like a sea change to me - both in US chipmaking and foreign policy.

I think the situation in Ukraine with neon supply (used in older processes, like the automotive chips that are already in shortage...) has finally struck the fear of god into US policymakers. It's increasingly clear that the supply chain is dangerously single-source in many many areas (EUV and high-end DUV litho machines, fine chemicals and high-end passives, ABF film, etc), and any problem in any area of the world can have huge implications, because the "build one part in every country" strategy means conflicts are going to disrupt something. You reduce the risk of a black-swan event taking out the whole industry at once, but you also increase the risk of at least some disruption happening, and at this point any disruption is catastrophic in itself.

But beyond that, China is taking advance of the world being distracted by russia to rattle the saber with TSMC again and that's ultimately just not a tenable situation. Not just on China's part either, Taiwan is working the situation too and that's a problem too.

Not only could china blow up the world's chip supply by starting a war with Taiwan, but TSMC has that leverage at any time too. A fab is a tuned swiss watch, even simply wiping all the computers used to run it (or getting cryptolockered like happened a year or two ago) or opening the fab up and allowing it to be contaminated would basically halt production for a period of at least months, and that's practically trivial to do. Actively destroying certain machines could put the fab out of action for years, and blowing up a couple EUV machines is easily within reach of nationalists/partisans at TSMC if it came to it. Even beyond physically having the fabs on US soil, that means that TSMC and Samsung (and thus their respective governments) have leverage over US policymakers in terms of US national foreign policy - and letting foreign corporations have leverage over US foreign policy simply is not an acceptable situation. It's been a boiling-the-frog situation getting here but China rattling the saber over Taiwan while Russia is invading Ukraine is beyond the redline and the situation can't be allowed to persist.

Even if the US gets enough TSMC-owned capacity to not be completely dependent on Taiwan itself - what if China invades Taiwan and the US decides to allow Taiwan to fall? TSMC could destroy (or seriously damage) their US fabs in retaliation and still blow up the US (and world) economy. And the only other cutting edge fabs in the world are Samsung and Intel... and Samsung is sitting under the barrels of tens of thousands of North Korean artillery pieces, and now they've got nukes and ICBMs too. They have older fabs in Texas but all their cutting-edge stuff is in South Korea. It's not a problem today, but these are strategic projects with a 20 year spin-up time (given all the associated industries that need to be replicated) and foreign policy issues can easily crop up within a timespan of a year or less. What happens if North Korea gets antsy and Samsung doesn't think the US is committed enough to the defense? Samsung could basically do the same thing as TSMC if they really wanted too, and now you've got two quasi-state enterprises with leverage over policymakers.

Global Foundries, too, is owned by an Abu Dhabi sovereign investment fund, they're not cutting edge, but they're yet another potential state-level player.

Fabs are strategic infrastructure and letting foreign nationals control delicate, easily-destroyed strategic infrastructure simply isn't acceptable anymore, period. And the US is explicitly and specifically choosing to disarm the Sword of Damocles that Taiwan has used to exert control over US foreign policy, going forward TSMC won't be able to use the fabs as leverage - which obviously has huge implications for Taiwan's foreign policy, this really calls into question the long-term commitment of the US to the defense of Taiwan. I don't think we're gonna abandon them tomorrow by any means, but in 10 years there is going to be a different balance of power. Both of those are huge foreign-policy sea changes.

But yeah, the idea of "the end of history" and that globalization means that nobody is ever going to get into any conflicts ever again because "gosh, we're all just so economically intertwined" is dead - it's obvious that conflicts will happen and the intertwining just means that we have tons of economic problems when it does. That's another sea change. It's not going to stop neoliberals from doing it anyway, corporations will still lobby for deregulation and offshoring and tax cuts because it makes them money and neoliberals will generally oblige, but this is a signal that policymakers are starting to be aware that they can't just handwave and "the free market will take care" of strategic industries with massive foundational implications to downstream products and the industry as a whole. Globalization doesn't mean strategic industries aren't strategic.

[0] TSMC and Samsung are both quasi-state enterprises. TSMC is explicitly intertwined with Taiwan's foreign policy, they were the ones to negotiate for vaccines for taiwan for example, and Taiwan recently used the threat of cutting off TSMC's water (during shortages) as leverage in negotiations/etc. Samsung is a chaebol, one of the megaconglomerates that essentially run Korea's government shadowrun-style (this is how they industrialized from basically nothing to cutting-edge in 40 years, intense and tight corporate-state coordination). And this isn't just US-style "corporations donate to everyone", Korea's presidents have been repeatedly convicted of corruption for benefiting Samsung, and other actions are almost certainly happening behind the scenes that don't see the light of day on newspapers or can't be proven with hard data. Both Samsung and TSMC are either instruments (TSMC) or puppeteers (Samsung) of their states' foreign policies and cannot just be viewed as big corporations, they are players on the international stage in themselves.

TSMC seems to have achieved a sizable technological lead over Intel, that will perpetuate for the next few years or even decade.