Geopolitical Competition Intensifies in Chip and Semiconductor Production
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The global landscape of chip and semiconductor production is witnessing heightened geopolitical competition, particularly between the United States and China, as tensions surrounding Taiwan escalate. The island nation plays a pivotal role in this arena, producing an impressive 60% of the world’s advanced chips that are less than 7 nanometers in size. These chips are integral to various technologies, including artificial intelligence (AI), 5G networks, and military applications, thereby placing Taiwan at the center of a trade and technology conflict between the US and China.
Taiwan Semiconductor Manufacturing Company (TSMC) has emerged as a dominant force in the chip industry, alongside other Taiwanese manufacturers, such as United Microelectronics Corporation (UMC) and MediaTek. Additionally, the chip market includes significant players like Netherlands-based ASML and South Korean tech giant Samsung, as well as US firms such as Intel, Nvidia, Micron, and Texas Instruments.
In response to this growing competition, the US is dedicating billions of dollars to bolster its position in the global semiconductor sector, particularly through support for TSMC and other firms under the CHIPS and Science Act. The TSMC's facility in Arizona has recently ramped up production, outpacing similar operations in Taiwan by 4 percentage points.
China is not to be underestimated in this competition, boasting its own semiconductor companies including HiSense, Biren, and Semiconductor Manufacturing International Corporation (SMIC).
The Significance of Semiconductor Manufacturing
Semiconductors are crucial components across a range of applications, from consumer electronics like smartphones and computers to critical industries such as healthcare and military systems. As countries navigate the intersection between economic competitiveness and national security, the geopolitical contest over semiconductor production gains further significance.
The ongoing acceleration of digitalization globally is propelling demand for advanced chips in various sectors, thus intensifying the chip competition between the US and China. The outcome of this rivalry could have far-reaching implications on technological supremacy across military and economic domains. The US is actively pursuing collaborations with Taiwan and Japan to attain an edge, while China is striving for self-sufficiency in semiconductor production.
Recent global disruptions, including those stemming from the COVID-19 pandemic and ongoing conflicts in regions like Ukraine and the Middle East, have underscored the vulnerabilities of international supply chains, further emphasizing the necessity for domestic semiconductor production capabilities.
Rising Demand for AI and Semiconductor Growth
Stephen Ezell, the Vice President of Global Innovation Policy at the Information Technology and Innovation Foundation (ITIF), expressed to Anadolu that while the TSMC's Arizona facility has seen success, its technology lags behind that of its Taiwan operations, particularly concerning the production of advanced 2-nanometer chips. Ezell emphasized Taiwan's indispensable role in the global semiconductor landscape, especially in producing state-of-the-art semiconductors.
Ezell also noted that the global AI sector is projected to reach a market size of $390.9 billion by next year, with AI's rapid advancement driving a significant surge in demand for specialized chips, expected to grow at rates of 20% or more.
Acknowledging Semiconductor Vitality in Supply Chains
Mario Morales, the Vice President of Enabling Technologies and Semiconductor at the International Data Corporation (IDC), remarked that while TSMC aims to expand internationally, the core of its development remains in Taiwan, creating strategic concerns. He noted that the increased focus on semiconductor production is a response to lessons learned during the pandemic regarding supply chain vulnerabilities.
With approximately 95% of leading-edge semiconductor technology still concentrated in Asia, including Taiwan and South Korea, Morales highlighted the need for diversification in production given the geopolitical climate between China and Taiwan. In light of the pandemic, there has been a greater recognition of semiconductors' importance, prompting substantial investments from major tech companies and government initiatives in the US and EU.
Strategic Implications of Taiwan's Role in Chip Production
James Lewis, Director of the Strategic Technologies Program at the Center for Strategic and International Studies (CSIS), emphasized that while Taiwan's role in chip production remains vital, reducing dependency on its semiconductor capabilities due to its vulnerability to Chinese pressure is a priority for the US. As digitalization continues to accelerate globally, the demand for chips is expected to grow long-term, necessitating strong homegrown semiconductor industries to mitigate reliance on external markets.
Future Directions in Semiconductor Production
Pranay Kotasthane, Deputy Director at the Takshashila Institution in India, highlighted the ongoing changes in chip production trends, suggesting that if TSMC's operations in the US are sustained, Taiwan's prominence could diminish over time. He noted the ongoing shift towards application-specific chips tailored for machine learning and AI, which calls for innovative designs and packaging technologies.
As countries navigate these evolving dynamics, Kotasthane asserted that access to semiconductor production will become increasingly critical, though it doesn't necessarily require domestic facilities. He concluded that a collaborative, plurilateral approach to semiconductor manufacturing is essential to meet future demands.
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