Chips Take Center-Stage As Businesses Manage Risks And Countries Manage Rivalries

On Tuesday, President Biden visited Phoenix for a “tool-in” ceremony at a new, $12 billion plant being built by Taiwanese chip manufacturer TSMC. Just ahead of his arrival, the firm announced it would build a second factory in Arizona. Now totaling $40 billion, TSMC’s Arizona expansion is the company’s largest foreign investment, and among the largest foreign investments in American history. 

BIDEN: “They’ll construct a second fab here in Phoenix to build chips three nanochips, the three nanochip, chips that are three nano…” pic.twitter.com/vGJgUQyr1p

— RNC Research (@RNCResearch) December 6, 2022

In addition to bringing jobs, TSMC’s Arizona facilities will also provide some reassurance for manufacturers all over the world who’ve grown increasingly uneasy about the concentration of chip production on the contested island of Taiwan. 

“Companies like TSMC are facing multiple reasons to rethink the geography of supply chains. And it’s not just politicians calling them . . . but their customers as well,” Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, tells Financial Times this week.

As the Times’ Andrew Hill writes: 

Taiwan sits on geopolitical and seismic faultlines. Until recently, companies trusted that seamless globalised networks would underpin their chip supply. But boards are suddenly worrying about “Taiwan risk.” They are contemplating the possibility of military confrontation between the US and China and grappling with the implications of a trade war over chip development and supply.

Then there’s the U.S. government’s war on Chinese semiconductor capabilities, which some view as central to the rivalry between the two countries.  

“World War II was decided by steel and aluminum, and followed shortly thereafter by the Cold War, which was defined by atomic weapons,” writes Miller. “The rivalry between the United States and China may well be determined by computing power.”

Efforts to undermine China’s chip industry started with the Trump administration, and have intensified during Biden’s presidency. In October, the Commerce Department barred companies from selling advanced computing chips, chip-making equipment and other goods to China unless they first secure a special license to do so. Most requests are expected to be denied.  

Under U.S. government leadership, trade wars are evolving. The emphasis is shifting — from defensively blocking access to one’s own domestic market, to using economic coercion to deny a foreign rival access to crucial products and finance. 

Rather than being an alternative to a shooting war, such tactics may prove to be a precursor.  As the apocryphal quotation, dubiously attributed to Bastiat, goes: “When goods don’t cross borders, soldiers will.”