LLiving on an island long coveted by a large and increasingly powerful neighbor, Taiwanese residents have thought about what might be the best place to go should the worst happen. Some think it could be the hills, other historic buildings that China will want to preserve. By the same reasoning, some believe it is the factory run by TSMC, the world’s largest computer chip maker.
Taiwan has for decades been a global strategic flash point and one of the world’s economic powerhouses. In an industrial park an hour’s drive from Taipei, those twin identities merge almost seamlessly in the form of the factory run by TSMC, the world’s largest computer chip maker, a facility so vital some Taiwanese think it could. be the safest place to visit. flee if China invades one day.
It’s hard to overstate the importance of the Taiwanese semiconductor maker to the global economy. TSMC dominates the production of the world’s most sophisticated semiconductors and counts Apple and Qualcomm among its main customers. It is a global hegemony that China envies.
The current global chip shortage that started early in the coronavirus pandemic is now reaching crisis proportions, making TSMC’s role even more critical.
Financial markets are increasingly alarmed about how shortages are fueling inflation in Western economies and, with executives predicting that chip shortages could last for years rather than months, are highlighting how a company from which few people have heard of can have such control. on the world economy.
Difficult road ahead
The chip shortage has skyrocketed the cost of new and used cars and trucks, which in turn fueled a 4.2% rise in US consumer prices in April. Equity markets saw an instant correction as investors calculated that inflation meant that the US Federal Reserve would start raising interest rates to ease pressure on the economy earlier than expected.
Since coming out of the shock of the pandemic recession last year, automakers haven’t been able to get their hands on enough semiconductors to make cars that meet demand. Chips aren’t just used in computers, they are the brains behind a wide range of everyday devices and are an integral part of car production as vehicles are increasingly being thought by drivers.
Ford said in April that it would build only half its normal number of vehicles through June due to chip shortages. Other manufacturers such as GM, Volkswagen and Jaguar Land Rover have also been affected.
The bottom line was that American cars were 10% more expensive in April than in March, the biggest monthly gain since records began. Second-hand cars are up 21% from last April as the shortage of vehicles coincides with consumers, many charged due to pandemic restrictions on vacations and eating out looking for something to spend their money on. The pattern is repeated in many countries. Car sales and prices are rising rapidly in the UK in the wake of the third lockdown, while are also booming in Australia.
A simple solution would be to make more chips, but the market for these components is finely tuned, and adding manufacturing capacity, known as “factories,” is extremely complex, expensive and time consuming. When automakers closed factories in the first wave of the pandemic in 2020, manufacturers like TSMC and Samsung in Korea shifted production to chips for consumer electronics, where demand continued to rise as people spent more time in home during closings.
Automakers compounded the problem by not placing enough future orders, believing the economic shutdown would last longer. But the world economy, aided by massive government intervention, has recovered faster than many thought, leaving a shortage of components. Analysts this week estimated that the auto industry would lose $ 110 billion this year due to lost production due to chip shortages.
‘Dependency represents a threat’
Mark Williams, chief Asia economist at consulting firm Capital Economics, said the auto industry’s woes show how semiconductors have become an essential input in products traditionally not considered electronic, and also how dependent the world is on Taiwan. to produce them.
“This dependency represents a threat to the global economy that can be mitigated, but will not be fully addressed in the foreseeable future,” he said.
So what appears to be a fortress also places Taiwan in a difficult situation. The concentration of chip production in Taiwan, which could be disrupted by earthquakes and droughts, as well as any possible military threat from across the Taiwan Strait, is a risk to the global economy.
The superpowers of the United States and China are desperately scrambling to catch up with Taiwan’s high-tech champion, amid mounting diplomatic and geopolitical tension between Washington and Beijing. TSMC is believed to be considering expanding its current plans to inject billions of dollars into cutting-edge factories in the US state of Arizona, Reuters reported this month.
China is also desperate to increase its capacity to make the most sophisticated chips, but, according to Capital, it has failed to reduce its dependence on foreign producers such as TSMC.. In fact, TSMC is allegedly considering companies in China worth billions, including a new facility in Nanjing. In 2018, Chinese companies such as Huawei stocked chips in response to threats from US export controls, exacerbating shortages. Trump-era sanctions on China’s top chipmaker SIMC have not helped.
Ultimately, the best way out of the current situation is to spread the load, said John Lee, who is co-director of a joint project of thinktanks SNV and MERICS analyzing the semiconductor value chain. “The smart way to build resilience across the entire global supply chain is greater coordination between different countries, rather than pursuing self-sufficiency with the enormous risk and expense that it would entail,” he said.
George is Digismak’s reported cum editor with 13 years of experience in Journalism