TAIPEI (Taiwan News) — From the cellphone in your hand to advanced weapon systems, the modern world is powered by chips.
A replacement for the bulky vacuum tube, semiconductors pack powerful punches at just the size of a thumbnail. The silicon-based technology is found in everything from wind turbines to pacemakers.
According to a Center for Strategic and International Studies report, the semiconductor industry is one of the most critical sectors of the global economy, with the Indo-Pacific serving as a vital region. In 2022, global semiconductor industry sales reached US$574.1 billion (NT$18.8 trillion).
The industry is as important as ever, given the insatiable demand for AI and the race to stay on top of the technology game.
The semiconductor supply chain is a complex network of countries and companies. No one player holds all the cards, rather, certain nations excel at their roles.
Major players
US firms lead chip design, including major players like Intel, AMD, Nvidia, and Qualcomm. Companies such as Apple and OpenAI also design chips, focusing on power consumption and performance. Alongside Japan, it also dominates the semiconductor manufacturing equipment market.
However, the supply chain has become increasingly volatile over the years. Natural disasters, such as the 2011 Tohoku earthquake and tsunami, disrupted the chain, leading to shortages and price increases.
Furthermore, the chain is concentrated in a few regions, particularly in Asia. This means that geopolitical tensions, like between the US and China, can disrupt the flow of chips.
In addition to these external factors, the chain also has internal issues, such as manufacturing capacity constraints and changes in demand, which also affect supply.
How chips are made
“Fabless” semiconductor companies like Nvidia or Qualcomm only design chips. Instead, specialized factories, or foundries, take these designs and produce them.
The process starts with silicon wafers, which are sliced thinly. Thin films of conducting, isolating, or semiconducting materials are deposited onto the wafer in a process called deposition.
The wafer is covered in a light-sensitive coating called photoresist, then an ultraviolet light applies a pattern. This is a crucial step because it determines how small the transistors on a chip can be. Generally, the more transistors, the more powerful the chip.
The next step, etching, removes the degraded resist to reveal the pattern. The wafer is baked and some of the resist is washed away. It gets hit with positive or negative ions to tune the pattern’s conducting properties.
In packaging, dies are cut out from the wafer, then put into a substrate, a kind of baseboard. Finally, a heat spreader is placed on top to cool the chip during operation.
The result is known as an integrated circuit, or more commonly a chip, which is typically sent out to outsourced vendors for testing. Afterward, they are assembled and distributed to companies that either sell them or incorporate them into their products.
However, setting up a chipmaking factory is time-consuming and costly. According to Intel, it takes three to four years to set up a fab and requires over US$10 billion.
Other factors, including hiring qualified engineers, maintaining ultra-clean conditions, power supply, and water consumption, combine to make construction costs high.
Taiwan’s role
Taiwan’s strength lies in manufacturing. As a semiconductor powerhouse, it produces 60% of the world’s chips. Its science parks host more than 1,100 companies, employ 321,000 people, and generate US$127 billion, per Wired.
Perhaps no other Taiwanese semiconductor company is as famous as TSMC, the world’s largest contract chipmaker. Founded in 1987 by engineer Morris Chang (張忠謀), it’s a pure-play foundry. In other words, it only produces chips that are designed by other companies, including Apple, Nvidia, and Qualcomm.
Headquartered in “Taiwan’s Silicon Valley,” Hsinchu, the company produces approximately 90% of the world’s advanced chips, generally defined as at or below 5 nm. Most of these chips are made in Taiwan, but the company also operates fabs overseas.
In April 2024, the US Department of Commerce allocated up to US$6.6 billion in direct funding under the Chips and Science Act for TSMC’s Arizona fabs. The first fab will make 4 nm chips, its second will produce 2 nm, and its third will produce 2 nm and beyond, per Nikkei Asia.
TSMC opened its first fab in Kumamoto, Japan in February last year with mass production starting in December using 12/16 nm and 22/28 nm processes. The second fab, also in Kumamoto, is under construction and is slated to use the more advanced 6 nm process.
Trump’s claims against Taiwan
However, US President Donald Trump has vowed to bring chip production to the US in his second term. He has even threatened to impose tariffs of up to 100% on Taiwan.
According to a Bloomberg interview in June, the then-presidential nominee claimed that Taiwan “stole” the US chip industry. “They took almost 100% of our chip industry,” he said. “We should have never let that happen.”
However, experts have challenged that assertion. Chen Po-chih (陳博志), senior advisor to President Lai Ching-te (賴清德), said Trump’s claim is misleading, per CNA.
He explained that Taiwan’s semiconductor industry was developed with US assistance. The earliest technology was provided by the US, and the first group of semiconductor talents in Taiwan were trained in US programs.
Furthermore, Taiwan’s chip manufacturing and information and communication technology industry are helping the US maintain its leadership in AI.
This trust has allowed Taiwan and the US to collaborate smoothly in the semiconductor sector. “Without Taiwan and TSMC’s cooperation, the US might not be able to compete against strategically ambitious nations like China, Japan, and South Korea,” he added.
Who pays the cost?
In an interview with Taiwan News, Wu Chih-i (吳志毅), Senior Technology Expert at Industrial Technology Research Institute, said consumers stand to lose the most in a tariff war.
Tariff costs are usually passed to consumers. Wu said obvious targets are electronic devices like cell phones and laptops, but even toys with simple chips will be hit.
Wu said the Trump administration’s goal is to bring manufacturing back to the US, with tariffs being a means to an end. Although he does not expect chip production to shift to the US, he believes sectors like steel will increase production there instead.
He emphasized that every country plays a role in the supply chain. The US is great at chip design, while Taiwan’s strength is its manufacturing.
Echoing Chen Po-chih’s sentiments, Wu said Taiwan and the US are complementary partners, not competitors. “I think the best way forward, of course, is to find some agreement that benefits each other.”
