Why are we so dependent on Taiwan for microchips? Why couldn’t these be manufactured elsewhere, in addition to Taiwan?
In: 1601
To keep it at five year old level. It’s because your friend (East China Island) spent the last 40 years learning how to do it and do it really really good. Why them because they really really wanted to and no one else really really wanted to.
These technological engineering industries are a massive undertaking that require a public private collaboration and decades of development with no guarantee of success. Also it’s not just machines it’s human capital to operate the machines and the bureaucracy to manage those people and complex supply and logistic chains. They didn’t just figure out how to make 5 nanometer processors over night it was decades of slow gradual progress with a few big jumps here and there.
Check out the Youtube channel “Asianometry”. The guy has really clear videos about the whole microchip manufacturing chain.
It took TSMC about 35 years to be the biggest and the best,,, factories with machines and skilled technicians don’t just sprout out of the land….
The faster you want a factory to be operational the costly it is gonna a be to a point when it would take decades for investments to turn a profit
“Elsewhere”.. there is currently no elsewhere
In addition to the other comments on an extremely high barrier to entry, in both knowledge and capital, several other problems exist. For instance, there are not enough people on the planet who have a sufficient amount of education to just show up and start working for that fab. Basically every person who knows how semiconductors are made, works at a semiconductor fab already. TSMC is performing very expensive training programs to get the fab in Arizona up and Dining.
Also Taiwan will likely stay on top barring Chinese invasion. The tiawanese work ethic is unreal. Nobody works less than 12 hours a day at TSMC. Foreigners are expected to take several hour breaks because they burnout if they try and keep up that pace.
LABOR COSTS in the US have sent all the fabs to Asia. Shareholder value mostly. No reason otherwise to not have fab shops in the USA or elsewhere on Earth.
The very interesting YouTube channel Asionometry deals with Asia’s industries, with a focus on semuconductors and high-tech stuff.
He has a whole series about TSMC, their importance and the other incredibly important ans specialized OEMs (Like ASML and Zeiss) that the whole industry depends on. Quite fascinating.
This is also becoming a huge stregic risk to the west. I’d say that the risk of China invading Taiwan is small, but losing TSMC would be such a huge blow to the west that even that small risk is untenable. Hence, the west is now pouring billions into catching up with TSMC, or at least in order to get them to build a gigafactory in a safer place, too.
Which is quite a dilemna – this monoply positions weren’t really e.g. TSMC’s fault. Also, Taiwan obviously likes the fact that the west has a very clear strategic interest in Taiwan churning out chips.
Nothing preventing it other than cost.
Companies don’t want to invest in higher building costs and higher labor costs and higher taxes, on a timeline of half to a full decade before they get any returns.
They, whether it be government or private industry or both, have invested in that particular industry and benefit now from years of past investment in manufacturing and research and labor training I’d imagine. So, they can now produce the chips needed in volume at a good cost. It’s the same as any other manufactured good and why that good gets produced in X country instead of Y country. With the ability to trade inernationally the last three decades, industries can seek the best nation for their business and then export/import as needed. If global trade regresses, you can expect to see more localization of production but also likely higher costs per unit since the new producers will need to cover startup costs and may only be able to sell locally too, meaning there are fewer customers to spread those costs over.
In the simplest terms, Taiwan has an incredibly well educated workforce that allows them to compete very effectively in semiconductor manufacturing.
The reasons for this vary, but they include Taiwan’s Government placing a strategic importance on the world’s reliance on their semiconductor exports; as a small island country, they wouldn’t stand much of a chance against their unfriendly neighbour China. China wants Taiwan to be… well, China, not Taiwan, and Taiwan knows this. Taiwan knows that if the world (read: the west, at least for this point) relies on them for chips, which are used in literally everything, the world will then place a strategic importance on Taiwan being independent and sovereign, and not controlled by the CCP. The west does not want to end up in a position where China can have such a powerful ace in their sleeve when it comes to their own economies; Semiconductor manufacturing is **incredibly complex**, very, very advanced, and requires hundreds of **billions** of dollars of investment alongside decades of research to get a domestic manufacturer to the point where they could be competitive to where Taiwan’s manufacturers already are today. If China controlled the world’s chip manufacturing, the west knows they could and likely would use it as leverage to influence the west as they want (alongside the obvious security concerns where defense companies in the US would need systems-on-a-chip manufactured in an adversary nation).
Anyways, if the world relies on Taiwan for chips, Taiwan is better defended from their unfriendly neighbour, as Taiwan knows the world knows that if China takes over their island, a key component in literally everything, every single skilled labor product export is now at risk to being thrown around by China. They’re basically betting that the world will come to their defense if the world needs them for their chips. Because of this, Taiwan’s government actively subsidizes and supports their domestic chip manufacturing industry in many ways (e.g. public education with world leading courses relevant for the semiconductor industry, regulations and policies that make it easier for their manufacturers to operate, etc).
There are many more factors too, but I feel like the strategic importance is likely the most important one.
If you want a significantly more in depth and nuanced explanation, I would highly recommend the Asianometry YouTube Channel / newsletter. He is a Taiwanese local who produces video-essay content, with a focus on Taiwan and Semiconductor manufacturing. This playlist would likely serve a much better explanation than my rambling: https://youtube.com/playlist?list=PLKtxx9TnH76SRC7ZbOu2Nsg5mC72fy-GZ
[Asianometry](https://www.youtube.com/c/Asianometry)
This channel on youtube goes into a lot of detail about why we are dependent on Taiwan for microchips.
Taiwan houses TSMC which is a semiconductor foundry. They get their photolithography machines exclusively from ASML which is a Dutch company. US won’t let ASML sell the latest EUV machines to China and TSMC ends up buying their entire stock.
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