This week, US House of Representatives Speaker Nancy Pelosi became the highest-ranking US official to visit Taiwan in 25 years.
Her trip has boosted US-Taiwan relations at a time when Washington’s relationship with Beijing has become increasingly strained. Pelosi vowed that the US would protect Taiwan’s democratic autonomy. “American determination to preserve democracy in Taiwan remains questionable,” she speaks during Wednesday’s meeting with Taiwanese President Tsai Ing-wen.
Pelosi’s Political Taiwan Tour fanning Beijing’s fury. China, which considers Taiwan a breakaway territory, condemned Ms Pelosi’s visit as “extremely dangerous” to geopolitical stability. After Pelosi’s visit, Beijing proceeded The biggest military exercise ever near Taiwan, surrounded the island with life Missiles and Ballistic Missiles. On Friday, China announced that it cease cooperation and dialogue with the US on issues ranging from climate to combating cross-border crime, suggests Beijing is intent on pushing back against the United States over what it sees as meddling in China’s affairs.
But perhaps most importantly for the business world, recent events have heightened the growing Sino-American rivalry over the most important sector of the global economy: semiconductors. The chip war between the US and China, which has been going on for years, has now reached a critical crossroads and experts say chipmakers around the world may soon be forced to choose between Washington and North Korea. It’s when two superpowers vie for technological and economic dominance.
Race to the top
Washington and Beijing locked in a fierce race become a global leader in high-tech industries such as artificial intelligence, biotechnology and semiconductors. Semiconductor Chips, House Powering everything from smartphones and home appliances to data servers and military equipment, is the main battleground. Both countries see the race to become a chip superpower as crucial to their national and economic security.
Seven years ago, China launched ‘Made in China 2025’ blueprint, which outlines ambitions to dominate cutting-edge technology — including a goal of making 70% of the chips they use at home by 2025 (although still too short of this goal).
Last week, Washington took a big step forward in its efforts to stay competitive. On July 29, the National Assembly passed the CHIPS Act—A landmark law that grants $52 billion in subsidies to the U.S. semiconductor sector, which made clear its intention to strengthen its homegrown chip industry. About $39 billion will be allocated to build new chip factories (called fabs) on US soil.
Pelosi’s Taiwan tour may have scored an extra point for the US team. Her short trip included a meeting with Mark Liu, CEO of Taiwan Semiconductor Manufacturing Company (TSMC) – the world’s largest and most valuable chip maker. Production company 90% of the world’s leading advanced chips.
So far, TSMC has avoided siding with the two rival countries because of the importance of both the US and China to their business. But Liu’s meeting with Pelosi signaled readiness to stand with Washington and disrupt “any form of [TSMC’s] neutral, ”Bloomberg’s Tim Culpan wrote this week.
The culmination of Pelosi’s trip, plus the passage of the CHIPS Act and previous US export controls that affected TSMC’s Chinese revenue, resulted in “an environment where… TSMC’s scale and strength will ensure it remains everyone’s foundry — except China’s,” he wrote.
‘Businesses will have to choose a side’
The culmination of recent events has reinforced that businesses may soon be forced to choose a side in the age-old tug-of-war between Washington and Beijing.
Beijing’s Response to Pelosi’s Taiwan Visit — Including trade sanctions Taiwan — relatively constrained, Mark Williams, chief Asia economist at research firm Capital Economics, wrote in a note Wednesday. For now, China is avoiding any major retaliation because of Taiwan’s importance to the Chinese economy. Electronics account for the largest share of Taiwan’s exports to China, and semiconductors are the largest product. If Beijing imposes sanctions on Taiwanese chipmakers, it will “devastating Chinese industry”. [and] Williams writes.
However, China’s military display after Pelosi’s visit shows that the country’s security interests can replace global cooperation, said Vashistha, founder and CEO of Supply Wisdom, a company risk management company and defense business council of the US Department of Defense, said. Luck. This means “businesses will have to pick a side, especially when it comes to critical supply chains,” he said.
The Taiwanese drama also warned American businesses – chip companies and technology companies – that their business relationships with China could be at risk, said Paul Rosenzweig, CEO of Red Branch Consulting and former Assistant Secretary of Homeland Security for Policy, says Luck.
The United States is currently considering restrictions on US chipmaking equipment from being exported to Chinese memory chip makers, it will be the first in the US to restrict shipments to manufacturers without specialized military applications. The move will hurt global chipmakers like South Korea’s Samsung and SK Hynix, yes memory chip operations in China.
However, the world’s biggest chipmakers in Taiwan and South Korea tend to side with the US for a number of key reasons, says Jon Bathgate, investor at NZS Capital, an investment management firm focused on semiconductors, said Luck.
The US is behind Asia in semiconductor production, but it is still a global leader in advanced semiconductor design and equipment. The US accounts for more than 80% of the world’s chip design equipment, more than 50% of the core intellectual property for chip designs, and about half of the global chip manufacturing equipment, according to Boston Consulting Group. This means that the chip-making powers of Asia need American designs and hardware to produce high-tech chips. In addition, the majority of these chipmakers’ wholesale customers are from the United States. For example, the United States accounts for 64% of TSMC’s revenue. Those top customers include the smartphone giant Appleaccounting for a quarter of the Taiwanese company’s revenue.
“This has given the US a lot of leverage over China when it comes to investment and partnership,” said Bathgate.
Some say that the global chip giants have turned to the US market. The CHIPS Act, which prohibits recipients of US government money from expanding or upgrading their advanced chip capacity in China, has forced South Korean companies to rethink their China operations.
They are “accelerators”[ing] Kim Young-woo, head of research at SK Securities and an adviser to the Korean government on semiconductor policy, said in a statement. Financial Times report published earlier this week. “They have rethought their strategies because of the US-China tech war and now they are leaning towards the US because of the geopolitical risks.”
Korean electronics giant Samsung is building $17 billion fab in Texas — the largest-ever U.S. investment — while TSMC is spending $12 billion on a Arizona Factory. For global chipmakers, the “primary driver” for building factories in the US is “continued access to US markets and technology”, Bathgate said.
But choosing a team may not be so easy.
China is still the world largest importer of french fries and biggest buyer of semiconductor manufacturing equipment. By some accounts, China spent 100 billion dollars about building their chip industry — and they’ll spend more. Shares of Chinese chipmakers soaring This week as investors interpreted Pelosi’s visit as a boon for Chinese chipmakers, which would spur Beijing to invest more money in domestic manufacturers.
And despite US pressure on chipmakers to stop investing in China and providing the country with advanced chip technology, companies like TSMC need both the US and Chinese markets and will “try to do your best to avoid being forced to choose sides,” said Dexter Roberts, senior fellow at the Atlantic Council’s Asia Security Initiative and author of The Myth of Chinese Capitalism: Workers, Factories, and the Future of the World told Luck. TSMC CEO Liu noted that the company and China are still dependent on each other, he said in a statement CNN interview this week.
South Korean and Taiwanese companies have previously turned to China because of cheap production costs in the country. These chip giants will rely heavily on CHIPS Act subsidies, due to high manufacturing costs in the US. may not be enough encourages chipmakers to transform their supply chains in any way that makes sense.
Rosenzweig said that businesses will incur huge costs and disruption from cutting off from China, meaning that “most companies would be very reluctant to consider a complete break with China”.
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