The U.S. moved to create incentives to encourage an increase in chip manufacturing domestically. Although there are no intentions of surpassing Taiwan’s dominance in this area anytime soon, recent advances in China’s capacity to produce high-level semiconductor chips has raised concern. Understanding this, Taiwan Semiconductor manufacturing Company (TSMC) just announced a major adjustment to its plans for expansion in the U.S.
TSMC originally planned on building a $12 billion chip manufacturing plant in Arizona. But now it has committed to roughly $40 billion with plans for a second fabrication facility. All of this was encouraged by the recent Inflation Reduction Act, which subsidizes such manufacturing in the U.S. But given poor U.S. and China trade relations, some are accusing TSMC of colluding with the U.S. Whether this is true or not remains to be seen… yet there’s little doubt a number of companies are rethinking their positions amidst global economic shifts.
TSMC’s Current Plans for U.S. Chip Manufacturing
As far as the original chip manufacturing plant designed for Phoenix, Arizona, production date was set for 2024. The main focus for this plant was to produce N5 semiconductor chips, which are routinely used in smartphones and devices. But TSMC’s latest plans expand on this significantly. In addition to investing more than three times the amount, TSMC now plans to manufacture more advanced semiconductors. In addition to N5 chips, the company will be making N4 chips at the originally planned plant. And it will also be constructing a second plant where N3 chips will be made. At this moment, N3 chips are the most advanced in the world.
With the announcement came immediate criticism from Taiwan as well as China. Some accused TSMC as “hollowing out” their dominance in the semiconductor sector to the U.S. China of course went a step further. They also accused the U.S. of once again luring more advanced technologies from other countries into their own. Comparing the situation to that of Japanese electronics in the 1980s, China suggested this was simply another U.S. ploy. Poor underlying U.S. and China trade relations are certainly to blame here for these accusations. According to TSMC, however, they vehemently deny such developments. Instead, other motivations may well be driving their decisions.
Distancing and Diversifying
While U.S. legislation has incentivized TSMC and other companies to invest in chip manufacturing, other motivations do exist. This is particularly true for Taiwanese companies that feel pressure from China. China inherently believes Taiwan belongs within their domain, and they have even suggested aggressive tactics if needed to secure this relationship. As such, actions could lead to import and export restrictions, which wouldn’t be farfetched given poor U.S. and China trade relations. Or it could mean an eventual armed occupation of Taiwan by the Chinese. In any case, some suspect TSMC is looking to secure chip manufacturing options beyond their current operations. And having a couple of fabrication plants in Arizona not far from Silicon Valley could help.
Of course, TSMC is not alone when it comes to concerns over China. The U.S. and China trade relations have made it difficult for a number of U.S. companies as well. Apple is also diversifying and reducing its supply chain reliance on China toward other companies. India and Vietnam are top of the list currently for Apple. The same is true for some automakers abroad and other technology firms. While no company necessarily wants to walk away from China’s consumer market, reducing risk is important. And like Apple, TSMC’s latest move may simply reflect an effort to do just that.