A Semiconductor Renaissance Is Under Way. It Will Change the World.
By Alex Capri
Techno-Nationalism: How It’s Reshaping Trade, Geopolitics, and Society (Wiley).
A new kind of creative destruction is presenting the world’s semiconductor sector with a paradox.
Geopolitics and other existential factors have disrupted globalization as we’ve known it, fragmenting semiconductor global supply chains. But these same forces also present historic opportunities for innovation and growth. The world, in other words, isn’t deglobalizing. It’s reglobalizing.
These changes fly in the face of deeply entrenched economic thinking. The liberal economic model holds that short of catastrophic market failures governments need to stay out of markets. C.C. Wei, CEO of Taiwan Semiconductor Manufacturing, said this month that U.S. and Chinese measures to control the flow of technology “destroy productivity and efficiency gained under globalization.” TSMC’s founder, Morris Chang, has put it in starker terms: “Globalization is almost dead and free trade is almost dead.”
But there are real problems with the rigid application of old-school economic principles to the ongoing changes in the global economy.
First, the traditional economic calculus around supposed market failures has itself failed to account for the existential costs of predatory, state-centric behavior in an open trading system. China has upended the international system by leveraging the scale of its economy and its neomercantilist practices. The metrics that apply to open and fair trade, therefore, are no longer useful in assessing portions of strategic supply chains.
Nor does the traditional model properly factor in the destructive costs of climate change. Semiconductor supply chains have massive carbon footprints. The process of finalizing a single wafer—the substrate used in fabricating integrated circuits—involves shipping it across international borders many times.
And, finally, the old model ultimately led to a highly concentrated fabrication location, Taiwan, which now accounts for 60% of all the world’s microchips and 90% of the world’s most advanced ones. This situation is untenable, given the risks of future pandemics, natural disasters, and, of course, geopolitics.
A renaissance has begun in specialized, emerging industries of the future. They are benefitting from localized and regionalized government-led initiatives and public-private partnerships. Publicly funded efforts such as the U.S. climate-focused Inflation Reduction Act and the European Green Deal are sparking the emergence of new technological ecosystems.
All of this is driving demand for specialized semiconductors. But sectors such as electric vehicles can thrive on older, legacy technologies (chips above 10 nanometers), which require far less expensive fabrication facilities. The two new Arizona fabs TSMC announced to much political fanfare will soak up at least $42 billion to make the most advanced 5-nanometer and 3-nanometer chips, destined mostly for defense-related areas such as supercomputing, quantum science, and advanced weapons systems.
In the U.S., the Chips and Science Act has sparked deepening innovation and production partnerships involving companies and universities. SkyWater Technologies, a U.S. semiconductor company, has invested $1.8 billion to build a commercially viable foundry in Purdue University’s Discovery Park District. These kinds of partnerships will multiply. Since the enactment of Chips in August, private investment has exceeded $200 billion.
More broadly, the semiconductor Group of 5 (the U.S., Japan, South Korea, the Netherlands, and Taiwan) share fundamental values and geopolitical interests. They form the core of a reglobalization collective. These are the building blocks of a wider network of trusted partnerships.
The European Union, Japan, South Korea, and Taiwan have enacted their own Chips Act-style programs. They may seem competitive, but, long-term, this should be viewed as a positive-sum development. The chip reglobalization process already includes Intel’s recently announced $85 billion investment in foundries and R&D facilities in Germany, Ireland, Italy, Poland, Spain, and France. TSMC has invested in a new fab in Japan, in partnership with Sony, and is in talks for a new German fab.
Far from leading to a race to the bottom or an exercise in futility, as skeptics predicted, cross-fertilization has begun among the Group of 5. It has the potential to expand to other compatible markets, from Israel to Singapore to Costa Rica. Countries not historically part of the semiconductor sector, such as Australia, are exploring ways to join the renaissance.
Japan, South Korea, and the Netherlands owe their semiconductor prowess to early industrial policies. The Cold War space race resulted in the world’s first integrated circuit, made by Fairchild Semiconductor. But no nation owes more to industrial policy than Taiwan, which transformed itself from an agrarian economy in the 1970s to a semiconductor hotbed. It was none other than Morris Chang, TSMC’s grandmaster, who played a crucial role in that success. Such are the cycles of globalization and reglobalization.
You can also read the Article here; https://www.barrons.com/articles/semiconductors-geopolitics-taiwan-tsmc-globalization-51671746993