U.S., Taiwan Manipulate Chip Supplies To Press For War With China

Moon of Alabama

The Peoples Republic of China, the mainland, insist, historically correct, that the "Republic of China," Taiwan, is a part of mainland China.

Since 1972, when Nixon went to China, the U.S. has supported that position:

In the case of the United States, the One-China Policy was first stated in the Shanghai Communiqué of 1972: "the United States acknowledges that Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States does not challenge that position."

The ruling Taiwanese nationalist Democratic Progressive Party under President Tsai Ing-wen's leadership now has a plan to break that policy. Despite regime change in Washington DC it has support from U.S. anti-China hawks:

[Taiwan's Representative to the US] Hsiao’s invitation to Biden’s inauguration, taken together with Blinken’s language at the confirmation hearing, indicates that the Biden administration is willing to adopt a large chunk of the Trump administration’s Taiwan policy.

While in office, Pompeo pushed back against China and acted as a guarantor to Taiwan — Beijing viewed him as an outright enemy.

Through well planned economic development policies Taiwan has achieved a near monopoly in the production of computer chips. There were until recently three companies which could mass produce computer chips with the tiniest structures. Then the U.S. company Intel screwed up its development of a production process for 7 nanometer chips. It is now at least two years behind the competition. Its newest chips are no longer the most powerful in the market. The CEO and the technical leadership have since been fired but it still will take years, if ever, to regain the leadership. A second big production facility is owned by the South Korean Samsung conglomerate. It is mainly used to produce the chips for Samsung's own products.

The third and by far biggest producer of chips is the Taiwan Semiconductor Manufacturing Co (TSMC). TSMC does not produce consumer products. It manufactured, until recently, for everyone in the global industry. It is the go-to producer for high-end chips other companies need. It has now become a weapon in the hand of the Taiwanese government.

Under pressure from Trump, who put sanctions on Chinese companies including Huawei, TSMC reduced its sales to China. It also had to commit to open a production facility in the U.S. Trump's use of the chip production capacities as economic and political weapon has given the government of Taiwan new ideas:

Taiwan’s role in the world economy largely existed below the radar, until it came to recent prominence as the auto industry suffered shortfalls in chips used for everything from parking sensors to reducing emissions. With carmakers including Germany’s Volkswagen AG, Ford Motor Co. of the U.S. and Japan’s Toyota Motor Corp. forced to halt production and idle plants, Taiwan’s importance has suddenly become too big to ignore.

U.S., European and Japanese automakers are lobbying their governments for help, with Taiwan and TSMC being asked to step in.

The ongoing pandemic first led to a slump in consumption. Car manufactures lowered their sales target numbers and their orders for new chips. But soon chip demand increased for products needed to work from home. When the car demand came back TSMC told the car manufactures that there was not enough capacity to produce chips for them. Whether that explanation for the current shortages is really true is questionable:

The auto industry’s pleas illustrate how TSMC’s chip-making skills have handed Taiwan political and economic leverage in a world where technology is being enlisted in the great power rivalry between the U.S. and China -- a standoff unlikely to ease under the administration of Joe Biden.

Taiwan’s grip on the semiconductor business -- despite being under constant threat of invasion by Beijing -- also represents a choke point in the global supply chain that’s giving new urgency to plans from Tokyo to Washington and Beijing to increase self-reliance.

It takes some ten years to build a new chip fabrication facility. The investment necessary for an up-to-date 'fab' has steadily increased and is now more than $10 billion. While the U.S., Japan and Europe have recognized the danger of a chip production monopoly it will take quite some time before they can become less dependent on TSMC.

This gives the Taiwanese government a window of several years to use TSMC for strategic purposes:

“Taiwan is the center of gravity of Chinese security policy,” said Mathieu Duchatel, director of the Asia program at the Institut Montaigne in Paris. Yet while Taiwan’s status in the global chip supply chain is a “huge strategic value,” it’s also a powerful reason for Beijing to stay away, said Duchatel, who’s just published a policy paper on China’s push for semiconductors.

Assuming Taiwanese forces were to be overwhelmed during an invasion, “there is no reason why they would leave these facilities intact,” he said. And preserving the world’s most advanced fabs “is in the interests of everyone.”

For all the moves to reel back domestic chip fabrication, it’s optimistic to think the supply chain for such a complex product as semiconductors could change in short order, Peter Wennink, ASML chief executive officer, told Bloomberg TV. “If you want to reallocate semiconductor build capacity, manufacturing capacity, you have to think in years,” he said.

China has threatened to invade Taiwan should it declare independence. But as long as it depends on Taiwanese chips it can only do that while also damaging its own industries. Still there is little doubt that China would be willing to take that risk:

The Chinese government said Wednesday that actions like its warplanes flying near Taiwan last weekend are a warning against both foreign interference in Taiwan and any independence moves by the island.

Asked about the flights, Zhu Fenglian, a spokesperson for China's Taiwan Affairs Office, said China's military drills are to show the nation's resolution to protect its national sovereignty and territorial integrity.

"They are a stern warning against external interference and provocation from separatist forces advocating for Taiwan independence,” she said at a regular briefing, giving the Chinese government's first official comment on the recent flights.

Taiwan thus still needs protection. But as long as the U.S. and others still adhere to the One-China policy it is unlikely to get sufficient support. The plan then is to use Taiwan's chip industry to press others into guaranteeing it military support:

Wang Che-jen (汪哲仁), an assistant research fellow at the government-funded Institute for National Defense and Security Research (INDSR), said in a recently published paper that the current shortage of automotive chips has highlighted Taiwan's strategic place in the global semiconductor industry. The shortage shows that the supply chain for such products has become a matter of diplomatic, security and strategic concern, Wang said in the paper, titled "Automotive chip shortage: A look at Taiwan's strategic place in the semiconductor supply chain."
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The American and Japanese governments, for example, have invited Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, to build facilities in their countries, he noted.

Wang, however, warned against such a move, saying that while it may help to shorten the global supply chains, it may also weaken Taiwan's strategic advantage in the semiconductor industry.

"For Taiwan to maintain its 'silicon shield,' it needs to persuade the European countries and the U.S. that keeping TSMC in Taiwan is the best option," he wrote.

The concept of a "silicon shield" describes Taiwan's strategic position in the technology supply chain as a shield against any attack by China.

The blackmailing through chip supplies is not just an academic concept. The Taiwanese government is now openly using chip supplies to press other governments into economic and political concessions:

Taiwan's high-tech chip foundries are some of the world's biggest and most advanced, and so European car manufacturers have been reaching out to Taipei for help.

"Our government and chip manufacturers are mulling how to assist them," Minister of Economic Affairs Wang Mei-hua told reporters on Thursday.
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Wang said she spoke to industry representatives on Wednesday, including Germany's de facto ambassador to Taipei.

She said she hoped Europe would help Taiwan obtain vaccines for the coronavirus.
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"We need other countries to help Taiwan acquire vaccines, especially for medical workers as a top priority," Wang said.

"I told the German representative yesterday that we can help them acquire automotive chips to solve the problems facing the auto industry and we hope they can do what they can to help Taiwan acquire vaccines," she added.

Vaccine blackmail is one thing.

Nick Siemensma @nicksiem - 6:05 UTC · Feb 6, 2021

Taipei openly offering a quid pro quo to Germany. Is vaccine a fair price? Taipei turned up its nose at Fosun-manufactured supply of the Pfizer-BioNTech vaccine, so perhaps Germany can offer something more. And was no similar exchange of favours available to the USA?

The exchange with the U.S. is about much bigger things than vaccines. To press for political support that involves a potential war with China is on a different scale. Still the ball seems to start rolling:

The Daily Mao @TheDailyMao - 8:58 UTC · Feb 4, 2021

8/ Up until 2020, US tech-economic strategy was mainly to profit off the Chinese market. But after the COVID shock, that's shifted: the US now wants to bleed out the Chinese economy and specifically cripple Chinese tech companies with semiconductors

9/ In terms of bleeding out the Chinese economy, autos are where it starts. My TSMC source tells me they have been asked by the TW/US govts to prioritize chips for auto plants outside China and for US/JP carmakers, to punish the EU for the #CAI

10/ Yesterday, he mentioned that his TW govt counterpart was literally 'trying to stifle a smile' when he told her some of TSMC's Chinese customers in auto would have to shut down because they weren't getting enough chip supplies.

11/ But this isn't just some sort of 'happy accident' that a 'free market' will fix. TSMC does not have carte blanche to expand capacity as much as it wants. The market is not allowed to function in this instance... thanks to the TW regime.

12/ He has disclosed to me that the DPP has been using enviro regulations and other methods of pressure to keep TSMC from expanding its facilities 'too fast' - the TW regime seems to want an artificial shortage of chips to give them greater leverage in international negotiations

13/ And again, this is done in collaboration with the US government - to make sure 'every planned production line that comes online is instantly filled with US orders only.'

This is what was agreed upon between Tsai, Krach, and Morris Chang...

14/ ...and maintaining these artificial shortages to hurt companies producing in China are what Tsai means when she talks about restructuring the global supply chain away from China.

15/ As you may already have guessed, the EU is not happy about this arrangement. Besides the surface issue of their automakers being caught in an undeclared trade war, the EU also feels deeply betrayed by Taiwan's regime over this issue.
...

Please see the linked thread for more details and supporting sources. 

This Taiwanese and U.S. brinkmanship make a war with China more likely and put it nearer than I had previously thought. This summer the situation could already become critical:

The Daily Mao @TheDailyMao - 18:05 UTC · Feb 5, 2021

BREAKING: The DPP of Taiwan has privately indicated to the US it might back an independence referendum in August of this year

In an interesting coincidence this summer will also see some European forces deployed to the South China sea:

In an interview with the Sydney Morning Herald on November 2, German Defense Minister Annegret Kramp-Karrenbauer declared that her country  will dispatch a frigate to patrol the Indo-Pacific from next year.
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Her remarks comes two months after Germany became the second European Union member to release guidelines for the Indo-Pacific. France’s foreign ministry released a strategy document in 2018 for the Indo-Pacific, following a major policy speech by President Emmanuel Macron in Australia earlier that year. A subsequent French security strategy for the region was released by the country’s defense ministry in 2019.

The Brits, now a mere U.S. proxy force, also join in:

Japanese and British foreign and defence ministers on Wednesday began a meeting via videoconference to affirm stronger security cooperation amid China's growing assertiveness in the East and South China seas.
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The ministers were also expected to agree to work closely on Britain's plan to dispatch an aircraft carrier strike group, centred on the Queen Elizabeth, to the western Pacific for joint naval exercises with the Japanese Self-Defense Forces, the officials said.

Japan welcomes the dispatch of the Queen Elizabeth, Britain's largest warship commissioned in 2017, as it shows the country's strengthened commitment to the Indo-Pacific region, they said.

From the U.S. perspective a conflict with China as soon as possible is preferable to one in later years after China had time to build its capabilities.

It may therefore well be that the U.S. is pushing Taiwan into an summer independence referendum while both use the chip supply issue to press 'allies' into supporting them in a potential war.

Posted by b on February 8, 2021 at 18:16 UTC | Permalink

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