Why Europe needs Taiwan – POLITICO


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With tensions flaring in East Asia, China’s sanctions in opposition to Taiwan are a stark reminder to the European Union how dependent it’s on the island, and particularly the tiny pc chips it makes.

China banned some commerce with Taiwan in response to U.S. Home Speaker Nancy Pelosi’s go to to Taipei on Wednesday and staged “stay fireplace” army workouts within the sea surrounding the disputed territory.

The army strikes pressured air and marine visitors to keep away from the world, successfully blockading Taiwan — a democratic island of 23 million that Beijing claims is a part of China.

For now, China has restricted its longer-term retaliation to banning exports of sand to the island, together with the import of citrus fruits, chilled white scallops and frozen mackerel from Taiwan to the mainland.

However the danger for Taipei — and Western firms that depend upon Taiwanese chip manufacturing — is that Beijing’s future measures might be far harder, comparable to a whole blockade or perhaps a Chinese language invasion.

Equipment and home equipment made up virtually 60 p.c of EU imports from Taiwan final yr. The most important fear for European companies can be the sudden lower to provides of digital chips, produced by the world’s largest semiconductor firm: Taiwan Semiconductor Manufacturing Co (TSMC). The corporate captures greater than half of the outsourced semiconductor market and is rumored to have shoppers like Apple and Qualcomm.

In an indication of the significance the U.S. attaches to TSMC, Pelosi met with the corporate’s chairman Mark Liu throughout her go to.

The issue for Europe is that it has constructed up its dependency on Taiwanese chips over a few years, however a Chinese language assault might immediately wreck an important provide line, with little or no warning.

So how can the EU defend itself in opposition to such a danger?

To start with, the bloc lacks the experience that Taiwan has attracted. TSMC was based within the late Eighties by Morris Chang, a former engineer at U.S.-based Texas Devices. Chang is a major instance of how Western tech firms have misplaced out on the experience that comes with a specialised course of.

The versatile employment tradition in Taiwan additionally means chip-makers can rent and lay off staff extra simply to suit with peaks and dips in demand, in line with Ludo Deferm, government vp at Leuven-based semiconductors analysis heart Imec.

The second downside is the distinctive nature of the chips that TSMC can provide. The corporate will not be solely key for electronics which can be at present ubiquitously current in smartphones or laptops, however is already making extra cutting-edge chips, like these of 5 nanometers or smaller, which might be key for autonomous driving.

The most important fear for European companies can be the sudden lower to provides of digital chips, produced by the world’s largest semiconductor firm: Taiwan Semiconductor Manufacturing Co | Sam Yeh/AFP through Getty Pictures

“There are literally simply two factories on the planet now that may produce sub-five nanometer chips. That’s TSMC and Samsung,” Hermann Hauser, enterprise capitalist and founding father of Acorn Computer systems, informed POLITICO in a latest interview. “TSMC is completely dominant, we’re utterly depending on them.”

The EU is, in fact, conscious of the pitfalls. “It’s a sector which is each capital and knowledge-intensive and topic to fast technological evolution. Manufacturing of chips takes place in a provide chain that’s world, advanced and, in some vital segments, overly concentrated,” an EU official mentioned.

Why Taiwan wants Europe

Now, tensions between mainland China and Taiwan increase the query of how each Beijing and Brussels will go ahead.

TSMC’s essential function hasn’t gone unnoticed in mainland China. In an eyebrow-raising speech in June, a high Chinese language economist brazenly referred to as on Beijing to “seize” the company.

Some Western observers, nonetheless, are skeptical that this risk will materialize — saying it merely isn’t in China’s curiosity to take action as a result of TSMC depends on different firms for offering gear, like Dutch firm ASML.

That’s additionally what TSMC chief Liu mentioned in a uncommon interview with CNN, warning that his firm can be inoperable if China invaded Taiwan.

Hauser argued that this offers the EU energy. “We do have a bargaining chip as Europe,” he mentioned. “No person can produce sub-five nanometer chips on the planet with out the instruments that ASML produces.”

However fascinated about the unthinkable state of affairs — a full cut-off of Taiwanese chips — will certainly encourage European lawmakers and companies to speed up their present plans to reshore some chips manufacturing, and double Europe’s market share within the world semiconductor worth chain.

In February, the European Fee introduced its €43 billion chips plans to lure sure producers into manufacturing commitments on the European continent. That’s no simple job, because it has to ensure that its personal state-aid guidelines aren’t bent alongside the highway. 

It’s also a painfully gradual progress, with the EU struggling to get firms to shift their manufacturing to the bloc. 

Whereas Europe has bagged new investments in latest months — by firms comparable to Intel in Germany and STMicroelectronics and GlobalFoundries in France — TSMC nonetheless hasn’t dedicated to a European fabrication plant, selecting to open one in Japan and Arizona within the U.S. as a substitute.

And that’s an enormous blindspot, Hauser mentioned. “Sadly, in the intervening time we appear to attempt to do that [shift] with Intel, and Intel simply doesn’t have the know-how. We have to do it with TSMC and Samsung. I don’t perceive why we’re not having extra critical discussions with Samsung and TSMC,” he mentioned. 

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