The main geopolitical problem facing the world in the next 10 years is the possibility of a war over Chinese sovereignty of Taiwan. China claims the island as its territory but America, backed by Japan, is committed to its defence. This would not be so important except that over half the world's production of semiconductors is based there. This is seen as a major strategic problem.
"Taiwan produces over 60% of the world’s semiconductors and over 90% of the most advanced ones. Most are manufactured by a single company, Taiwan Semiconductor Manufacturing Corporation (TSMC). Until now, the most advanced have been made only in Taiwan. The semiconductor industry is called Taiwan’s “silicon shield”, giving the world a big reason to defend the island. Yet chips are the industry most affected by the split between America and China."
But what if it came to a fight, and America decided to back down? After all, the American people have little real stomach for a serious war in Asia. Such a climbdown would immediately give China the whip hand in the tech sector and cause major geopolitical imbalance.
In order to prevent this possibility, there is a growing consensus that semiconductor supply chains have to be moved away from this geopolitical shooting gallery. There have been well-publicised moves to relocate chip manufacturing to the United States.
The Economist again:
"Parts of the shield are now moving abroad. In December (2022) TSMC held a ceremony to mark the start of a chip plant (or “fab”) in Arizona. Joe Biden was there, as were Tim Cook from Apple and TSMC’s founder, Morris Chang. Mr Chang said TSMC would triple its investment in Arizona to $40bn, open a second fab in 2026 and make three-nanometre chips, now the most advanced, in America."
This seems like a smart move, but America is not Taiwan. In fact, it is nothing like Taiwan, and American workers are completely unlike Taiwanese workers. One suspects that relocation to the United States won't really be the success that it is hoped to be. Indeed TSMC's plans are quite limited:
"TSMC aims to produce 600,000 wafers a year at its American fabs. But its manufacturing capacity is more than 13m wafers a year."
But TSMC is wisely considering other options. It is also building a new fab in Japan and considering one in Europe. In fact, Japan seems a much more natural choice, as it shares many off Taiwan's characteristics, but without the awkward historical baggage.
Like Taiwan it is a large, technically advanced island, with a competent and highly educated workforce, close to Asia's manufacturing hubs. But unlike Taiwan it is not considered to be part of China's sovereign area and a potential cause for World War III. Also, it is already a significant producer of semiconductors, and in fact used to be the world leader back in the 1980s.
Another point in its favour is its considerable research and development facilities. For example, recently the Okinawa Institute of Science and Technology (OIST) designed a new type of extreme ultraviolet (EUV) lithography equipment that could significantly reduce the cost to produce 7 nanometer (nm) and smaller semiconductors, and revolutionize the chip manufacturing supply chain.
Currently the equipment to mass produce these are made by the Dutch company ASML, which licences it out to Taiwanese chipmakers. But, according to The Asia Times, OIST's EUV equipment’s optical system is greatly simplified and uses a tenth of the power, raising the prospect of much cheaper advanced chip-making machines.
"If so, it could mark the end of ASML’s monopoly on EUV lithography, which would have serious implications for semiconductor manufacturers, investors and governments. Recall that US sanctions forbid the sale of EUV lithography equipment to China, making it much more difficult and expensive for Chinese companies to make semiconductors at 7nm and 5nm, and impossible at the 3nm node now in production at Taiwan’s TSMC and the 2nm and smaller nodes currently under development."
The obvious solution therefore is to move more global chip production to Japan. To not do so, would risk Japan building up its own chip industry in collaboration with China, on terms that the West would have little influence over. Relocating chip manufacture to Japan would serve to maintain Western control over this technology, while also reducing tensions over Taiwan and the threat posed to both China and America by a potential conflict. This could eventually lead to a peaceful resolution to the question of Taiwan.
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