Taiwan microchip giant stands in way of U.S. dominance; Trump opposes Biden subsidies

President-elect Donald Trump is pushing for the United States to become the world leader in advanced microchip production, an industry now dominated by Taiwan.

A key issue for the incoming Trump administration is whether to proceed with the Biden administration policy, announced on Nov. 15, to pay $6.6 billion to the Taiwan Semiconductor Manufacturing Co. to build an advanced semiconductor fabrication plant in Arizona.

Mr. Trump has raised concerns about Taiwan’s dominance in global microchip production because of Taipei’s market reliance on China.

A September 2023 Congressional Research Service report said as much as 90% of leading-edge semiconductor chip production is concentrated in Taiwan.

TSMC is among 50 Taiwanese companies that play essential roles in other parts of the global semiconductor supply chain, including chip design, research and development, assembly, packaging, and testing of semiconductor materials such as silicon wafers.

The Taiwanese government has supported the semiconductor industry’s development since the mid-1970s. It provided about half of TSMC’s initial $200 million startup funding.

In 2021, TSMC announced plans to invest $100 billion over three years to expand advanced semiconductor production in Taiwan, including $12 billion for the fabrication facility in Arizona.

Plans also include spending $3 billion for a foundry in China and a new materials facility in Japan.

“TSMC’s most significant and technologically advanced capabilities (e.g., 2-3 nanometer fabrication) are in Taiwan,” the Congressional Research Service said. It warned that China, formally known as the People’s Republic of China, will fabricate such advanced semiconductors at TSMC in Taiwan.

“Many PRC firms and institutes — including some that are listed on the U.S. Department of Commerce’s Bureau of Industry Security’s Entity List — appear to be using membership in U.S. open source technology platforms to access the U.S. technology and capabilities to design advanced semiconductor chips that they can then fabricate in Taiwan,” the report said.

The Commerce Department ordered TSMC to halt shipments of advanced chips, often used in artificial intelligence applications, to Chinese companies, Reuters reported in November.

TSMC appears to have cooperated with U.S. officials. Reuters reported that Commerce issued its order after TSMC notified the department that one of its chips was found in an AI processor maintained by Huawei, the China-owned telecommunications giant on the U.S. restricted trade list.

The Taiwanese chipmaker recently cut ties with PowerAIR, a Singapore-based company, after a review showed a potential violation of U.S. export controls, the South China Morning Post reported Friday. Three sources told the Hong Kong newspaper that the review was conducted after a TSMC chip was found in a Huawei Technologies AI processor.

A spokesperson for TSMC told the news agency that the company is “law-abiding” and “committed to complying with all applicable rules and regulations, including applicable export controls.”

The Commerce Department moved in 2022 to restrict U.S. semiconductor design and manufacturing companies Nvidia and Advanced Micro Devices from exporting AI-related microchips to China, but their chips have not been reported in Huawei processors. Commerce also restricted Intel and Qualcomm, two other key players in the U.S. chip sector.

TSMC’s stock has soared

TSMC’s power over global microchip production has grown, and the Biden administration’s policy of channeling billions of dollars to the company to build a fabrication operation in Arizona has enhanced its prowess.

The company’s stock has risen steadily over the past two years. It hit an all-time high on Jan. 6, roughly two months after the administration formalized its $6.6 billion award for TSMC’s Arizona project.

A November White House press release said the money was awarded to TSMC Arizona Corp., a subsidiary of TSMC, as part of the 2022 CHIPS Act, which appropriated $52.7 billion to boost U.S. semiconductor manufacturing.

The press release quoted President Biden as saying: “Today’s final agreement with TSMC, the world’s leading manufacturer of advanced semiconductors, will spur $65 billion of private investment to build three state-of-the-art facilities in Arizona and create tens of thousands of jobs by the end of the decade.”

U.S. chip design and manufacturing firms have produced mixed results. Nvidia’s stock has soared since 2022, but Qualcomm and AMD stocks have remained mainly level. Intel has cratered.

Some question whether TSMC has a monopoly that deserves antitrust scrutiny.

“I think it’s right to be concerned about antitrust issues,” said Chris Miller, a historian and author of the 2022 book “Chip War.”

“It’s hard to find a trillion-dollar technology company that hasn’t faced antitrust issues. Whether you’re Microsoft or Google, you face antitrust issues. People talk about Nvidia and antitrust issues,” Mr. Miller said during a recent appearance on a podcast produced by the Taiwanese finance, politics and humanities magazine CommonWealth.

“I think we shouldn’t be surprised if TSMC faces a similar set of questions,” he said.

Mr. Trump has expressed unease about the dynamic, although it remains to be seen whether he will try to limit TSMC’s potential to pursue a strategy that gives American firms an edge.

In Trump’s crosshairs?

The incoming president has signaled that he opposes subsidizing TSMC’s U.S. operations and could reverse the Biden administration’s funding.

“Taiwan. I know the people very well, respect them greatly,” Mr. Trump told Bloomberg Businessweek in July. “They did take about 100% of our chip business. I think Taiwan should pay us for defense. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything. Taiwan is 9,500 miles away. It’s 68 miles away from China.

“We’re giving them billions of dollars to build new chips in our country, and then they’re going to take that too. In other words, they’ll build it, but then they’ll bring it back to their country,” Mr. Trump said.

He blamed “stupid people” running the United States for creating the policy.

“We should have never let that happen,” he said.

Taiwanese officials privately bristled at the comments, and some have chastised Mr. Trump publicly.

“Taiwan did not steal the U.S. chip industry,” Taiwanese Economy Minister Kuo Jyh-huei told reporters in Taipei in September. He said Taiwan makes chips commissioned by American companies and focuses on bolstering the U.S. chip industry’s manufacturing capabilities.

Mr. Kuo said Mr. Trump has a “misunderstanding” about the situation. “The president has a lot on his plate,” he said. “Maybe a friend or a competitor in Taiwan told him that.”

TSMC declined to comment for this article.

During a quarterly earnings call with investors in October, C.C. Wei, the company’s CEO and chairman, said, “TSMC’s mission is to be the trusted technology and capacity provider of the global logic IC industry for years to come.

“All of our overseas decisions are based on our customers’ needs, as they value some geographic flexibility and a necessary level of government support,” Mr. Wei said. “In Arizona, we have received a strong commitment and support from our U.S. customers and the U.S. federal, state and city governments.”

Mr. Wei said TSMC expects “volume production” to begin this year at its first facility in Arizona.

The situation surrounding TSMC is made all the more complex by the deeper geopolitical dynamics beneath Washington’s long-standing relationship with Taipei.

In recent years, the Communist Party-ruled government of mainland China has ramped up threats to use military force if necessary to take control of the autonomously ruled democracy in Taiwan, which receives defense support from Washington.

Elbridge Colby, the nominee for the powerful post of undersecretary of defense for policy, has said he favors the destruction of TSMC’s fabrication plants if China follows through with threats to annex the self-ruled island.

Rep. Seth Moulton, Massachusetts Democrat, posted that TSMC facilities should be blown up if China invades. In response, Mr. Colby said the lawmaker was “absolutely correct about this.”

The notion that the U.S. should bomb TSMC plants in Taiwan drew widespread criticism over the global impact of such a loss.