Naïveté

Intel is still the industry-leading semiconductor company. It is not, however, the world’s biggest fabricator of chips. That would be Taiwan Semiconductor Manufacturing Company. It isn’t even close. That by way of preface to my comments on Tom Friedman’s most recent New York Times column:

TSMC is a semiconductor foundry, meaning it builds the chips that lots of different companies design — particularly Apple, Qualcomm, Nvidia, AMD and even Intel. Over the years, TSMC has built an amazing ecosystem of trusted partners that share their intellectual property with TSMC to build their proprietary chips. At the same time, leading tool companies — like America’s Applied Materials and the Netherlands’ ASML — are happy to sell their best chip-making tools to TSMC. This ensures that the company is always on the cutting edge of the material science and lithography that go into building and etching the base of every semiconductor.

And since it is the main supplier of chips for Apple products, TSMC is constantly being pushed to go beyond the frontiers of innovation to accommodate Apple’s nonstop and short product cycles for new phones and iPads. It forces the whole TSMC ecosystem to get better and better, faster and faster. So TSMC’s costs keep going down, the value of its ecosystem keeps going up and the number of people who can join and benefit from it keeps getting wider and wider.

“TSMC always acted like a start-up — it was driven — and it was always synthesizing the best of everyone,” explained Steve Blank, a semiconductor innovator, who runs a course at Stanford on the geopolitics of advanced technologies. Intel, America’s premier chip maker, kind of lost its way, making everything by itself and for itself, added Blank. “So it did not have customers pushing it, because Intel was its own customer, and as a result it became complacent.” Pat Gelsinger, Intel’s new C.E.O., has begun to reverse that.

I used to worry that Xi’s big idea — “Made in China 2025,” his plan to dominate all the new 21st-century technologies — would leave the West in the dust. But I worry a little less now. I have great respect for China’s manufacturing prowess. Its homegrown chip industry is still good enough to do a lot of serious innovation, supercomputing and machine learning.

But the biggest thing you learn from studying the chip industry is that all its most advanced technologies today are so complex — requiring so many inputs and super-sophisticated equipment — that no one has the best of every category, so you need a lot of trusted partners.

And if China thinks it can get around that by seizing Taiwan just to get hold of TSMC, that would be a fool’s errand. Many of the key machines and chemicals TSMC uses to make chips are from America and the European Union, and that flow would immediately be shut down.

I found that incredibly naïve. The missing consideration is something called “hierarchy of values”, the relative importance of various considerations that drive President Xi.

I did not understand President Trump’s hierarchy of values. I do not understand President Biden’s hierarchy of values. And I certainly do not understand President Xi’s hierarchy of values but I am quite certain he has one and I can speculate. My speculation is that it would be something like (in descending order of importance):

  • Maintaining and extending his own power and authority
  • Maintaining and extending the CCP’s power and authority
  • That China be considered the most important and powerful country in the world by other countries
  • That China be the most important and powerful country in the world
  • The welfare of China and the Chinese people
  • Anything else

The question then is not whether “seizing Taiwan” is the right thing to do or not or whether doing so would actually allow China to achieve technological dominance but how doing so would fit into his hierarchy of values and I don’t believe the prospect is quite as remote as Mr. Friedman appears to. I also don’t believe that the U. S. would make a meaningful response should China do so any more than it made a meaningful response when China asserted complete political control over Hong Kong but that’s a topic for another post.

5 comments… add one
  • Drew Link

    I would suggest that the series of dot points is probably correct, but then it generally could be said of several superpowers. The rub, however is in “be” the most powerful and important country. That requires the will to take certain actions.

    And that’s why I find Friedman, and have always found Friedman, light. He sounds good, but upon reflection one asks “what was really insightful there.” Its like Obama; vapid.

    Xi wouldn’t hesitate for a second if he thought the time was right. (I suspect he bides his time right now watching the US commit suicide under the feckless Obama, er, Biden.) I commented a few weeks ago that many Taiwanese businesses are getting out of Taiwan. It seemed to fall on deaf ears. But they know what you observe – they are vulnerable.

  • CuriousOnlooker Link

    Actually, TSMC is the technological leader. The chips they make for Apple, Nvidia, AMD, and Xilinx are more advanced than their Intel equivalents (by density of transistors, performance/watt, or use of advanced lithography techniques like EUV).

    The 2nd point is about a hypothetical US response. I don’t dare to make a guess since policy makers would be faced with an extraordinary difficult decision. Taiwan isn’t Afghanistan, Iraq, or the Ukraine.

    Consider:
    1) TMSC going down would be the apocalypse of supply chain issues; no chips means no car production, no appliances, no laptops, no cell phones, no data centers for months to years — worldwide economic disruption leagues beyond the 70’s oil embargo.
    2) It would redraw the geopolitical architecture of East Asia. South Korea, Japan would become vulnerable to embargo from the south — this could spark both to seek nuclear weapons. For the US, since WWII the underlying assumption of US defense policy in the Pacific is to keep a parameter at the “first island chain” (of which Taiwan is a part). Take Taiwan out and the next defensible point is Guam/Hawaii.

    The difference with Hong Kong is the US doesn’t have any stakes in it except Hong Kong was being treated as a separate jurisdiction from China for the purposes of foreign policy.

  • I agree with pretty much everything in that comment, CuriousOnlooker. Just as an aside I would mention that a bit more than 20 years ago I was privy to meeting within a major auto manufacturer in which I argued against going in a much more computer/electronic direction on grounds of expertise, liability, and supply chain vulnerability. I was shot down, of course. Since then they’ve corrected their lack of expertise but the other two are disasters waiting to happen. Toyota dodged the liability bullet a couple of years ago but it will strike eventually.

  • Drew Link

    At that time, Dave, was it as clear as it is now that the US would recklessly exit strategically important materials, technology and manufacturing capability.

  • It was to me. I had seen the fabrication of computer memories, something once done almost exclusively in the U. S., slowly move (mostly to Taiwan). Moving of the fabrication of processors was already under way.

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