What Does the Future Hold for Taiwan and Semiconductors?

Taiwan has positioned itself as the dominant player in the semiconductor industry, but what would happen if a conflict with China broke out? Well, if semiconductor supply chain vulnerabilities are top of mind, than sure, this should be of concern (but you should also be worried about the thousands of companies and locations that are nowhere near Taiwan that make up the vast bulk of the supply chain).

Let’s move past those concerns for today and break down what Taiwan and companies like TSMC (Taiwan Semiconductor Manufacturing Company Limited) have planned for the future. We’ve seen Taiwan “cooperating” with the US and Japan in recent years, but what’s going on?

The Trump administration demanded that TSMC build the best facility they possibly could in the United States, and it is…not happening. Taiwan’s efforts in the US are little more than a kabuki effort to appease the US and maintain its favor. In contrast, new fabs in Japan are moving along swimmingly, as the Japanese didn’t insist upon the cutting-edge technology that the US wanted.

While the US has companies like Intel trying to replicate (and surpass) the advanced semiconductor technology of Taiwan, progress is difficult and I wouldn’t expect anything to come of it soon in the next year or two. Taiwan understands perfectly the situation that it is in and is playing its cards very strategically.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from the southern rim of Upper Lyle Canyon in Yosemite. Last time I was here, I hiked all the way up that. Whoo! That was exhausting. We’re just going to look at it from a distance this time. Anyway, today we’re gonna take another entry from the Ask Peter forum.

It’s about Taiwan and semiconductors. And the question is, why would Taiwan help relocate any facilities to the United States? Isn’t that kind of their guarantee that the United States will come to defend them if there’s a conflict with China? The short version is: not really. Two things going on here.

Number one, never, ever, ever, ever, ever forget that the semiconductor supply chain involves over 9,000 companies, half of which only produce one product for one end user. So, Taiwan isn’t necessarily a strong point in the international supply chain for semiconductors, but there are literally thousands of others. All these companies make products that ultimately end up in TSMC’s hands, which they use to build and operate the fabrication facilities, and, of course, fabricate the wafers and the semiconductors themselves. So you can have any number—literally thousands—of problems around the world that shut this whole thing down.

And while Taiwan is certainly a node that is the single most important one, it’s hardly the only one. The lasers come from California. The lenses come from Germany. The designs typically come from the United States. The silicon itself comes from North Carolina. It is diversified in that it’s everywhere, but it is not diversified in the fact that there are any backup plans.

So, if there was a war in Taiwan, I’m not suggesting the United States would or wouldn’t get involved. I’m saying it wouldn’t matter, because if we’re at that point, then the elements of the supply chain that are elsewhere in East Asia go offline. So, intervening in that war doesn’t solve this particular problem. The second issue is that Taiwan is not stupid.

Taiwan is building fabrication facilities in the United States in order to please the United States. But, as with everyone who cut a deal with Donald Trump, they kind of pulled the wool over his eyes. They basically flattered him and said, yes, we’ll build a semiconductor fabrication facility in Phoenix. It’ll build sub-three nanometer chips, which were, at the time, the best in the world.

What they neglected to say is they weren’t going to provide blueprints. And so, that facility has now been under construction for a few years. It’s making no progress. In fact, they’ve had to tear down many of the facilities and rebuild them from scratch because the Taiwanese are flat-out stalling. Similar things happened in a number of things that had to do with economic deals.

For example, supposedly TSMC was going to build a facility in Wisconsin. That came to nothing.

If the United States is going to establish an alternative supply to Taiwan, it obviously has to build the fabrication facilities. And the leading candidate for that right now is Intel. Intel is absorbing some new technology from the Dutch lithography company ASML, which is actually more advanced than what the Taiwanese are using.

They’re hoping, hoping, hoping, hoping to have that online in Columbus, Ohio, within a couple of years. And if, if, if, if, if that works, we’re talking about Intel not simply being able to match the technological level of TSMC, but maybe leapfrogging it a little bit. Best-case scenario, we are not going to see the first wafers out of that facility for two years.

I think four is probably a little bit more realistic. And those won’t be the one-nanometer chips that Intel has started discussing, although the new technology does look very promising. It’s just that these things take a long time to set up—years. And while Intel has made some great progress, their track record for doing things ahead of schedule is almost nonexistent.

I have no doubt they’ll get there, but they’re not going to get there this year, or next year, or probably the year after.

The alternative for TSMC is to also ingratiate themselves with other partners. After the United States, the single most important one is, by far, Japan. And they have started building fabrication facilities in Japan that are ahead of schedule, unlike the Phoenix facility, because Japan didn’t ask for the cutting-edge stuff. They just asked for stuff that would help with their automotive industry.

So, you’re talking about chips that are poorer quality than 10 nanometers, which is kind of a threshold for the really, really good stuff. So, that facility doesn’t threaten TSMC’s business model. It allows them to solidify their strategic alliance with Japan. And Japan, of course, has the second most powerful navy in the world. So, if there is a Taiwan war, Japan will probably actually be there before the United States.

So, sound decision-making from the Taiwanese on both deals: with the United States, which they are reneging on, and with the Japanese, which they are not. The end.

China’s “Diversionary” War with Taiwan: The Good, Bad and Ugly

China invading Taiwan isn’t a new topic, but would China ever use this war as a diversion or distraction? This is an unlikely scenario, but as long as Xi is in charge, we must consider every possibility.

Despite challenges to China’s political and economic system, with a leader like Xi, there isn’t a need to “rally support” for a war. In addition, capturing Taiwan wouldn’t provide China with a strategic advantage, and it would likely lead to hefty economic vulnerabilities.

The odds of a “diversionary” war happening are never zero, though. In a system like China, all it would take is a miscalculation on Xi Jinping’s part or some dark realizations setting in…

Prefer to read the transcript? Click here

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Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. Now, last week, I released a video on why none of us should be really surprised if the Chinese system falls apart. We’ll leave the link here for those of you have not seen it. But the most common follow up question that I’ve received from viewers has been wouldn’t this justify in the Chinese mind a diversionary war or distraction war to increase public support?

I can’t rule it out, but I don’t think that’s going to go down for three reasons. Number one, this is not a democracy. This is an autocracy where the CCP has control of the public space is huge and their ability to shape public opinion is massive. And in that sort of an environment, you don’t get the same relative effects and you also don’t have the same in stability from economic problems that you might have in a more pluralistic society.

So I don’t want to say no, but the government’s ability to shape public opinion and to stir up nationalism is pretty robust. If anything, the government sometimes has a bit of a problem containing the nationalism, not not getting it going. So from a legitimacy point of view, I don’t think it’s really necessary. Second, anyone in China who can read a map and do math knows that if they launch a war for Taiwan, it will it will not end well, not the war itself, but what happens to the next day.

China is dependent upon the international community for roughly three quarters of their energy sources, and most of that comes from a continent away. On top of that, China is in terms of absolute volumes, the most dependent on imports and exports of any country in the world. And they import the vast, vast, vast majority of the materials that allow them to grow their own food.

So if you have even a moderate effort by a small number of countries to go after Chinese commerce in the aftermath or because of a war, this country will be facing a industrial collapse in just a matter of months and a famine that will kill half the population in a couple of years. And I have no doubt that at least several years ago that the Chinese leadership understood that.

And so they primarily used Taiwan as a rhetorical issue. And most of the threats that we’re seeing now are not necessarily coming from the decision makers. Well, a third let’s assume that the Chinese can capture Taiwan in a matter of weeks with minimal damage. That doesn’t really give them anything. I mean, yes, it technically is a break in the first island chain, but the Chinese are still dependent on the international system to get everything that they need, and they’re dependent on the U.S. Navy to patrol the global oceans so that their commercial cargo can come and go.

In fact, this would actually put their potential sea lanes by Taiwan in greater risk from the Japanese, who have a better, longer range navy than anything that the Chinese have. And then there’s talk of the semiconductor industry that the Chinese would be able to scoop. But the Chinese can’t operate their own semiconductor industry. It’s not just run with foreign equipment and software.

It’s run by foreign personnel. And the Taiwanese facilities are the most advanced in the world. And honestly, the Chinese wouldn’t know what to do with it. I don’t mean that as a slam to the Chinese. I don’t think any country that took them over would be able to operate them in anything less than a decade timeframe for the Chinese would take a lot longer than that.

So it really doesn’t check any boxes now saying that it wouldn’t work, saying that a diversionary war would be unwise and would achieve nothing for the Chinese is not the same as me saying. I don’t think it would happen, but the rationale would be very, very different. So two things. Number one, it could be a miscalculation, not in the traditional sense that, you know, we don’t think anyone will do anything but a miscalculation by JI.

Remember that JI has formed such a tight cult of personality that no one’s bringing him information. So he’s literally making information, making decisions in a box without any idea of the information that flows in or the reality of the world around him in that sort of decision making structure. Sure, he could pull the trigger, but it wouldn’t be because of any of the reasons that you would normally expect.

So whether it’s economic, strategic, political or whatever, whatever we would say, you know, this might force a country to pull the trigger. None of that applies to Xi because it’s all in his head. And it’s not something that we can really guess at because we don’t know what’s shaping his decision making, because we know he’s not being fed the information he needs to run the country.

The second reason is quite darker. If you’re like me and you believe that we’re looking at the end of the Chinese system over the next decade for demographic reasons alone. Forget politics, forget energy, forget vulnerability, forget the debt, forget trade wars, forget everything else. Then there’s something to be said for pulling the trigger. Because if the Chinese system is facing that same industrial collapse and that same population collapse for other reasons, and there’s nothing that the Chinese government can do to stop that, maybe buy a little bit of time, and that’s it.

Then pulling the trigger, choosing the time and the place of a war, even if you think you’re going to lose, even if you know it’s going to result in the death of half of your countrymen, if it allows you to command the narrative of the future. Well, that means that the CCP for the low, low price of half the country’s population might be able to rule into the next era of Chinese history.

And if you’re completely amoral about it, you got to admit that might be a compelling reason to launch a war that you know what will destroy you for dark. Not saying that’s happening, but we can’t rule it out at this point.

Taiwan and the US Reach a Trade Deal

In mid-May, the US Trade Representative established a trade initiative with Taiwan. While this isn’t a full-blown trade deal, it represents the shift in US policy towards recognizing Taiwan as an independent country.

Taiwan is already an important trade partner for the US, so the economic rationale is there. You can also throw a check next to strategic reasoning, as keeping Taiwan out of Beijing’s grasp means access to critical military positioning for the US.

You can probably guess how the mainland feels about all this…but does that mean an invasion will happen? Unfortunately, I could see this going either way. It would be hard to imagine a world where Xi considers an attack a good idea, but who knows what will happen if everyone keeps drinking the CCP-Propaganda-Kool-Aid?

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Taiwan Loses Honduran Support to China

Today’s rainbow is brought to you by Wanaka, New Zealand.

For those following Chinese relations, you’ve probably heard that Honduras just dropped its recognition of Taiwan to establish ties with mainland China. President Tsai responded with a trip to Central America to shore up diplomatic support, but will any of this determine the status of relations between Taiwan, China, and the rest of the world?

While all this makes for good theater, all that matters is where the money and weapons go. And the country to watch is the US.


Taiwan and US trade negotiations are already underway and will likely be wrapped up here soon. Once they’ve reached an agreement and Taiwan becomes a fully integrated trade partner, they’ll be treated as an independent country in every capacity but name.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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TRANSCIPT

Hey Everyone. Peter Zeihan here coming to you from Wanaka, New Zealand, which is just a place too beautiful really for words. I mean, look at this. This is the full arch. It’s just stupid. 

Anyway, for those of you who have been following Chinese relations, you know that the Chinese have been able to convince the country of Honduras to switch the recognition from Taiwan to Beijing. And as a result, the president of Taiwan, President Tsai, is on her way to do a Central American tour to try to shore up the diplomatic support for the remaining handful of countries that still recognize Taiwan as the rightful representative of the Chinese people. Ultimately, this is a lot of theater. Taiwan’s a small country. China is huge. And when it comes down to a battle of the pocketbooks, obviously Taiwan is going to lose.

But honestly, that is not what is going to decide the status of relations between the island of the mainland and the island in the rest of the world. That is dependent upon the actual policies as opposed to things like recognition, but actually where you’re putting your money and your weapons with much larger countries. And of course, the country that is always going to matter the most in that is the United States. And the United States has begun free trade negotiations with the Taiwanese. That will probably wrap up within a year, at which point treating Taiwan as an independent country will not simply be core to American bipartisan foreign policy, but a core to domestic economic and trade policy as well. And when that happens, it really doesn’t matter what the du jour system is for recognizing Taiwan as an independent country or not, because it will be a fully fledged integrated system in American law. And once that happens, the degree to which the United States can take action and promote military ties is going to be just like it will be for any other country. And we will have recognition by the United States of Taiwan as an independent country in everything that matters except for name. And undoing that is something that would require an American president to do something that is starkly against what has been the building bipartisan consensus now for 15 years.

So we’re getting to full recognition. We’re getting there very quickly, and we’re not doing it by paper. We’re doing it with the rubber hitting the road. Anyway, that’s it for me on that topic. I’ll see you guys again soon.

Demographics Part 7: The Northeast Asian Crash

Today we’re talking about another region of the world competing for the title of “worst demographics” – and that, of course, is none other than Northeast Asia.

China is its own beast, and for those of you that have followed me for a while, you know where they stand…to summarize, yikes.

Japan is one of the few countries that has been able to look at this situation from a long-term view, allowing them to prepare for this (far) better than their neighbors.

South Korea is the poster child for all of the issues at hand, but if there’s a country that can somehow find a strategy to get itself out of this situation…it would be them. (and hopefully, they share it with the rest of us)

Taiwan has been able to delay the demographic problems that these other countries are facing, but that doesn’t mean they get off scot-free. They just have some time to think about what’s coming.

I know that was a lot of doom and gloom, but at least you have Southeast Asia to look forward to.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Taiwan and China: War on the Horizon?

Disclaimer: this video was posted in May of 2022, but as discussions of Taiwan and China escalate it feels appropriate to re-share my thoughts.

Since the onset of the war in Ukraine, discussions of a pending Chinese invasion of Taiwan (yes, it’s been 70 years, but it’s pending nonetheless) have escalated.

However, within the first 3 months of fighting in Ukraine, almost every assumption that predicated the Chinese invasion of Taiwan…disappeared into a cloud of dust.

So, where does that leave China and Taiwan? The situation remains as it’s been for the better part of the last century – staring at each other across the Taiwan Strait. Although, the Taiwanese people have probably enjoyed their boba tea a little more these past few months.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Nancy Pelosi Goes to Taiwan

The Speaker of the US House of Representatives, Nancy Pelosi, has arrived in Taiwan. As such, she is the highest-ranking US official to make a visit to the island since her predecessor, Speaker Newt Gingrich, visited in 1997. While there is likely little both would agree on, the former Speaker has been quite supportive of Speaker Pelosi’s decision to visit Taiwan. China has been huffing and puffing about the visit since it was announced, but there’s very little Beijing could do short of shooting down Pelosi’s plane. Which isn’t likely to happen.

Beijing has viewed Taiwan as a breakaway province since the time of Mao, and has worked diligently to erode international recognition of Taipei under its One China Principle. The US since Nixon has held off formally recognizing Taiwan as an independent country, but since the end of the Cold War Washington has moved steadily toward an economic and security relationship with Taiwan that falls just short of official recognition, to Beijing’s dismay.

China and Taiwan

At the outset of the Russian invasion of Ukraine, there was significant concern that China would follow with its own invasion of Taiwan. With both Moscow and Beijing moving to secure what they consider breakaway states within days of each other, the United States–months away from its own messy pull out of Afghanistan–would be too caught in a lurch to react to either. 

That obviously didn’t happen. 

It’s not that China is not always considering how it can bring Taiwan back into the mainland’s fold. It’s just a question of what the scope of an invasion would look like, and what sort of consequences the Chinese will be brought to bear. The arithmetic and planning for both have changed sharply in recent months.

If anything, Russia’s bungled invasion of Ukraine showed the Chinese that there’s no quick or easy way to overwhelm a fortified and prepared neighboring state. Consider the fact that the Ukrainians have only really existed as a unified, functional post-Soviet country since the Russian’s first invasion of the Donbas in 2014. Taiwan has been preparing for a potential Chinese invasion for over six decades. 

There’s also the obvious fact that Taiwan is an island. The Russians attempted to slow-roll a land based invasion from Russia and Belarus into Ukraine. China is going to have to move armor, soldiers, supply chains, etc across the Taiwan Strait or by air. En masse. This is something incredibly difficult and costly to do even for the best equipped air forces and navies. China’s remain largely untested. 

And then there is the threat of international reaction. China’s proximity to the world’s most concentrated production hub of high-end semiconductors seems like effective leverage. And to some extent, it is. But China’s workers lack the skillset to design and build the high-end chips Taiwan is known for. And most of the R&D happens in the United States. While Taiwan’s plants would most likely shutter, one should keep in mind that much of China’s most valuable exports–high end electronics, smart phones, etc.–are reliant on these very same chips.

Which brings us to global consequences. The world is not going to take lightly to the Chinese upending the chip supply chain. Nor can China expect to avoid crippling economic consequences. Consider that outside of energy and extracted resources, Russia has not spent most of its post-Cold War life integrating too heavily into the global economy. China is the complete opposite. Whatever difficulties Moscow is facing with Western economic sanctions, China’s pain would undoubtedly be orders of magnitude worse.


We invite those of you who are interested to join us for our upcoming webinar, Inflation: Navigating the New Normal, on June 8th. More information at the sign up link below. Unable to attend the webinar live? No problem. All paid registrants and attendees will be able to access a recording of the presentation as well as a PDF of presentation materials.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Where in the World: Grindavíkurbær, and Taiwan

The challenges of the United States’ Afghan withdrawal have caused many to question Washington’s commitments to its allies and others who have found themselves under the American security blanket. The issue of US commitment to Taiwan in particular is one I have been asked in recent weeks.

Putting aside the issue that disentangling from Afghanistan and the Middle East means that the US can focus even more on China, Taiwan itself is no slouch. Chinese ambitions must be evaluated against Chinese and Taiwanese and Japanese capabilities. In short, the idea that the US is the only power interested in a free and democratic Taiwan is laughable, as is the assumption that the Chinese would have an easy time in sailing a fleet across the strait absorbing Taiwan.

Even if China did manage to successfully invade Taiwan, there’s little reason to assume Beijing would be able to effectively take control and replicate Taipei’s success in managing the world’s most advanced chip manufacturing. Most of the design process for the chips happens outside Taiwan (such as in the US), and Taiwan’s workers are highly skilled individuals. Not the sort of people who perform at their best at the other end of a gun (or the type that stick around and wait to get captured). 

In short, of all the possible unintended consequences of the US withdrawal from Afghanistan, a successful Chinese invasion of Taiwan is not very high on my list.

[And please forgive the wind; the side of a volcano is an exciting, albeit noisy, backdrop.]

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