TSMC Cuts China’s Access to Advanced Chips

The recent discovery of TSMC chips in Huawei devices has revealed some gaps in the US sanctions on China. As a result, TSMC has decided to no longer even accept Chinese orders for advanced semiconductors.

This move aligns with the Biden administration’s strategy of halting progress in advanced sectors like AI; the US also got some other countries on board as well: Netherlands, Taiwan, Japan, and South Korea.

Now it’ll be up to incoming US President Donald Trump to figure out how to use tech restrictions or tariffs (or some combination of the two) to define US-Chinese relations.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from snowy and melty Colorado, where our first three feet of snow is rapidly going away.

Anyway, today we’re talking about something that happened last weekend, the ninth and 10th of November, and then followed up by an event on the 11th. On the ninth and 10th, the Taiwanese semiconductor company TSMC, which is the company that makes all the high-end semiconductors in the world, made a major announcement.

If basically it’s going to go into an EV, a high-end phone, a high-end computer, satellite communications, or artificial intelligence, it comes from TSMC’s foundries. Anyway, they said they are no longer going to even take orders for anything that is seven nanometers or smaller from any Chinese entity whatsoever. The instigating issue was a couple of weeks ago and a Huawei product.

Huawei is a Chinese telecommunications firm. They found some TSMC chips in one of the product lines, indicating that the sanctions, as they currently exist, are not working as well as some people thought they might. Some products are still making it to China and are incorporated into various goods. So, TSMC announced that they’re just not going to take orders from the Chinese for anything that is at seven nanometers or less.

Ten is generally considered to be the line where you get the really high-quality stuff, and all the really good stuff that goes into things like artificial intelligence tends to be four to three nanometers or even less. So, we’re not just talking about the top tier here but even the second tier.

Within 48 hours, the Biden administration announced they would lean heavily on TSMC to make sure no Chinese orders were ever even successfully placed. The Taiwanese announced compliance before the American order even came down, giving you an idea of how willing they are to cooperate on this issue. I’m sure that order was being drafted before TSMC made their decision, but TSMC beat them to the punch.

A couple of things come from this.

  1. Foreign Policy Implications
    We have our first foreign policy crisis for the incoming Trump administration. The Biden administration is setting Trump up for a pretty good success with relations with TSMC. However, we’ve had a difference in style when it comes to Trump versus Biden regarding China.

    • Trump’s approach has been tariffs, tariffs, tariffs, but with little meaningful enforcement. This has allowed China to find creative ways around the tariff structure—like mislabeling, exploiting NAFTA’s rules, or rerouting products through third countries like Vietnam.
    • The Biden administration, by contrast, has taken a surgical approach, identifying specific sectors and building tech walls to prevent tech transfer. This requires much more technocratic oversight to evaluate thousands of supply chain steps and ensure restricted products don’t end up where they shouldn’t.

Neither strategy is inherently “correct.” Each has strengths and weaknesses. Biden’s requires more ally cooperation and bureaucratic expertise, while Trump’s is more about making bold statements. A hybrid approach might be the best path forward. Regardless, Trump now has to decide on a course of action.

  1. Technological Thresholds
    The technological barrier TSMC is enforcing is in the seven-nanometer range. To understand why that matters, let’s break it down.

    • How Semiconductors Are Made:

      • The process starts by growing a crystal about the size of a Volkswagen. This is done by placing a seed crystal into melted silicon oxide and drawing it up slowly over days to form a massive ingot.
      • The ingot is then sliced into wafers, which are doped, baked, and etched under lithography machines repeatedly until the final chip is created.

    • Deep Ultraviolet (DUV) vs. Extreme Ultraviolet (EUV):

      • DUV, the older technology, uses UV radiation to etch chips. It can’t achieve atomic precision and involves manual adjustments, leading to inefficiencies and errors.
      • EUV, developed by the Dutch company ASML, uses a much tighter focus and automation to achieve sub-seven-nanometer precision. This results in fewer errors, more consistent chips, and better performance.

DUV can still produce chips between 10 and 90 nanometers, but getting below seven is a stretch. Huawei recently released a phone using a seven-nanometer chip made through brute-forcing DUV. The result was an expensive, inefficient chip with high energy consumption.

This prompted a coalition of nations—including the Dutch, Japanese, Koreans, Americans, and Taiwanese—to draw a hard line at EUV. If China can’t access EUV technology, they’ll be locked out of cutting-edge tech for years to come.

  1. Labor and Machinery
    China lacks the capability to produce or maintain DUV and EUV machines, much less develop them. EUV machines are exclusively made by ASML in the Netherlands. Without these machines or the skilled labor and software to operate them, China can’t produce high-end semiconductors.

The only way China can acquire these chips now is by hijacking shipments meant for someone else. However, doing so at the scale required to meet technological needs is improbable.

So, this situation lands squarely on Trump’s desk. How he chooses to pursue this technological blockade—and whether he combines it with tariffs or another approach—will set the tone for U.S.-China relations moving forward.

And I, for one, am curious to see how it all shakes out.

Photo from Wikimedia Commons

The Geopolitics of…Gaming

Photo of a gamer in front of a personal computer

PC or console? Yes, I’m talking about gaming preferences…and if you answered PC, then we all owe you a big thank you. Today’s episode is all about the geopolitics of gaming (specifically, the advancements its caused in computing capabilities).

If the terms ping or lag mean anything to you, then you have likely experienced the frustration that has plagued gamers for ages. That very frustration is what helped to advance processing power and high performance chips (GPUs, aka graphics processing units) when most others’ computer needs were satiated. Since gamers needed top-tier graphics and a very responsive system, GPUs were developed to handle multiple processes simultaneously. And guess what those chips were also pretty damn good at? Running AI models.

Without those gamers pushing the boundaries and driving technological progress in this sphere, we would be at a loss for how to handle the AI buildout. Which require being able to handle massive amounts of data simultaneously. So, a tip of the hat and raise of the glass to all the nerds out there.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide 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, so we can be sure that 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.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here coming to you from snowy Colorado, where we just got our first nine inches, and there’s another 13 inches on the way. Boy howdy. Today, we are going to take an entry from the Patreon page’s Ask Peter Forum. The question is the GOP politics of video games, which I know, I know, I know some of you are like, “What?” Now, this is actually quite planned to become one of the most important economic sectors in the world in the last five years.

I’m not sure whether or not it’s going to continue, but let me kind of lay it out for you. For the period of roughly 2010 to 2021—roughly that window—we had everything we needed for computing power. I mean, yeah, yeah, yeah, you’d upgrade your laptop every 2 or 3 years to get the newest chip.

But we had digitized most things that could be digitized. We’d moved into logistics and communication and information, and all the low-hanging fruit had already been computerized. The question was, “Why do you need ever faster processors and ever more memory if you really don’t have a need for it?” And yeah, yeah, we got Starlink coming up and running, so satellite communications can be an issue. We wanted to build a smart grid. You know, these are all reasonable things, but you only need so good of a chip for that.

As chips got better and better and better and better and better, the number of people who were willing to cash for them got lower and lower and lower and lower and lower. Then the gamers came in because they were solid demand. They always wanted the fastest possible chips with the best graphics processing capacity so they could join larger and larger multiplayer forums and never have drag or lag. It got to the point that they basically kicked off people who didn’t have good enough hardware because they would slow down the process for everybody.

The chip that is at the heart of that, where you had the largest drag and so the highest demand among the gamers for improvement, is something called a GPU—a graphics processing unit.

And they are definitely the most advanced chips in the world today. But a bunch of gamers sitting at home are not exactly what you would call the bellwether of global economic patterns, even in technology. So there was only so much money that could go behind this sort of effort. And then we developed this little thing called large language models and artificial intelligence.

It turns out that the function of the GPU, which is designed to run multiple processes at the same time so that graphics don’t lag, is exactly what you need to run an efficient large language model. And if you put 10,000 or 20,000 of these things running at the same time in the same place, all of a sudden, AI applications become a very real thing.

We would not have AI applications if not for those people who sit at home in the basement and play role-playing games all day. So thanks to the geeks and the nerds and the dorks because it wouldn’t have happened without you. The question is, What happens now? You see, GPUs, because they were designed by dorks for dorks, have some very dork restrictions.

Normally, you only have one GPU in a gamer console, and you have several fans blowing on it because when it runs in parallel, it’s going to generate a lot more heat and use a lot more energy than any other chip within your rig. Well, you put 10,000 of those in the same room, and everything will catch on fire.

So the primary source of electricity demand for data centers isn’t so much running the chips themselves. It’s running the coolant system to keep these banks of GPUs from burning the whole place down.

Now for artificial intelligence, it’s not that the GPUs are perfect—they’re just the best hardware we have. There are a number of companies, including Nvidia, of course, that are now generating designs for an AI-specific sort of chip.

Instead of a GPU, which is like the size of a postage stamp, you would instead have something where there are multiple nodes on the chip. So basically, it’s the size of a dinner plate or even bigger so that you can run billions, trillions—lots of processes simultaneously.

Because the chip is going to be bigger and designed specifically for AI, cooling technologies will be included. It won’t be the power suck per computation—or at least that’s the theory. The problem is the timing. Assuming for the moment that the first designs are perfect (they never are), we don’t get our first prototype until the end of calendar year 2025. It will then be 18 to 24 months before the first fab facility can be retrofitted to run and build these new chips, and we get our first batch.

Now we’re talking about the end of 2027. And if all of that goes off without a hitch (it won’t), we’re not talking about having enough to outfit sufficient server farms to feel the difference until probably 2029 or 2030.

So the gamers have taken it this far. The question is whether the rest of us can take it the rest of the way in an industry with a supply chain that, just to say, has some complications.

So gamers, salute to you. We wouldn’t be in this pickle without you, but we also wouldn’t be able to imagine the future without you.

The Future of Naval Tech & War on the Seas

Photo of a US aircraft carrier on the water

The nature of naval warfare is evolving – with advancing drone tech leading the charge – but not all of the world’s navies and regions will be impacted the same.

Drones are all the rage right now, and they come in all shapes, types, payloads, and ranges. But which countries will struggle with these drones the most? The isolated nature of Russia’s fleets leaves them open to attacks, while the US Navy tends to operate away from coastlines and can unite its fleets if needed. The Persian Gulf and parts of the Mediterranean might be hotter than others, but the US has enough regional allies to keep a strategic advantage. The Chinese navy will face geographical bottlenecks (like the first island chain) that will limit their naval reach and projection power.

The US is stuffing another ace up their sleeve with its Replicator Initiative, which would allow US ships to be converted into drone manufacturing platforms. So again, drones are changing the way in which naval battles are fought, but there will be some obvious winners and losers.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide 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, so we can be sure that 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.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey everyone. Good morning from Colorful Colorado. Today, we’re going to take an entry from the Ask Peter forum. Specifically, do I worry about the primacy of the U.S. Navy in a situation where the drone technology being developed for the Ukraine war becomes more widespread? Well, let’s start by saying they’re going to become widespread. We’re only seeing something that’s barely out of the prototype stage right now.

And it is proven that in close quarters, relatively speaking, it is already more than capable of defeating an old-style surface navy. Now, I don’t want to overplay this because the Russian Navy is not great under normal circumstances, and that’s if they could all sail together into a single mailed fist. And they can’t—look at the Black Sea, the Baltic Sea, the Arctic Sea, and the Pacific Fleet—all of them independent, all of them having to operate under constrained circumstances.

Now, something to keep in mind about the drones. You’ve got two types: air and naval. Your air-launched drones, at the moment, can’t really carry warheads that are more than 100 pounds. And while that can certainly ruin your day or take out a tank or a building, against a ship, it’s going to be more limited in its ability to be successful.

Keep in mind that ships can move, and if you don’t have over-the-horizon visual capability, just getting the drones to where they need to go is going to be a bit of a problem. So most of the assaults that Ukraine has been launching against Russia’s Black Sea Fleet have been naval. Naval drones don’t have as much range, typically, but they can carry a lot bigger payload.

And since they’re in the water, once they get closer, there’s not a lot that the ships can do about it because they’re used to shooting up at air assets, not down at sea-level assets that are well below the angle that they can fire. So the Russians have to basically counter with small arms. And that would be true for any naval asset.

But keep in mind, there’s this geography issue. Not only are Russia’s navies sequestered from one another, but they’re also in relatively limited bodies of water that are highly contested. So, the Black Sea is obviously the issue of the moment, where the Ukrainians obviously have an outlet on the ocean that is adjacent to where the Russians would like their ships to operate.

But you also have NATO members—Turkey, Bulgaria, and Romania—which have significantly more frontage on that body of water than the Russians. So if you marry these new technologies to the assets of NATO and the industrial plants of a country like, say, Turkey, then the Russians simply can’t have anything floating on that body of water at all.

The same holds true to an even greater degree for the Baltic Sea Fleet, where you’ve got NATO members Estonia, Latvia, Lithuania, Germany, Denmark, Sweden, and Finland, basically countering potential naval power. So if we ever get into a situation where there is a fight on the Baltic Sea, every ship that the Russians have will be sunk, probably within the first 72 hours.

It’s a little bit better on the Arctic, but then you’ve got the ice pack. So for a submarine, if you get below the ice pack, you’re probably okay. But Norway’s right there, and anything that’s going to stay on the North Atlantic has to go right by it, and it’s going to get sunk. And then, probably almost as bad as the Baltic, is the Pacific Fleet, which is completely bracketed by Japan.

Anything that’s going to leave from the Vladivostok area—that just leaves one base at a place called Petropavlovsk—but still, in here, which is a sub base where the subs can kind of go off and drop into a trench and hopefully evade detection. That base, which has no road and no rail connection to it whatsoever, could still operate, but that’s just one spot.

And everything basically has to be flown in to support it. So maybe, like, Russia’s—it’s just absolutely hosed. Compare that to the extreme on the other side with the U.S. Navy. We’ve got an Atlantic and Pacific Fleet that can sail through either the canal or around the Americas to unite into a single force if they want to. It tends to also be long-range-based: supercarriers, missile frigates, that sort of thing.

And so they very, very rarely engage a foe that they can see. You’re talking over-the-horizon hundreds of miles away. Well, that pretty much obviates any capability of the air- or sea-based drones in our current imagination of hitting them. Also, they tend to operate in the deep sea. They never go within sight of the coast if they don’t have to.

So there might be some bodies of water that are constrained, where operating there would be heavily restricted, where there are potential foes who could field a drone force. Places that are probably going to be a bit of a problem include, of course, the Persian Gulf. The days of having a carrier there without, you know, having to worry about it are probably gone now.

The Mediterranean could be a little constrained. But keep in mind, the entire northern coast of the Mediterranean are NATO countries, and the entire southern coast are countries that, for the most part, are favorable to the United States: Egypt, Algeria, Morocco, Tunisia. The one holdout is Libya, and it’s not that Libya’s hostile; it’s that Libya has basically fallen into civil war and is falling apart as a government. Everywhere else that I can already see as a possibility.

Not necessarily because there’s a lot of governments there that are hostile, but it’s becoming a stateless zone in its own way. And the Houthis are probably the best example of that. Just keep in mind that the Houthis of Yemen don’t have an industrial plant. So any weapons they fire are something they’ve brought in from somewhere else. Closer to home, the only thing to really worry about would be the Gulf of Mexico and the Caribbean.

And because there are hostile countries there, most notably Venezuela and Cuba. But if, if, if, if, if we ever get to the situation where that is a problem, a couple of things to keep in mind: Number one, most U.S. naval assets aren’t in the Gulf of Mexico, so you don’t have to worry about a base getting closed in.

And second, in the very, very unlikely situation where we have a military conflict in that area, there will be a land invasion of Cuba in a very short period of time. This is not me recommending—let me make this very clear—I think there are much easier ways to get Cuba on our side, if that’s the goal.

But a country with the population and the industrial plant of Cuba could not survive in the face of an American onslaught should it come to it. And really, that’s the only other spot where there’s a constraint. Between geography and allies, the U.S. looks pretty good. That just begs the question of what is the situation for maybe some other countries that have navies.

In the case of the United Kingdom, yes, it’s close to other land borders—the North Sea, the English Channel—they’re not that big of a barrier. But again, Norway, Denmark, France—you know, these are friendly countries, not hostile ones. And in the case of East Asia, things get really dicey. Japan’s okay because all of its ports are on the east side of the island, so they sail out and then come back to wherever they want to.

So they’re pretty much immune to this. But China—China’s got the first island chain, and any vessel that leaves China has to get by Japan or Taiwan or the Philippines or Indonesia or Singapore. Assuming the United States isn’t playing at all, that’s going to be really hard. And one of the things that the U.S. Navy is working on right now is something called the Replicator Initiative, which will turn its ships into not just combat platforms, but manufacturing platforms to produce exactly the sorts of drones that would be needed to sink everything that the Chinese have in a short period of time.

In the case of a war. Hopefully it’ll never come to that, but Replicator is supposed to be operational by the end of calendar year 2027. That’s not that far away.

SMRs Are Giving Nuclear Power a Facelift

Before we dive into today’s video, if you think back to August of last year…I sent out a video covering a few of these technologies and the limits of innovation. Here’s a link if you want a refresher:

Nuclear power has a bad reputation, and I get it…Chernobyl, nuclear waste, and outdated infrastructure. Buttt, it’s a reliable, carbon-free energy source that might be getting a much needed facelift soon-ish.

Companies like Google and Amazon are realizing their energy needs are growing, so they are investing in small modular reactors (SMRs) to help meet demands. There’s plenty of work to be done before these SMRs are operational, but funding from these tech powerhouses is critical for R&D.

While the small modular reactors won’t solve all of the nuclear issues, they are step in the right direction to changing the public’s opinion about nuclear power. And if this all works out, SMRs could even help solve the energy crisis the US is heading towards.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide 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, so we can be sure that 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.

If you sign up for our Patreon page in the month of October, the proceeds from your subscription for the remainder of 2024 will be donated directly to MedShare. So, you can get our all of the perks of joining the Patreon AND support a good cause while you’re doing it.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from the Burbank airport just outside of Hollywood.

Today, we’re going to take up the second of our tech modification series, if that’s the right word, specifically talking about nuclear power.

Now, nuclear power is something I’m generally in favor of because it is carbon-free, reliable, and the supply chain is typically within the United States. These are all good things. But there’s also a mechanical issue: public support for it is low. The Russians have been agitating; they can’t stand the idea of nuclear power on a global basis, as it competes with their hydrocarbon exports, even though they use nuclear power themselves quite a bit. Then there’s always the waste disposition issue, which the United States hasn’t really solved. When you’re done using nuclear fuel, you’re left with nuclear waste that you either have to process—requiring a plutonium supply chain in the civilian sector, which is risky from a proliferation perspective—or store somewhere, which results in accumulating waste. The United States has yet to build a large-scale repository to handle all this material, so it tends to be stored on-site. This means that the dozens of nuclear facilities around the country have cooling ponds containing tons of fissile waste material. Other countries have solved these problems, but the U.S. requires a regulatory overhaul, likely several acts of Congress, and would need years to build out the manufacturing system to produce more than one plant, considering we may need dozens.

What has changed, making me more optimistic about the sector, is that big tech is now entering the nuclear business. Big tech companies are building more data centers, and demand for electricity is skyrocketing, especially in locations like Virginia, where about half of the country’s data centers are located. Companies like Microsoft are choosing data centers near nuclear power facilities. Google and Amazon are sponsoring startups to build something called small modular reactors (SMRs), which are portable, can be placed on trucks, and potentially connected to existing grid infrastructure, like old coal plants, or directly power data centers.

There are still regulatory hurdles, and I don’t mean to suggest this will happen overnight, but the fact that Amazon and Google are willing to commit financially to these future reactors is a major boost for companies working on SMR research and prototyping. While we don’t yet have a prototype of a small modular reactor, this kind of investment could push the research forward. I don’t want to over-promise, but this might be the beginning of a more resilient, localized nuclear power infrastructure.

We also have aging nuclear plants to consider. With one exception, all operating nuclear power plants in the country are over 50 years old and have had their lives extended due to their significance to the grid. However, we’re nearing the technical limits of how long these plants can operate, and they will need to be replaced as the United States’ industrial capacity expands, increasing demand for electricity.

Incorporating small modular reactors into the power solution makes sense since they can provide consistent baseload power, unlike solar, which doesn’t work at night. So, this shift in the investment landscape is very encouraging.

The other side of the equation is utility companies, which are regulated monopolies with a different risk tolerance and investment timeline. They may be interested in how new nuclear technology could integrate into their existing systems, especially given the retirement of old facilities. Existing connections to the grid could simplify the process, allowing new reactors to be easily integrated.

Okay, that’s it for me. Take care.

Cuba’s Power Grid Fails, But an Opportunity Arises

Image of an electrical power grid

Cuba’s power grid is collapsing. No, it’s not because of US sanctions or socialism. This ongoing crisis can be blamed on Cuba’s lack of investment into modernizing and its reliance on Soviet and Venezuelan fuel.

Cuba’s power system is powered by diesel generators – much of it deteriorated Soviet-era equipment, which has caused its grid to fail. This culminated in a blackout last week, which was exacerbated by hurricane Oscar making landfall. It’s unlikely that Cuba can get its grid back online all on its own.

So, Cuba finds itself at a crossroads. Without its typical allies able to help, the Cubans might be forced to turn to the US. Both Cuba and the US could benefit from a deal, but there’s a whole lot of pride to be swallowed and history to be forgotten before that happens…

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide 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, so we can be sure that 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.

If you sign up for our Patreon page in the month of October, the proceeds from your subscription for the remainder of 2024 will be donated directly to MedShare. So, you can get our all of the perks of joining the Patreon AND support a good cause while you’re doing it.

We encourage you to sign up for the Patreon page at the link below.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Huntington Beach in California. I apologize for the sound quality, but I’m on the beach. We’re going to talk about beach country, so it’s unavoidable. We’re gonna talk about Cuba. This past Sunday, a hurricane Oscar roared ashore in eastern Cuba. And I would say, like most hurricanes that do this, they knocked out power.

But that is not the case because in Cuba, the power was already out. Now, the two leading theories as to why that power is out are that it’s a socialist disaster—they can’t maintain their grid—or that they’re under U.S. sanctions and can’t get the parts. Both of those are kind of crap. First of all, let’s deal with the U.S. sanctions issue.

Cuba has been under sanctions since 1960. And there are lots and lots and lots and lots of countries that don’t like the United States and that the U.S. doesn’t like that still have electricity. So that doesn’t answer your question. Second, the idea that the system is mismanaged is, at best, an incomplete answer.

And to explain that, we need to look back. Cuba was functionally a U.S. colony from the time of the Spanish-American War, 1898, until Castro threw off U.S. control at the end of the ’50s and sided with the Soviets. Especially since the Cuban Missile Crisis during the Kennedy years in the early ’60s, Cuba basically existed because the Soviet government paid for them to exist, covering pretty much all of their food imports and their energy imports, as well as all their machine tools and equipment, and providing them with a lot of advisors in exchange for military assets, especially listening centers in Cuba.

Well, that ended when the wall fell. And the 1990s for the Cubans was a really rough time because, you know, this is an agricultural economy that produces sugar. And it’s not that their sugar isn’t good—it’s great—but it’s not enough to have a modern society. And so in the ’90s, when the support from the Soviet Union ended, the place really started to fall apart by any way that you could possibly measure it.

But then a savior arrived in the late 1990s in the form of a guy by the name of Hugo Chavez, who took over Venezuela and started sending the Cubans sufficient fuel to cover all of their needs. Since then, Chavez has basically destroyed his country’s own energy production, and especially under his successor, Nicolas Maduro, who’s the current president.

Venezuela has been falling apart, and they have basically lost the ability to send meaningful amounts of fuel to Cuba. So we’ve seen support go from something like 300,000 barrels a day to something closer to 25 over the course of the last few years. And Cuba is having a hard time keeping anything running. The income that they get from the sugar exports simply isn’t sufficient, and they can’t send to what would be their logical market, the United States.

And rather than buying from their logical market in the United States, they have to buy from at least a continent away to get whatever they need. So everything costs more and they get paid less. And that assumes that their system was doing well, which it is not. On top of that, when you have a grid that was designed back, you know, before the 1950s, it’s not all that hot in the first place.

This isn’t a country where they have a lot of solar or wind or natural gas. They certainly don’t have a nuclear power plant. What they do is they burn oil. And that is, you know, ugly and inefficient and toxic, but it’s also really hard on your power plants. And it’s been 50 years since any of these power plants have had meaningful upgrades.

On top of that, they have built kind of a backup society that is no longer their backup system—big diesel generators all over the place, plugged into the grid. The problem with that is that they’re not nearly as steady in terms of current production. And so it’s really hard on the transformers and the transmission system, which is also not seeing meaningful maintenance in 50 years.

So, bottom line is that the entire grid is falling apart. And back last week on Wednesday, the lights went out and they never came back on. And now the hurricane has hit. And it’s entirely possible that they’re not going to come out in a sustained manner again. Energizing an electrical system that’s had this degree of damage without a steady supply of fuel inputs is nearly impossible.

And when they tried to do it on a regional scale in the days before the hurricane hit, they actually shorted out more of the system. So Cuba very well may be down for the count. And the question is now what happens next? The normal candidates to support them, Russia and Venezuela, are either occupied with other things, don’t have the cash, or both.

And that’s before you consider things like sanctions. And the Chinese, while they love to have some irons in the fire in order to cause problems for the United States where they can, they’re not like pathological about it, like the Russians are. And they’re certainly not going to risk America’s displeasure when there’s no financial gain to be had here.

So, for the first time since the ’90s, and the first time seriously since before the Spanish settled the territory, Cuba is actually on its own. There is one possibility. Natural disasters tend to bring out the best and the worst in people, and the same goes for states. So, we now have the most fluid political environment between the United States and Cuba that we’ve had since the 1990s.

And there is a distinct possibility that Havana or DC, or both, will reach across the Strait of Florida to see if they can cut some sort of a deal. This is a chance for politicians on both sides to either show their better sides and turn the other cheek, or to drive a really hard bargain. Both of these are very viable options, and there’s certainly a need on both sides.

I mean, on the Cuban side, it’s obvious—the country is on its back and it might not be able to get back up, which would lead to horrendous mortality and deindustrialization. But on the American side, we have a massive worker shortage. And as the Chinese fail, we’re going to need various partners at different stages of production. Mexico, to be perfectly blunt, has become too sophisticated for a lot of the manufacturing that needs to move back to the continent.

But Cuba, I mean, their skill set might only be a quarter to a third as good as somebody in the United States—probably less. But they work for 5 to 10% as much. So there’s a way for them to plug in to the North American manufacturing system in a way that would really benefit the three existing NAFTA partners.

The question is whether we can get the politics right. And for better or for worse, the power outages plus Hurricane Oscar have provided an opportunity to find out.

SpaceX Takes “One Giant Leap” for Space Tech

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SpaceX’s successful booster recovery, is not just very impressive, but could also dramatically reduce the cost of launching items into orbit. Don’t pull the trigger on that summer vacay to Mars quite yet, but there are some exciting possibilities for space-based manufacturing now on the table.

There are four key areas that this could impact: precision lenses, drugs, fiber optics, and quantum computing. Each of these areas would benefit from being manufactured in a gravity-free environment. Lenses would get finer precision. The drug industry would be able to grow longer, more complex proteins. Creating fiber optic cables would be much more efficient. Quantum computing would get error-free crystal growth.

Each of these industries would see massive leaps and advancements, but the price needs to be right. So, we’re moving in the right direction, but still have some space – hah – for improvement. And further down the road, there is a potential for setting a 3D printing facility to manufacture space infrastructure while in orbit, which could change space travel forever. Let’s not get over our skis though.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from, I don’t even know where I am at the moment, anyway. If you’ve been following for a while, you know, about a year ago, I recorded a video that listed the six kind of breakthroughs technologically, that I thought might deflect the world into a more productive, happy direction. And, in the last couple of weeks, we’ve had a number of issues that have caused me to revisit these technologies.

We’re going to do this very short series about what has changed and the sort of impact it can have. And so this first video is coming to you from New Orleans, where we talk about space technology. Hey, everybody. Peter Zeihan here. Coming to you from the Superdome in New Orleans. And while I’ve been in the Big Easy, a couple of interesting things have happened around the world.

The one I want to talk about today is SpaceX’s successful booster catch. They launched a rocket up—all rockets, in order to reach orbit, require boosters. You need extra fuel so you can achieve escape velocity. And we already know for several years that SpaceX has been recovering their rockets for reuse. And they can even land them vertically now.

But the boosters, until now, have been just discarded. Well, this time, they were able to let the booster land back at a different facility and land itself, and they grabbed it and basically had it on the platform then. Number one, that’s amazing. But what I actually found more interesting was that they then immediately refueled it, meaning that now, with lots of testing, they have to do this over and over again to prove that it’s a viable model.

But they caught it on the first try, which means that the main launch vehicle is now reusable and the boosters are reusable. And this drastically, potentially reduces the cost of launching things into orbit. If you go back to the ’70s and especially the ’80s with the onset of the space shuttle, getting stuff into orbit was more than $50,000 per kilogram.

With SpaceX having the main module be reusable, they’ve gotten that down to $1,500 per kilogram. And now that the booster looks like it’s going to be reusable as well, that number is probably going to drop by half to a third of what we’ve become used to. And when you’re talking about $500 per kilogram or less, all of a sudden the economics of space start to change and people can come and go on a lot more frequency.

I mean, we’re basically starting to talk about some Gattaca-level shit here. Now, I’m not too interested in space tourism because, you know, that’s just a few people going up, joyriding, and coming back, and I’m not too interested in things like Mars or even the moon, because even with this technology, you’re still talking several days to get there and back.

The economics of that hasn’t changed all that much, but we can now start thinking about manufacturing. Basically, what you’re looking at are things that are high-value products, that you can fly the raw materials up and then bring the finished product back down. There’s kind of four categories that I see that kind of play in that pond. The first one, and probably the one that will get going the most, are lenses, which I know doesn’t sound very exciting.

But when you think about what we’re doing in semiconductors right now, the lenses that go into the lithography machines are among the most finely milled things that we have on the planet. Let’s keep in mind that we are now at the stage for maybe semiconductors, where the individual resistors are not all that much bigger than the individual molecules.

So you’re talking about manipulating objects at the atomic level. When you’re doing that, precision is absolutely critical. Okay, so that’s number one. Number two is drugs. Most of the more advanced drugs that we’re developing today are proteins. And proteins can only form so long in gravity because they collapse on themselves or just get mushy and then they’re useless.

So if you can grow them in orbit, you are no longer limited in the length of the protein that you can grow, especially when you’re talking about tailored drugs for individuals. You can easily fly up the medium and then fly down the finished product. I swear I’ve been on aircraft carriers that are quieter than this town. Anyway, what was the third one?

Fiber optic cable? Now, the stuff that is in your house, in your neighborhood, probably costs in the vicinity of a dime to a quarter per meter. That’s not what we’re talking about here. We’re talking about the new stuff, something called Zebulon, which is a more specialized system that can communicate terabits of information per second. It runs at least $100 per meter and upwards of a thousand, based on how good of the stuff you want.

The problem is in the manufacturing process: it crystallizes. And in order to control that, you need very, very precise conditions. So space basically—you can grow it like a crystal and do whatever you need to do with it. Now, you have to, like all these other things, bring it back home. And that’s going to put a limit on what you can do. When you’re talking about something that is 10,000 times as valuable, there’s a little bit of margin in there for transport cost, even if you happen to be going way up.

The fourth thing involved in experimental technologies—one of the reasons that quantum computing has not happened yet is because each machine is different. It’s handcrafted. It’s not just that it hasn’t been serialized or regularized; it’s that we’re inventing ways to perceive and manipulate quantum space. So every single thing about each of those machines is unique and precise. And if you can grow the crystals that do the focusing in space, then you don’t have the errors that you’re going to get and the flaws you’re going to get on a more terrestrial system, while also considering that a quantum computer isn’t all that big.

You’re talking launch costs versus the benefit you get—that’s pretty high. So those are the big four. There is a fifth one to consider, although it would require a significantly larger manufacturing system, and that’s using things like 3D printing technologies to print stuff in space for space. I’m not talking here about a trip to Mars, although I’m sure that’s what Elon Musk wants to go on and on about.

I’m talking about something a lot more basic: satellites. Because if you can drop launch costs to the point that you can build a satellite manufacturing facility in orbit, then all of a sudden you can have a satellite bay and repair facilities and manufacturing facilities also in orbit. And that would dramatically lower the cost of things like information transmission and raise the possibility of even more manufacturing.

And yes, eventually, in time, maybe a moon base or even a trip to Mars. Okay, that’s it for me. I am going to go to a quieter city.

The UAE and India Look to Localize Semiconductor Manufacturing

A couple more countries have joined the campaign trail to buildout their semiconductor industries: the United Arab Emirates and India. Let’s break down the different approaches to this buildout and how they might turn out.

The UAE is attempting to sweet-talk Samsung and Taiwan’s TSMC to build a semiconductor fab facility in places like Dubai and Abu Dhabi. In case you didn’t know, these places aren’t exactly known for their engineering expertise or labor forces capable of carrying out these complex operations; meaning these facilities would likely be filled with labor imported from South Asia. Basically they’re paying for the facility to be closer to home, but not actually doing any of the work.

India, on the other hand, is working on a more sustainable model. Bringing together Powerchip and Tata, the Indians are focusing on producing less advanced chips. Don’t be fooled though, these chips and the fab facility where they are made would be vital for the growing tech sector in India. By using local labor and addressing the infrastructure issues associated, India’s approach leans towards functionality over prestige.

While both are attempting to localize semiconductor manufacturing, the UAE and India have different approaches that will likely have very different results.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from a hotel room where I’ve been laid low by a 24-hour flu problem. It’s like, hope it’s only 24 hours. Today we’re going to talk about semiconductors and something interesting that’s happening in the world of fabs. Dubai and Abu Dhabi, which are the two main cities in the United Arab Emirates and the Persian Gulf, are holding talks with Korea’s Samsung and Taiwan’s TSMC about building a fab facility in the Persian Gulf in the United Arab Emirates.

Normally, I would just wave this away because semiconductor fabs are one of the more, if not one of the most, complex manufacturing systems in the world. And there aren’t a lot of people in the Persian Gulf that can do basic math, much less, you know, high-end engineering. But I thought it might be worth exploring why it still might happen and what it would look like.

TSMC and Samsung are not the same. TSMC is what’s called a fab fabricator, and Samsung is more of a conglomerate, right? And so TSMC is part of an ecosystem that involves several thousand companies that come together to provide the materials and the designs, and TSMC simply puts it together. In fact, they don’t even design the managerial process.

What usually happens is a foreigner, typically someone who’s from Japan or the United States, designs a chip in league with the end user. And then that design is given to TSMC. And then that designer typically goes out and sources all of the materials that are necessary to make the chip, ensures that they’re high quality, and then brings them to TSMC themselves.

It’s a little bit oversimplification, but think of TSMC as the world’s best direction followers. They don’t have a lot of intellectual capital in terms of interpreting the designs. That’s all managed by the American or the Japanese guy. Instead, they have an ecosystem of hundreds of companies within Taiwan who then take individual pieces of the design and figure out how to make it most effectively.

And then all of that information is combined under the American or Japanese person’s tutelage in order to provide a very, very specific series of instructions for TSMC, which they then follow. I’m not saying this to suggest that TSMC isn’t good at what they do. Oh my God, they’re the world’s best. But the really high value-added isn’t done in the fab; it’s done outside the fab by others. Samsung in Korea is a little bit different. They’re more of a conglomerate. They have a design house, and they handle more of the instruction-building themselves. But still, these two companies, Samsung and TSMC, are two of only three companies on the planet that can make the high-end chips that are smaller than five nanometers.

The third one is Intel in the United States, which is a little bit more similar to Samsung than TSMC. Anyway, the point of all of this is it’s really, really complicated, requires a lot of really, really smart people who are really, really good at math and engineering. And the Persian Gulf is not known for having any of that.

UAE is basically a financial center because things, concepts like interest, are illegal under Islamic law. So UAE has found a way to kind of do an end run around Sharia laws and the such. And basically, if you’re in the Middle East and you want your money to actually earn something, you bring it to Dubai. And then Dubai does the investing, usually via third-party nationals.

So the idea that you could have a high-end fab in UAE using local labor is hilarious. So it wouldn’t use local labor. The UAE is basically a slave state, and they bring in people from other countries to do all of their work, most notably South Asians. And so if, if, if you get a fab facility operating in the UAE, it’s going to be manned almost exclusively by Indians.

And which brings me to the next point that India’s getting the fab. But they’re not doing what the Emiratis are doing and trying to get the world’s best, so it’s kind of a feather in the cap. No, they’re just going for functionality. So the company Powerchip is partnering with Tata, which is an Indian industrial conglomerate, to build a fab facility that will not make the high-end chips.

The best chips they will make will be 28 nanometers, which is what you are going to see in your typical car, going down to 110 nanometers, which is Internet of Things sort of quality. Nothing particularly sexy. But India, to this point, has not had a single fab operating in the country. It’s a problem of not labor or labor quality.

It’s a problem of infrastructure. So if we have something in Dubai or Abu Dhabi, it’ll be the Emirates with their rock-solid power system, paying for everything and importing all of the labor and all the technology. And the only thing about it that will be Emirati will be the address. And then in India, we’ll have a system where the state will try to set up a better power grid locally to where this facility is going to be.

And then the local labor will be right there. So two very different models to get to two very different places, bringing different assets into play.

How a Small Town in NC Could Disrupt Global Semiconductor Production

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We’re hitting the backroads today and chatting about the small town of Spruce Pine, North Carolina. What this town lacks in population, it makes up in its (extremely important) quartz mines.

These mines in Spruce Pine play a critical role in semiconductor manufacturing, thanks to the very pure quartz found here. This pure quartz is used to make the crucibles in which silicon is melted down without contamination. And no this isn’t just one of the many places that has this stuff…Spruce Pine accounts for an estimated 70-90% of the world’s crucible-grade quartz.

Hurricane Helene has put these mines in jeopardy with the heavy rains and flooding that hit the area. This has shut down the roads and the mines, and recovery efforts will be stalled until the larger towns are taken care of. This means the mines could be out of commission for a while, impacting the supply chains for the semiconductor fabrication plants.

We’re not in the red-zone yet, since most facilities keep a decent reserve on hand. However, if the production of this high-quality silicon is affected, we could be looking at major disruptions down the road.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from DC in the National Mall. And today we’re going to talk about a little bit of hurricane damage that you probably were unaware of. Specifically, the town of Spruce Pine, the town of like 2300 people in western North Carolina. And the issue is that this is a town that produces sand. So roughly 150 million years ago, as Southerners tell time, there was a series of non-volcanic intrusions into the area that is now part of the Appalachians.

And we got all of these feldspar, quartz, and mica deposits. Until recently, the feldspar is what everybody was after. So you’ve heard of Pyrex? Feldspar is used in the high-quality glass that they produce, but the rest of it, especially the quartz, was basically used as concrete aggregate in construction and local road production. Nothing special. Then the semiconductor sector took off.

Well, it’s getting really weird and moving behind some of the construction equipment that is everywhere in DC right now. Anyway, then the semiconductor industry got started, and semiconductor is made primarily of silicon, and silicon is basically just processed quartz. What they discovered was that the type of quartz that exists in the Spruce Pine mines was so pure that it could be melted into something called a crucible, which is basically a little bowl.

The crucibles then could be used to melt other, lesser-quality silicon. You have to do the melting in a very, very, very, very high-quality crucible, otherwise the crucible will introduce flaws and other materials into your silicon, and then you don’t get the electrical properties you are after. The sand that comes out of these Spruce Pine mines is so pure that it is used for 70 to 90% of global crucibles to make the semiconductors.

They also use the other silicon they have there as well. And it’s also very good for that. But it’s the crucible-quality silicon that you’re really after. Anyhow, the two companies control the space. They’re not very chatty when it comes to the details. About 70% of the labor force in Spruce Pine—population 2300—works in the mines.

And the miners are—well, they got two feet of rain dropped on them, which did a significant amount of damage to the mines, although the miners are not telling us what. They’re focusing on helping the people recover, and the people can’t recover because the city is cut off. There is one road out of the mine. It’s been largely destroyed, and it’s going to be at least a month, probably closer to two, before we have some idea of whether or not it can be repaired to a level that allows equipment to come in to, say, pump the water out of the mines.

And this is not a priority for things like FEMA, because Asheville, population 100,000, is also cut off, and it’s on the interstate. So everyone’s going to focus on that first. We’ve got quite a while before we know whether or not the mine has been damaged sufficiently to imperil long-term production of this very specific type of quartz silicon.

As to everybody else, most of the folks that make these things, most of the semiconductor fabs who use this stuff, and most of the purification facilities, probably have about three months of reserves to use. So there’s no immediate disruption from supply, but we’re going to have to wait one to two months before we find out if this temporary interruption is something more significant. And if it is, then all bets are off, because this is where we get almost all of it.

Again, while you can make a crucible out of lesser silicon, that lesser silicon will then contaminate whatever it is you’re trying to smelt, which means that high-grade semiconductor-quality silicon will not be available in sufficient quantities to do more than a third of what we currently expect our semiconductor industry to create. That could be a very big deal. We won’t know for a couple of months.

China, Navy, Nukes, Tech, and Politics

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Our focus turns toward China today, specifically at the technological struggles facing the Chinese military and manufacturing industry. And yes, we’re starting with the nuclear submarine that sank in port…

The Chinese have been looking to make some upgrades to their technological capabilities across the board, but they’re not gaining much traction. As evidenced by the nuclear submarine that sank near Wuhan, China’s nuclear deterrent system is one area that could use some love. Unlike the US nuclear triad that provides redundancy and security, the Chinese really only have ICBMs to bail them out of nuclear troubles.

While the sinking of that sub is embarrassing, it’s far from the only area that the Chinese could use some help in. China is a manufacturing hub for low-tech stuff, including less advanced semiconductors. However, China has struggled to make much (if any) progress on the chip front, because they lack the expertise and access to operate the necessary machinery.

And things aren’t likely to improve anytime soon. US-China trade tensions are on the rise, and the coming US election isn’t likely to change that…regardless of who wins. With sanctions, tariffs and technological controls limiting China’s capabilities, it will be difficult for them to achieve technological parity with the US.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Salt Creek Beach, just outside of L.A., in California. Today, we’re going to talk about beacon policy, technology, China, and the U.S. elections. Yeah, that’s going to get me in trouble pretty much everywhere.

Okay, so the new news that leaked out over the last few days is that back sometime in the spring, the Chinese new nuclear attack submarine sank at a dock via Wuhan. It was a first-in-class ship, and first-in-class ships are notoriously buggy, but they usually don’t just, you know, sink. They had to fish it out of the river with a bunch of floating cranes.

Now, I don’t want to suggest that submarine engineering is easy, especially nuclear submarine engineering, but I gotta say, like, the definition of a submarine is something that doesn’t sink unless there’s a torpedo in it. So getting the basics wrong on this sort of thing is beyond embarrassing. And if you can kind of put this in context, imagine if in San Diego, a nuclear-powered vessel sank in harbor and the government tried to hide it from everyone. That’s basically what’s gone down here.

So, very, very sloppy engineering work, a sloppy propaganda campaign. But from a strategic point of view, I think it’s really important to understand what the Chinese do and do not have when it comes to nuclear deterrence. They have silos—ICBMs that would launch mostly from western China. They don’t have a functional sub arc, and they certainly don’t have a bomber arc.

So we’re talking about one type of deterrence, not the three that the United States has for redundancy. Now, whether that’s good, bad, or indifferent depends on what you care about, but the whole reason the United States maintains the triad is so that no matter what flavor of attack hits the United States, it always has at least one, probably two, backup plans. That sort of deterrence means countries aren’t going to nuke the United States, even before you consider things like missile defense. China is nowhere close to that, not in number of warheads, and certainly not in delivery methods.

This brings us to the general topological issues that the Chinese are trying to crack here. China has a lot of ambitions, and they say they’re planning on going into this, that, or the other thing. But desire is not the same as performance. So, consider, for example, semiconductors. The Chinese have something called deep ultraviolet technology that they’re pretty decent at, and chips that are in the 80-90 nanometer range or dumber, they can make themselves. But when the chips get more advanced—and that’s like what you put into most automotives, for example—they need not just foreign equipment, but foreign staff and foreign software.

Most of the chips being made today—things that are, as a rule, 20 nanometers and smaller—don’t use that technology unless you want to be wildly inefficient with it. Instead, they use something called extreme ultraviolet lithography, which is a technology basically completely controlled by the Dutch company ASML. Even if the Chinese were able to get their hands on some of those more advanced machines, it’s not like they could operate them. There are staffing issues, experience issues, and software issues. Plus, the Dutch have built their machines with remote kill switches, so they have to be involved in the process.

I don’t mean to say this to insult the Chinese. I mean to say this to insult everyone. No country controls enough of the semiconductor supply chain for anything that’s mid- or high-tier chips to do it themselves. You’re talking about a constellation of thousands of companies and dozens of countries, and it really does take a village. So, the Chinese desire to do all of this in-house? It’s just not going to happen, or at least not without a significant shift in how this technology works. It’s more likely to get more complicated in the future rather than less, which means we pretty much know what’s going to happen with U.S. politics and trade relations, because the parameters of what can and cannot be done with the technology are already known.

So, regardless of who wins the American presidential election—and we all have our own ideas on that—we’re looking at a situation where, on the Trump side, we know that tariffs are the plan. But the Biden administration has never repealed any of the tariffs that Trump put into place. On the Harris side of the equation, we know that technological controls are the preferred tool. But I can’t imagine a President Trump ever repealing those.

So, we’re looking at a tightening technological noose as the United States does something that China just can’t call on other countries for. Because, even at the depths of the Trump administration, when relations with allies were at their lowest, you still had countries that needed the United States for this, that, or the other thing. And so the United States was able to do technological sanctions on things like lithography that basically stalled the entire Chinese technological push.

They were able to use older technology like that deep ultraviolet I mentioned in order to brute force through some relatively low-quality chips that hit a couple of technological markers but were huge energy hogs, took up a lot more space, and generated a lot more heat. Not the kind of thing you’re going to use to reset the technological tables, especially when you start talking about some of the newer things ASML is trying to work on, like high numerical aperture, getting down to a one-nanometer chip. The Chinese don’t even have a finger in that world yet.

It takes everyone, played out across the economy, and there’s only so much the Chinese can do. They just don’t do the high-end stuff at all. They do the low end; they do the assembly. And that’s a multi-trillion-dollar operation—that’s not something to be scoffed at. But that’s not the same thing as parity, nuclear or otherwise.

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.