President Donald Trump wrapped up his visit to China late last week. Among the issues the two presidents discussed was Taiwan; China’s leader warned Trump that if Taiwan’s independence was "mishandled" by the two global powers, it could lead to conflicts.
And those potential conflicts could impact Arizona. Taiwan Semiconductor Manufacturing Company, or TSMC, finished construction on its second fabrication facility in Phoenix earlier this spring; company officials expect to have it up and running next year. TSMC in January bought more land in north Phoenix and says it plans to increase its investment in Arizona.
The company’s presence has led to even more development in that part of the Valley. A mixed-use community called Halo Vista is expected to include more than 2,000 acres; Banner Health recently bought nearly 19 acres near TSMC.
Economic development officials in the Valley and state have praised these projects as important for the region. But Eyck Freymann TSMC’s investments here also have geopolitical implications.
Freymann is a Hoover Fellow at Stanford University and is author of the book "Defending Taiwan: A Strategy to Prevent War with China." He joined The Show to talk more.
Full conversation
MARK BRODIE: And Eyck, you write that TSMC makes Taiwan strategically indispensable. What do you mean by that?
EYCK FREYMANN: Taiwan produces 90% of the world’s advanced semiconductors, 99% of the true cutting-edge semiconductors that are training the next generation of advanced AI models. And the world has no strategic reserve of these chips.
If somehow Taiwan’s supply or TSMC’s supply of these chips is taken offline, we are set back by basically a generation in anything high-tech. The stock market collapses, the U.S. and the global economy go into recession, and the world becomes a very different place because then we’re sprinting with China for who can rebuild faster.
That’s why depending on Taiwan exclusively for chips is sort of a national security concern for the United States. But as we’re discovering making these chips and keeping up with TSMC, which is improving its quality at blazing speed, is just no easy task.
MARK BRODIE: Well, is it helpful at all that TSMC has expanded outside of Taiwan? For example, they have a huge presence now here in the Phoenix area, does that help sort of geopolitically, or does it not matter so much because it’s still the Taiwanese company?
EYCK FREYMANN: It’s a major geopolitical bet that the United States has taken to try to break its dependence for semiconductors, and it’s a big bet that the Taiwanese government and TSMC are making in the United States. Deploying huge amounts of capital, building these facilities, recruiting and training local workers in the Phoenix area.
The challenge, as we’re discovering, is that because these are just some of the hardest devices to make in the world, it requires an incredibly specialized workforce. Training these workers isn’t easy, and also, let’s face it, the company doesn’t want all of its operations to move from Taiwan, so they have sort of an incentive to move step-by-step and keep Arizona from the cutting edge.
MARK BRODIE: Does it worry China that TSMC is making inroads in other Western countries?
EYCK FREYMANN: I think China isn’t happy about it because China depends on Taiwan’s advanced chips, too. But China is making an all-out effort using basically every instrument of, of its national power, leveraging hundreds of billions of dollars of investment, anything that they can do to break their dependence on Taiwan for these chips.
And what’s concerning is that as China breaks its dependence on Taiwan, if the U.S. doesn’t reduce its dependence on Taiwan either, maybe China begins to think it’s not so bad if Taiwan’s fabs get destroyed and the U.S. economy is thrown in recession because actually China will, relatively speaking, be better off.
So, as China diversifies away from Taiwan in chips, it’s really national security essence for the U.S. to do the same in a proportionate way.
MARK BRODIE: Does that mean having American companies like Intel step up, or is it looking elsewhere, you know, outside the U.S. but maybe not specifically in Taiwan?
EYCK FREYMANN: It would be terrific if American companies like Intel could step up. I mean, the problem is making these things is just really, really hard. And TSMC is at the cutting edge, and TSMC alone is investing tens of billions of dollars — I think the number is like $60 billion this year alone.
So, the amount that you have to keep investing into factories and equipment and training and retraining your workers, it just — it costs so much money that if you’re not competitive at the cutting edge, it’s like why bother? You’re flushing money down the drain.
MARK BRODIE: How did it come to be that Taiwan was such a leader in this industry?
EYCK FREYMANN: It’s an amazing story that my friend Chris Miller describes in a book called "Chip War." But basically, the technology was developed in the United States in the 1950s, realizing that you could carve grooves in a semiconductor wafer and use that as a relatively cheap, super-super microscopic way of doing computing.
But as the technology advanced, American companies realized that they were actually doing it all. They were designing these chips, which is actually a really complicated thing, and then they were making them, and the making of the chips was kind of expensive and difficult and had very low margins. And if they could move it to Asia, a place where workers were willing to work for lower wages but also be super capable and well-trained, they could do it more profitably and drive down costs.
So, basically, there was this one guy named Morris Chang, who is — came to MIT, got his PhD, uh, was like one of the big honchos in the US chip business, and he was Taiwanese-American and realized that he could go back and start this company and just say, "Why don’t you just focus on the design, Americans, and let me and my Taiwanese friends do the actual fabrication, the actual making of the chips?"
And that is basically the division of labor we’ve had. But unfortunately, as we’ve discovered, it turns out to be really important to be able to make them at all, and now that we’re 99% dependent on Taiwan, which is a bit of a problem as tensions rise over there.
MARK BRODIE: Yeah, well, it sounds like this is kind of a problem of our own making.
EYCK FREYMANN: Yeah, well, that’s, that’s the story of the last 40 years and globalization. We made decisions for, for profit alone, without thinking about the geopolitical implications, and we became dependent on supply chains from all over the world. And you know, for the most part, that has helped to produce, you know, decades of growth and American prosperity, and so there’s been good stuff, and the stock market has gone up.
But it’s come at a cost, and part of it is that, you know, our supply chains for things that we need — you know, everything that has an on switch and an off switch pretty much relies on chips — and now those supply chains depend on components from Asia. And you know, we’re never going to fully break our dependence on trade with Asia, and we shouldn’t try. But diversifying, I think, is healthy and it’s necessary.
MARK BRODIE: Well, and it’s interesting because when you talk about economic security as we’ve discussed, national security as well, these chips seem to be a pretty big component of that for us here.
EYCK FREYMANN: Oh, I mean, chips are essential to everything. And as AI takes over, chips are only going to become more important. Like, I’m a historian, and have been looking for examples, but there’s never been an example in history of a time when there’s been a technological revolution that’s so dependent on products from or a resource from just one country. That is how dependent we are on Taiwan.
MARK BRODIE: Is there a strategic advantage for Taiwan to be investing in places like Arizona?
EYCK FREYMANN: It is because I think they need to show the United States that they’re willing to play ball and that they’re not using the chips just to sort of coerce us and force us to back them.
Also, we gave TSMC a pretty sweet deal with the CHIPS Act; we, we gave them real incentives to do this production in Arizona. But, you know, the, the same reasons that America — or that these supply chains moved to Taiwan decades ago still apply, so it’s a, it’s a question in the long term how these factories in Arizona will be commercially sustainable. And I don’t think that we will be able to compete with Taiwan on price alone.
But maybe, and I think we should have this conversation, maybe it’s a national security imperative that we be able to make at least some of our chips in the United States and that we should be willing to pay a little more to make that happen.
And if, if that’s the conclusion that we reach, and I think it’s what we should, then there is a very important place for these Phoenix TSMC facilities and potentially others. Because that is how we will protect our economic security if, God forbid, we have a conflict with China. Or for for whatever reason we can’t buy from Taiwan anymore.
MARK BRODIE: Eyck Freymann is a Hoover Fellow at Stanford University and author of the book, “Defending Taiwan: A Strategy to Prevent War with China.”
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