Early in 2020, TSMC announced that they would build a $12 billion fab in Arizona. 

In December 2020, TSMC purchased the land the fab will be built on for $89 million. 

I admit that I am still in the camp that believes general manufacturing coming back to the US is a pipedream. However, I believe that some specialized tech manufacturing in the US is feasible, and TSMC’s fab project is a good example.

While the actual push to build this fab in Arizona is ripe with political overtones, it may turn out to be one of the better strategic moves for the US as our country deals with multiple threats from China in the future.

The biggest threat I see on the horizon is China’s desire to nationalize Taiwan and bring it back under Chinese control. I have spoken to top execs in Taiwan, and they are on high alert over the potential of China making a concentrated move to secure Taiwan and make sure it is part of China again.

This dispute between China and Taiwan has been going on for decades since Taiwan broke away from China in 1949-1950. 

Under Taiwan’s leadership, Taiwan has developed a strong economy and it hosts some of the top tech manufacturers like Foxconn, Quanta, Compal, and TSMC among many others. In 1979 the US fundamentally agreed to back Taiwan and help them keep China at bay. 

But given China’s recent moves in Hong Kong, Taiwan’s political and business leaders are deeply concerned that China will make some move towards trying to bring Taiwan back under Chinese rule as early as 2021.

One of the Taiwanese business leaders’ concerns is that if China successfully nationalizes Taiwan, they could exert more control over their businesses. And it seems that one of the bigger prizes that could come out of the Chinese rule of Taiwan would be to get control of TSMC, or at the very least to try and legislate who TSMC could make products for in the future.

One Taiwanese tech exec I spoke with at the end of last year told me that China’s national strategy to have products made in China and used especially in Chinese goods could be one other objective besides the political goal to unite Taiwan under the Chinese flag. This exec pointed out that China “could” dictate where chips can be used and make Chinese products the priority.

China’s potential move over Taiwan has enormous ramifications for many US companies who use TSMC to make their processors. AMD, Apple, and many others rely on TSMC for their chips. And it is rumored that Intel could contract with TSMC in the short term to make some of their processors using TSMC’s 7 nm and even 5 nm processes until Intel’s fabs can create chips in the same process range. 

That is why putting a TSMC fab on US soil is not only good for the US but a strategic one. It could be critical for keeping intact the flow of custom designed processors to US and European companies and keep TSMC’s growth moving forward.

I realize that building the Arizona fab will only start sometime in 2021 and could take up to three years to complete. In the meantime, the stakes in the US-China relationship over Taiwan are very high.

Taiwan and its ties to the global tech supply chains are critical for the success of our tech industry. Allowing China to control this global supply chain through Taiwan could pose serious problems for tech companies in the future.

Samsung is also planning on building a new fab on US soil in Austin, Texas. Samsung also sees the geopolitical ramifications from only manufacturing processors in South Korea and China. 

In Taiwan’s case, the threat comes from a potential Chinese takeover of Taiwan and a possible move to place Chinese oversight on TSMC. The possibility that China could control who and where their chips can be sold is staggering.

In Samsung’s case, the threat is a nationalization of industries like semiconductors, that if demand outstrips supply, the Korean government could nationalize Samsung’s South Korean fabs, and direct the majority of chips it makes for use only in South Korea.

The EU is also considering setting up a new fab somewhere in the European Union for similar reasons. They also see the potential threat of some form of country nationalization and want to ensure the EU is prepared for this potential problem.

I don’t want to be an alarmist here, but these are the worst-case scenarios I am hearing on tech and US government fronts as China flexes their nationalistic muscles. 

There is another important point we need to consider about new fabs being constructed now. The demand for processors for all industries is growing exponentially and we are already seeing shortages impacting the auto industry. 

Engadget noted recently that, “Ford and Nissan are scaling back production in response to semiconductor shortages. Ford is idling an SUV factory in Kentucky this week, moving up downtime previously scheduled for later in 2021. Nissan, meanwhile, is reducing output at one of its plants in Japan.

Other carmakers may face trouble as well. Volkswagen said in December that it was altering production in China, Europe and North America due to the shortage.” 

Given the increased demand for semiconductors, it is good that new fabs are being constructed on US soil to help meet this growing need for processors of all types. It is becoming clearer to many inside the tech industry that with everything going digital, we will need more fabs to meet increasing demand, and in some cases, they may need to be strategically regional.

The US government needs to fast track any new fab projects proposed for being built on US soil as it will become a strategic imperative. The microprocessor provides the heartbeat of all things digital and the US cannot afford to rely on fabs in other countries where the geopolitical instability could determine the supply of processors that US companies will need to meet the demand at home and for their customers around the world.

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