Taiwan's Problem: Why has the worldwide microchip workshop become problematic?

 The year 2020 has hit humanity not only with the Covid-19 epidemic. The global economy, as well as consumers of electronic devices, has been shaken by the microchip crisis. They became desperately lacking, prices rushed to unknown distances. Once publicly available — just pay! - the devices suddenly turned out to be a shortage, which we have to chase and which we have to "get". Just like in the old Soviet times.

The reasons are generally quite simple. The need for microchips and processors has already continued to grow over the past years — but the pace was approximately understandable, and production could be increased smoothly. The coronavirus pandemic has made the growth in demand for electronic devices that allow remote work, entertainment and communication explosive and unprecedented.

Production was increased in all possible ways, especially since it became possible to earn much more on this — but a problem arose. Microchip manufacturing plants are the most expensive, complex, demanding production personnel and equipment of all currently existing in the global economy. You can't stick them in quickly and anywhere, like a toy assembly shop or tailoring, or even an oil refinery. It takes at least three years and billions of US dollars to build, launch and reach normal capacities of new chip production from scratch, even under the most favorable conditions. So there was a gap in supply and demand for microchips, which turned out to be impossible to close quickly and simply. By the beginning of 2021, the shortage of chips on the world market was about 30%.

The situation has been aggravated by politics — and the importance of this factor may in the coming years turn out to be such that the current crisis of chips for production and consumer reasons will turn out to be a minor misunderstanding against the background of a full-fledged global catastrophe.

In 2020, the United States and China finally and clearly entered the political clinch, escalating into Cold War 2.0. The economic and trade war of the two most powerful economies is already in full swing — and also hits the chip market. Back in the summer of 2020, the United States banned Chinese Huawei from outsourcing chip development to Taiwanese TSMC: the absolute global leader in this field. Other sanctions measures followed.

TSMC was caught between two fires. The company's management chose the US side. The problem for the entire global economy — and politics — turned out to be that most of TSMC's production facilities are located in Taiwan: an island off the coast of mainland China. Now more than 50% of the world's products are produced there, and the most advanced and advanced - even under 90%.

TSMC chips, mainly made in Taiwan, are present in almost everything: smartphones, high-performance computing platforms, PCs, tablets, servers, base stations and game consoles, IoT devices, digital consumer electronics, cars and almost all weapons systems built in the twenty-first century. For decades, this suited everyone - but before our eyes, the situation has changed dramatically. New factories in Taiwan - despite the acute shortage and the ideal infrastructure for them on the island — are not even planned.

Officially, even from the point of view of the United States, Taiwan is part of the PRC. However, the island still has its own political system, the "Republic of China", which does not obey Beijing and dates back to the anti-communist forces that evacuated to the island in 1949. The mood of its residents for the second decade has been moving further away from the idea of reunification with the mainland, which was popular by the 90s - especially after the "tightening of the screws" in China and the defeat of protests in Hong Kong. Residents of Taiwan now prefer the traditional patronage of Washington and cooperation with Tokyo.

Beijing, on the background of its confrontation with the United States and neighbors from India to Japan, increasingly wants to subdue the "diamond" of global microelectronics that is eluding "reunification". He is spurred on by the realization that the factors that provided the Chinese economic miracle are already in the past, growth is declining, citizens demand freedoms instead of tightening the screws, and plans for domination in the XXI century may turn out to be as impossible a dream as the world communist revolution for the USSR. There are more and more competitors standing in the way of unrestrained economic expansion, as well as political opposition from the United States and other countries.

Therefore, now the PRC is strengthening its military power, especially the fleet, and unequivocally hints at the possibility of a forceful solution to the issue with the "rebellious island" through a rapid amphibious operation. Taiwan is no less clearly demonstrating its readiness to repel the invasion. He is supported in this by the United States, Japan, and other opponents of Beijing with its ambitions of domination in the "south seas" and the global economy.

Not only the war, but even a serious aggravation around Taiwan can put supplies from the island of microchip semiconductors that are critical for the modern world at risk, fraught with a worldwide economic crisis of a huge scale. The United States has already deployed a contingent of military advisers on the island, which is reported loudly and publicly. Washington and its allies are clearly determined to prevent a situation in which the flagship of global chip production will be in the hands of China and President Xi. It is quite possible to assume a situation in which — in the event of war and invasion - TSMC plants will be destroyed quite deliberately and purposefully.

Secondly, the island has been hit by a changing climate.

Taiwan is considered an extremely humid place, it is flooded with monsoon rains and typhoons. However, in 2020-21, Taiwan experienced the worst drought not seen in more than half a century. The 2020 monsoon simply did not come. By the spring of 2021, rivers began to dry up on the island and water reserves in reservoirs were coming to an end. And plants for the production of modern semiconductors for microchips require huge volumes of ultrapure water. It used to be enough - now not so much.

It got to the point that by the summer of 2021, the authorities had to take radical steps: throw the remaining water supplies to semiconductor factories, cutting off its issuance to citizens and even farmers - despite the fact that agricultural production on the island was on the brink of disaster. Only these draconian measures prevented the decline in the production of semiconductors, from the lack of which the world microelectronics is already suffocating.

The monsoon of 2021 turned out to be more decent, and somewhat eased the situation — but no one will give accurate forecasts for the next years. The climate becomes very unpredictable with a general tendency to increase aridity. And there are simply no powerful rivers that allow organizing an uninterrupted supply of water even in dry times on a small island.

Therefore, TSMC has already announced the construction of a new plant for the production of the latest minimum-dimensional chips in Arizona in addition to the existing one in Washington state. The Americans themselves are going to deploy a program of subsidizing the semiconductor industry on their territory — but so far the amounts for this look conservative and modest relative to the scale of the problem, only a few hundred billion US dollars. And the production facilities in the USA are still mostly lagging behind the Taiwanese ones in terms of the quality and dimension of the chips.

The Europeans also do not stay away from the problem of microchips. In the summer of 2021, EU countries announced a goal to double their share in the global microchip market by 2030. Intel is going to build a new semiconductor plant in Europe worth $20 billion, and is considering Germany, the Netherlands, France and Belgium as potential production sites. The EU's problem is that their capacities are very outdated. The best factory in Europe is Intel's enterprise in Ireland, which collects 14-nm chips, whereas in Taiwan they are already making 3 nm, and Samsung and IBM just yesterday announced a technological breakthrough and overcoming the threshold of 1 nm.

The PRC's plans are also by no means limited to the idea of achieving the subordination of Taiwan. In addition to the two TSMC plants in the country, which are facing increasing problems, in 2021 Beijing decided to allocate one and a half trillion US dollars for the deployment of its own production and import substitution of technologies by the efforts of Hauwei, Alibaba, SenseTime companies instead of increasingly inaccessible solutions from IBM, Oracle, EMC. There is a campaign to lure TSMC engineers, who are promised a two- or three-fold increase in salaries on the continent — to which the Taiwanese company itself responded with a sharp increase in employee salaries, and the government of the Republic of China banned the publication of vacancies in the PRC.

We decided to make a breakthrough in the field of chip production in South Korea — where previously Samsung and other chaebols preferred purchases from the same TSMC. Now Seoul wants to deploy a full production cycle in the country in the coming years. However, South Korea is also located near the PRC, and in the north it is threatened by nuclear missiles of northern cousins friendly with Beijing.

The government of India, which has its own powerful IT sphere, also decided to take care of competition with its Himalayan neighbors - relations with which New Delhi is getting worse, and clashes on the border are becoming more frequent. Just this week, India announced the allocation of $ 11 billion to attract chip manufacturers to the country.

However, many economists question the distribution of microchip production outside Taiwan. In their opinion, if — which is still more likely - the military crisis around the island does not happen, the enormous forces and resources of many countries will be thrown to the wind, and when the chip market normalizes again, it will already come to excess supply.

Time will tell who is right in this dispute. But still, the idea of not putting eggs in one basket, especially lying in a fire-hazardous building, seems wiser.