Visit to the most important company in the world

HSINCHU, Taiwan — “If China took Taiwan, it would potentially shut down the world,” he said Donald Trump recently on Fox News, apparently referring to a possible seizure of a company that is central to just about everything.

In fact, it is probably the most important company in the world.

The company Trump alluded to, Taiwan Semiconductor Manufacturing Co. or TSMC, It’s the only company I can think of in history that could cause a global depression if they were forced to stop production.

Nowadays it seems impossible to have a conversation about geopolitics or economics without returning to TSMC, which produces all over the world 90% of the most advanced chips in the world.

If the lights went out here in Hsinchu, in the company’s ultra-clean, ultra-secure buildings, we might not be able to buy a new phone, a car, or a new watch.

Armies could run out of precision-guided missiles and hospitals would struggle to replace advanced X-ray and MRI machines.

It could be like the disruption to the chip supply chain caused by COVID-19… multiplied by 10 — and TSMC, unfortunately, is in a region where war is possible and could threaten production.

“Taiwan Semiconductor is one of the most valuable and best-managed companies in the world,” Warren Buffett said last year.

But he sold his $4 billion stake in TSMC because, he said, “I don’t like his position“.

Some believe – this appears to be Trump’s view – that TSMC is so valuable that it could induce China to try to take control of Taiwan, and then bring the world to its knees.

“The more we talk about it siliconthe less rational people become,” Mark Liu, president of TSMC, told me.

So let’s try to have a nuanced conversation about TSMC, its importance and its vulnerabilities.

For starters, TSMC factories will probably do it they would be useless for China after a invasion, even if the engineers continued to work and even if the factories were not bombed by American or Taiwanese defenders to keep them out of China’s reach.

That’s because the chips are designed in other countries and require international networks to maintain production.

For China, TSMC would be as useful as a broken phone.

What happens in these factories – 24 hours a day, seven days a week, as the work is done by non-union, untested machines – is astonishing.

TSMC has transformed an industry that now measures its work in nanometers (billionths of a meter).

A human red blood cell measures about 7,000 nanometers, and TSMC is developing 1.4-nanometer chips.

“There is nothing like TSMC plants,” Matt Pottinger, a longtime Asia expert who served as deputy national security adviser under Trump, told me.

“It’s really black magic.”

But black magic requires enormous amounts of energy: only TSMC perhaps consumes it 7% of Taiwan’s electricity– and this creates a risk.

Even if China fails to take over TSMC’s factories, it could stop production as a way to put pressure on Taiwan and the West simply with cyberattacks on the network.

“It would be quite easy for China to take down power grids,” Pottinger says.

Alternatively, China could impose a partial lockdown with the same effect.

Both options could have a rapid impact on the global economy.

This means it would also affect China’s economy.

TSMC chips are crucial inputs for Chinese manufacturing, which is why Taiwan President Tsai Ing-wen and others have described the chip industry as “silicone shield” from Taiwan, meaning China would not dare attack because that would destroy its own economy.

I’m as skeptical of this topic as I am of the idea that China will invade Taiwan to take control of TSMC.

The Silicon Shield reminds me of the 1909 bestseller “The Grand Illusion,” translated into 25 languages, which predicted that Europe was so economically interdependent that war was obsolete.

The First and Second World Wars put an end to its sales.

It is certainly not optimal for the world economy to depend on wood chips from an area vulnerable to earthquakes and war.

That’s one reason the U.S. is investing about $39 billion through the CHIPS Act to make chips in the country.

But bringing much of the advanced chip manufacturing back to the United States is already proving more difficult than passing the law.

It is a challenge for the United States to replicate in Taiwan the ecosystem that supports chip production, from the expertise in building factories to the companies that clean the gowns used inside.

And the United States is a heavy bureaucracy, where it is more difficult and expensive to get it environmental permits and building permits than in other countries.

A sign of trouble:

Both TSMC and Samsung have already had to delay their plans to build new factories in the United States.

There is some uncertainty about how advanced these American-made chips will be, and 18 months into the presidency Joe Biden CHIPS Act signed, US subsidies are slow in arriving.

And a warning:

TSMC built a factory in Washington state in the late 1990s, and it was an expensive headache for many years.

“It’s been a series of unpleasant surprises,” Morris Chang, founder of TSMC, said in a podcast in 2022.

Despite the enormous effort and 25 years of experience, production costs at that plant continue to be low 50% more than in Taiwan, Chang added.

Perhaps because he is 92 and retired, Chang is candid about the challenges of American strategy.

“I think it will be a useless exercise very expensive,” he said of the U.S. efforts.

“The United States will slightly increase semiconductor production in the country.

But all this will lead to a very high cost increase, a high unit cost. “It will not be competitive in world markets.”

It might make sense for the US to produce non-competitive chips to safeguard access, but we recognize there are trade-offs:

The tens of billions of dollars spent on factory subsidies would also increase American competitiveness if they were spent to reduce child poverty and improve American education.

If Americans were as good at math as the Taiwanese, our factories would work better too.

Given the difficulty of shifting production, the best way to safeguard chip production may be to work harder than ever to deter and prevent war in the Taiwan Strait.

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