[Chip Talk] Taiwan's Steps to Protect Semiconductor Leadership: "Guard Technology and Talent"

"There is no issue of 'decoupling' from Taiwan. The production capacity of the factory that TSMC is building in the United States is only a very small part of the whole. TSMC's Taiwan factory will remain the most profitable facility."

On the 6th (local time), Kung Ming-hsin, Chairman of Taiwan's National Development Council (NDC), made this statement at the equipment installation ceremony of Taiwan's TSMC, the world's largest foundry (semiconductor contract manufacturing) company, held in Phoenix, Arizona, USA. His remarks were a rebuttal to concerns that the core of the semiconductor supply chain might be shifting from Taiwan to the United States following TSMC's announcement to introduce its cutting-edge 3-nanometer (nm; 1 nm is one billionth of a meter) process technology and expand factory investments in the U.S. Taiwan's Ministry of Economic Affairs immediately affirmed, "Our country remains TSMC's most important production base."

On the 6th (local time), U.S. President Joe Biden (center), TSMC Chairman Liu Deyin (right), and CEO C.C. Wei are touring the interior of the TSMC factory being built in Phoenix, Arizona. [Image source=Yonhap News]

◆ "Protect Technology and Talent" ? Taiwan Government's Efforts to Safeguard Its Arsenal

As the 'semiconductor powerhouse,' Taiwan is mounting an all-out effort to maintain its industrial leadership. Amid pressure from major powers such as the United States, China, and Europe, which are competing for semiconductor supremacy and actively courting Taiwanese semiconductor companies and talent, the small island nation is focusing on protecting its 'arsenal' of decades-long accumulated technology and skilled workforce.

According to Taiwan IT media Digitimes on the 26th, Wu Tsung-tsong, a minister-level political appointee of Taiwan's Executive Yuan and Chairman of the National Science and Technology Council (NSTC), reportedly announced in an early-month press briefing that a special team would be formed to monitor TSMC's core technologies. This decision was made in light of TSMC's plans to expand investment in the U.S. and introduce advanced processes, necessitating a team to protect technology and trade secrets.

Additionally, Taiwan's government reportedly announced legislative proposals earlier this month requiring prior government approval for personnel involved in government-funded core technologies who travel to or transit through China, according to Taiwan Central News Agency and others. Earlier, in February, Taiwan's legislature passed an amendment to the National Security Act imposing up to 12 years imprisonment for transferring core technologies to China or other countries. In September, an amendment to the Intellectual Property Case Trial Act was enacted, allowing up to five years imprisonment for leaking trade secrets or national core confidential information in critical industries. All these measures aim to protect Taiwan's semiconductor technology and talent.

Moreover, last month, the Taiwanese government announced tax incentives, including up to a 25% reduction in income tax for R&D activities by technology companies. Companies investing in the introduction of advanced equipment above a certain threshold are eligible for an additional 5% tax reduction. Bloomberg analyzed that "the Taiwanese government is striving to maintain leadership amid other countries, including the U.S., providing subsidies to the semiconductor industry."

◆ Taiwan: Semiconductor Industry Accounts for 20% of GDP

[Image source=Reuters Yonhap News]

The Taiwanese government views the semiconductor industry as a core pillar of the national economy, which has driven these measures. Since 2016, Taiwan has adopted the policy that 'technology is the best security' and has actively fostered the semiconductor industry. To vigorously support domestic semiconductor companies, including the key player TSMC, Taiwan has relaxed regulations and offered unprecedented incentives.

Currently, the semiconductor industry accounts for over 20% of Taiwan's Gross Domestic Product (GDP). TSMC, the world's leading foundry, holds a dominant market share of 56.1% (Q3, market research firm TrendForce). Particularly in advanced processes, as of 2019, 92% of global processes below 10 nanometers are carried out in Taiwan. Technology and the talent who develop and apply it are inevitably the nation's core resources.

Given this situation, major countries seeking semiconductor supremacy?including the U.S., China, Japan, and Europe?are all reaching out to Taiwan. These countries are courting Taiwanese semiconductor companies, including TSMC, urging them to build manufacturing facilities and invest domestically. They are also persuading skilled talent to join them. The Biden administration and others expect Taiwan to play a key role in building semiconductor supply chains. This reflects Taiwan's elevated value as the global center of the semiconductor industry.

However, this situation is not entirely welcome for Taiwan. Rupert Hammond-Chambers, Chairman of the U.S.-Taiwan Business Council, wrote in an op-ed to a major foreign media outlet on the 13th that demands from the U.S. and Europe for 'onshoring' (bringing overseas companies back or expanding domestic outsourcing) weaken Taiwan's economic power and ironically isolate Taiwan, creating conditions favorable to China. He criticized that the semiconductor supremacy competition, initiated to contain China, could instead end up aiding China.

Despite these challenges, the semiconductor industry has not yet diminished Taiwan's importance. The Taiwanese government announced that Nvidia, a U.S. semiconductor company, decided last month to relocate its logistics center from Hong Kong to Taiwan. Dutch semiconductor equipment maker ASML also announced last month an investment of 30 billion New Taiwan dollars (approximately 1.2 trillion KRW) in New Taipei City, Taiwan, to build a factory and R&D center starting July next year.