High-end semiconductors are at the core of innovation in today’s tech industry, particularly in the field of Artificial Intelligence (AI) and quantum computing. They are critical in devices such as simple smartphones, Quantum computers, self-driving cars, and advanced robotics. However, the production of these high-end semiconductors is concentrated in a few regions globally, creating a complex web of geopolitical dependencies. As nations race to dominate AI, control over semiconductor production has become a focal point of international tensions and strategic maneuvering.
Capabilities and Competition: Does the AI Race Induce a Zero-Sum Game?
Starting from the realist assumption that countries are primarily driven by self-interest and the strive for power and/or survival, controlling high-end semiconductor production and trade is a central capability. Like coal was essential in the 19th century for the British Empire (“Britannia rule the waves”) and oil in the 20th century for US hegemony, high-end semiconductors may take this central position in the 21st century. Whoever gets his hands on it sits in the driving seat. Depending on how states analyze the distribution of raw materials and high-end semiconductor production facilities, they may cooperate for mutual benefits or strive for dominance over others. The strategic resources at stake partly explain tensions between nations over access to and control over bottlenecks and hotspots such as the Strait of Malacca and the South China Sea.
Semiconductor Production: Asian Dominance
Semiconductors, especially high-end semiconductors, are essential materials, like silicon, with properties between conductors and insulators. The production process involves multiple stages and intricate processes requiring advanced machinery and a plethora of raw materials.
Geographically, the production of semiconductors is concentrated in East Asia. Taiwan, South Korea, and China are the technological leaders and the dominant players. The US and Europe, once the innovators, lost track. If the trend continues, the West will be relegated to the second division. Time to turn around.
The United States, historically a leader in this industry, has seen its share in manufacturing in decline. However, it still leads in high-end semiconductor design with companies like Intel and NVIDIA. Overall, regarding high-end semiconductors, Taiwan and South Korea are in the lead. Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Company) and South Korea’s Samsung are the giants in this industry, but TSMC is the forerunner.
Leading semiconductor foundries revenue share worldwide from 2019 to 2022, by quarter
The Core of Conflict: Taiwan’s Central Role
Taiwan, a small island nation, remarkably holds a central and almost unparalleled position in the global high-end semiconductor industry. It has carved out a niche, particularly in producing cutting-edge chips indispensable for Artificial Intelligence. At the forefront of this dominance is TSMC. The company has grown to become the world’s largest high-end semiconductor producer. TSMC is a titan in the industry, catering to a fastly increasing global demand and possessing an advanced technological edge that few can rival.
For Taiwan, the semiconductor industry is not just another business sector; it’s an integral part of the national identity and a critical cornerstone of its economy. The sector contributes significantly to Taiwan’s GDP, with several offspring in almost all segments of society. Furthermore, Taiwan’s expertise and capacity in high-end semiconductor production have led to a unique form of soft power on the international stage. Countries and global corporations vie for partnerships and favor with Taiwanese manufacturers to secure their technological advancements.
However, with great prominence comes great challenges. One of the gray clouds over Taiwan’s booming high-end semiconductor industry is the longstanding geopolitical tension between Taiwan and China. China claims sovereignty over Taiwan. The narrative is that the island is an integral part of China’s territory, and reunification with the Chinese mainland is imperative. This aspiration has as a side-effect that it extends to gaining control over Taiwan’s formidable high-end semiconductor prowess, which would be a crown jewel in China’s ambitions to become a technological superpower. Hong Kong for the financial markets, Taiwan for the future of Artificial Intelligence – that would be the finish of a long Chinese march toward economic supremacy and regional or even global hegemony.
In a unilateral action, China claimed sovereignty over almost the entire South China Sea. The claims follow an arbitrarily fenced area, the infamous 9-Dash line, later 10-Dash-line. This is digging in the past in order to justify presence in the present, like you can observe it in a kind of “battle of the archeologists” in and around Jerusalem.
The delicate geopolitical situation creates a powder keg environment where any significant conflict or trade dispute between Taiwan and China could have far-reaching consequences. The ripples would not be contained to just the two players. They could send shock waves through the global high-end semiconductor supply chain, affecting industries from technology to automotive and even national security apparatuses worldwide. Given the world’s reliance on high-end semiconductors in various applications and Taiwan’s centrality in this sector, stability in cross-strait relations cannot be overstated.
Western Dependencies: No Artificial Intelligence without Taiwan
The United States, European nations, Australia, and Japan, find themselves in an increasingly precarious position of dependency. This heavy reliance is not just a matter of sourcing components for technology; it extends into the realms of national security and economic stability. Given the essential role that these high-end semiconductors play in military technologies, communications, and a plethora of cutting-edge innovations, the dependency is viewed with significant concern by governments and industries alike.
Moreover, the economic vulnerability cannot be overstated. As AI continues to evolve and form the backbone of the next generation of products and services, not having direct control over or guaranteed access to these essential assets could significantly hamper the Western countries’ abilities to compete on the global stage.
The gravity of this situation induced political action. Initiatives in the United States and Europe to secure and diversify the high-end semiconductor supply chains took off. Governments are not just passively observing the situation but actively engaging in efforts to develop domestic production capacities or establish more resilient partnerships that don’t place all the eggs in one geographic basket. The threat in the South China Sea is a pacemaker for evolving Western unity and cooperation.
High-end semiconductors are the linchpin of modern technology and AI development. The geopolitical landscape surrounding high-end semiconductor production is intricate and laden with both opportunities for international cooperation and risks of conflict. Nations must weigh the pursuit of national interests with the broader benefits of global collaboration. Fostering resilient high-end semiconductor supply chains, investing in domestic capabilities, and engaging in international partnerships are critical steps in navigating emerging dependencies in the AI era. If Taiwan falls, the West may be doomed.