America will manufacture the world’s most advanced microchips
America is one step closer to becoming a chipmaking champion after the world’s leading microchip maker agreed, for the first time, to start manufacturing its most advanced products on US soil.
State-of-the-art semiconductors are objects of unique geopolitical importance. Today’s enhanced deal with Taiwanese company, TSMC, offers a vital boost to the US – and western powers more generally – as they seek to counter the threat posed by China.
TSMC already has two semiconductor fabrication plants under construction in Arizona, the first of which was announced in 2020 under the Trump administration and will begin production next year. Today, it agreed to build a third facility, bringing its total Arizona investment from $40 to $65 billion, and rendering it the largest foreign direct investment in a completely new project in US history.
Crucially, in this new-and-improved deal, TSMC has agreed to make its latest cutting-edge 2-nanometre chips in Arizona, meaning the most advanced semiconductor chips on the planet will be manufactured at scale in a country outside of Taiwan. Before today, TMSC was only promising to build less sophisticated four-nanometer chips in Arizona by 2024 and three-nanometer chips by 2026.
Semiconductor chips are an essential part of modern life, vital for powering devices ranging from cars, kitchen appliances and smartphones to AI and military gear.
At present, over 90 percent of the most advanced chips are made in Taiwan. With the threat of a Chinese invasion of Taiwan ever present, diversifying the supply of these little silicon wafers is a matter of national security.
The scale of Washington’s efforts to ramp up domestic chip-making over the past two years, paired with its attempts to prevent Beijing from becoming an advanced power in chips, has been likened to the Cold War-era space race.
Today’s fresh commitment from TSMC will help the US move closer towards its goal of bringing 20 per cent of the world’s advanced semiconductor manufacturing onshore by 2030.
The microchip industry isn’t alone in making manufacturing decisions impacted by rising geopolitical threats. Microsoft, which announced plans only today to build a new artificial intelligence hub in London, will also be taking the need to counter cyber threats posed by Russia and China into account.
However, when it comes to the highly complex operation of manufacturing advanced microchips, eliminating western dependence on Taiwan will not be easy.
The timeline proposed by TSMC today is a reminder of this. Under the new deal agreed with the Biden administration, the earliest that any of the most sophisticated 2-nanometer chips will be manufactured in the US is 2028. In contrast, over in Taiwan, TMSC will start 2nm mass production, for companies including Apple, as early as next year.
US companies have pledged almost $200 billion for chip manufacturing projects since early 2020. But money alone isn’t enough to speed – and scale – up production. A suitably skilled workforce is also critical.
Chip factories require trained technicians to run factory machines in addition to a host of scientists in fields such as electrical and chemical engineering. TMSC has already pushed the manufacturing start date for its Arizona hub back once – to 2025 – blaming a lack of skilled labour in the US. Many in the field warn that the talent shortage is one of the industry’s toughest challenges.
All the while, the threat of a Chinese invasion of Taiwan looms large.
Taiwan itself is in a curious position. On the one hand, ramping up manufacturing capacity abroad will, to some extent, safeguard TMSC’s business in light of an invasion. On the other hand, what better way for Taiwan to guarantee staunch support from the west in fending off Chinese aggression than to preserve a near-monopoly on such a vital global industry.
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