On Friday, Taiwan Semiconductor Manufacturing Co (TSMC) announced that it will build a $12 billion semiconductor plant in the United States. The announcement came amidst growing tension between China and the US that is threatening to disrupt its Asia-based supply chain.
TSMC said the project will commence in 2021, and will have the capacity to employ 1,600 workers as the factory focuses on the production of the latest in semiconductor technology, the 5-nanometer chips.
“This project is of critical, strategic importance to a vibrant and competitive U.S. semiconductor ecosystem that enables leading U.S. companies to fabricate their cutting-edge semiconductor products within the United States and benefit from the proximity of a world-class semiconductor foundry and ecosystem,” TSMC said in a statement.
The long battle of technology supremacy between China and the US took a new dimension earlier this year, when the Trump administration ordered TSMC to halt its business relationship with Huawei. The US’s quest to stop its dependence on China for semiconductors saw a cutting edge with this development.
The US Secretary of States, Mike Pompeo says the development bolsters the country’s national security.
“The U.S. welcomes TSMC’s intention to invest $12B in the most advanced 5-nanometer semiconductor fabrication foundry in the world. This deal bolsters U.S. national security at a time when China is trying to dominate cutting-edge tech and control critical industries,” he wrote on Twitter.
It has been a battle for supremacy between the two economic powers to control critical tech industries in the world. Last year, the U.S. warily kicked Huawei out citing national security. Huawei was in the forefront of the 5G roll out and was exerting global dominance that the U.S. saw as a threat and an easy way to compromise its national security.
With Huawei out of the way, focus was redirected to other areas where China has been exerting dominance. In 2017, the U.S. government stopped a $1.3 billion Lattice Semiconductors takeover deal by China backed Canyon Bridge. The acquisition attempt was blocked on concerns over national security. The Trump administration was wary that if Canyon Bridge acquisition became successful, it would increase the chances for the Chinese government to steal U.S. tech ideas.
“Today, consistent with the administration’s commitment to take all actions necessary to ensure the protection of U.S. national security, the president issued an order prohibiting the acquisition,” a statement from Treasury Secretary Steven Mnuchin said then.
The U.S. determination to minimize Chinese products in its tech developments has been intensified recently. In February, the U.S. tech manufacturers were barred from supplying Huawei with tech related items as a way to undermine the Chinese company’s global influence.
Currently, the United States accounts for 13% of the world’s total semiconductor production, a capacity it has held since 2015. Martin Chorzempa, a research fellow at the Peterson Institute for International Economics said that China has moved its production capacity from 8% to 12% at the same period.
China has obviously been pushing its semiconductor capacity to a cutting-edge since 2015 while the U.S. remains stagnant. The Trump administration believes that the best way to have the cutting-edge is to establish home based semiconductor factories.
The U.S. has been working with leading chip-making companies to expand its semiconductor capacity. TSMC is the world’s third largest chip maker, after Intel (INTC) and South Korea’s Samsung (SSNLF) according to IC Insights, a semiconductor research company.
TSMC is the major supplier of chips to leading tech companies like Apple (AAPL), Huawei Qualcomm (QCOM) and Nvidia (NVDA). Recently, the Taiwanese company was forced to choose between its relationship with the United States and Huawei, its choice has resulted in the move to open a new semiconductor company in Arizona. It has also consolidated its already existing factory in Washington, as it becomes its second manufacturing site in the United States.
However, the progress that has been made so far is not enough to close the existing semiconductor capacity gap between the U.S. and China because TSMC also has factories in China, with a range of Chinese companies on its supply chain.