TSMC A Pawn Under U.S. Selfish Motives on Semiconductors
United Daily News Editorial, July 9, 2022
The Taiwan Capitalization Weighted Stock Index (TAIEX) hit a record high early this year closed at 18,619 points. However, recently it has fallen below the 14,000 mark, a plunge of 24 percent. The market capitalization of Taiwan Semiconductor Manufacturing Company (TSMC) is about 27 percent of the weighted TAIEX market, thus a drop of NT$1 translates into 8 index points drop. As a result, TAIEX cannot rebound without TSMC. The impact of the TSMC’s plunge is significant as it hurts the performance of four major government funds including the civil service pension fund and the interests of the general public.
There are three factors contributing to the fall of the TSMC stock price. First, the Federal Reserve raised the interest rates faster than anticipated due to inflation, making global capital leaving Taiwan stock market and returning to the U.S. market. TSMC stock sales soared as a result. Second, as the world is increasingly worried about another economic recession, the semiconductor industry is faced with overstocking and low demand, driving TSMC stock price further down. Third, investors are worried about TSMC progress of constructing overseas plant, since the CHIPS Act has yet to pass the Congress, the cost of constructing the plant in the United States will rise significantly, which will eventually drag down TSMC’s financial performance.
Out of the afore-mentioned three factors, the first two are common challenges facing the entire semiconductor industry. Owing to long term efforts and Taiwan supply chain advantages, TSMC has become the world leading foundry manufacturer and will do its best to stay ahead in times of global economic tribulation and peer competition. However, the “non-economic factor” is more worrisome. In particular, the United States has taken an initiative to reshape the supply chain of semiconductors based on the premise of “America First”. TSMC is at the forefront when the supply order of semiconductors is disrupted.
In the atmosphere of trade and hi-tech war between the United States and China, America is trying to block the development of China’s semiconductor industry and forces TSMC to set up a plant in the United States. In 2020 TSMC announced the plans to construct a 5-nanometre wafer fabrication plant in Arizona. Many people in TSMC and in the industry view this move to be unwise as it will definitely raise the cost of production. TSMC founder Morris Chang pointed out three years ago that TSMC will become a geopolitical hotly contested spot. Morris doesn’t agree to American, European and Japanese notion of “locally made” semiconductors because none of them has comprehensive supply chain as Taiwan does. He believes to apply political pressure to force it to happen can at best produce incomplete semiconductor ecosphere that will drive global chip prices up. Unfortunately, Morris’s predictions are correct and TSMC is in a dilemma right now.
The reason that TSMC is going to Arizona is due to the “carrot and stick” tactics of the United States. If TSMC had declined to go, then the U.S. would have used “stick” by limiting its export by means of tariffs and technical barriers. The “carrot” refers to “the CHIPS Act” to subsidize the wafer fabrication plant in the U.S. The problem is TSMC has started the initial stage of construction, yet the promised funding is nowhere to be seen. The CHIPS Act of US$52 billion funding is blocked by the Republicans and cannot pass the Congress. The Congress is going into August recess and then Mid-term elections, if the Act cannot pass before the recess and the Democrats lost the majority in the elections, the prospects of the CHIPS Act are rather dim. Without the funding of the CHIPS Act, TSMC will be like a pawn across the river that can only go forward. The fabrication plant in the United States will become a nightmare and a money pit that will drag down the finance of the entire company. In that scenario, even TSMC halt the plant construction, the aftermath will be impossible to handle.
To get to the root of the problem, it was the administration of President Tsai Ing-wen that made the first mistake to use TSMC as a diplomatic tool and put TSMC in such a dilemma. The Tsai administration demanded TSMC to invest in the United States after taking into account the roadmap to “deter China to protect Taiwan” and the eagerness to win the favor of the United States. The Tsai administration has never seriously measured the core interests of Taiwan’s semiconductor industry. Under the one-sided consideration of anti-China, TSMC was pushed to the battleground like a hero to gain territory for the country. In retrospective, American company Intel was cool-headed and announced it would wait for the subsidy to finalize before investing. In comparison, isn’t it true TSMC having too much wishful thinking? Isn’t it true the Tsai administration being overly naïve and detestable?