GOOD MORNING FROM LONDON
A semiconductor is a crystal matter that acts as a conductor and as an insulator. Its substance lies between the conductor and the insulator. And it controls and manages the flow of electric current in electronic equipment and devices. It is a popular component of electronic chips made for computing components.
Some examples of semiconductors are silicon, germanium, gallium arsenide. They are an essential component of electronic devices, enabling advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications. Semiconductors power our cars, airplanes and trains. Communications rely on semiconductors – factories, ordinary businesses, finance and banks. Money moves only because of these chips.
These chips are crucial and here is the point – the US no longer manufactures the most innovative chips – 7 nanometres and below. Taiwan manufactures 92% of those chips. 8% of those chips are manufactured in South Korea and none are manufactured in the US.
Originally the US economy was based on domestic production of essential products. The US was in control of its own destiny. Not now. Production has gone overseas and domestic resources are depleted. The US has never felt more vulnerable and this issue is at the heart of US/China tensions. A flare up in the South China Sea could bring semiconductor exports from Taiwan to a halt. The US would be seriously hurt – even brought to its knees. The US is that vulnerable. One example will suffice.
In 2021 and 2022 US automobile companies globally saw several hundred billion dollars in lost sales because they could not get the chips to finish their newly manufactured cars. Car lines shut down because there were not enough chips available. There was insufficient capacity in the supply chain.
That is the economics. Now the politics. The US is fighting back and has identified five cities for focus on semiconductor research and production including Phoenix Arizona It is changing its immigration laws to bring foreign scientists and experts in numbers – the current need is for 27,000 semiconductor researchers. The US is desperate. It is vulnerable. Its initial success as the world leader in semiconductors has passed. The US relies on Taiwan.
What happens if tensions in the Taiwan Strait lead to military incidents? Vessels collide or fighter planes are shot down or fishing disputes trigger the involvement of naval destroyers. Taiwan is the international flash point.
China knows all this. It understands the interplay between science and politics and China, too, is racheting up its research into semiconductors. But for the present the focus is on the unique vulnerability of the US. It took its eye off the ball. Today it is a follower where, yesterday, it was a leader. And shivers run through the White House, the Pentagon, West Point and the Joint Chiefs of Staff. A disruption to the flow of Taiwanese semiconductors to the US will have the most severe financial and political consequences to the US – and to the world.
Am I exaggerating the current dangers? I have done my homework and recent articles and videos from the Financial Times validate my conclusions. A flare up around Taiwan can bring the world to the brink of war. The US is that vulnerable.
NEXT POST – DOES CHINA WANT WAR?