Lai Qingde, who Trump, who won Taiwan’s presidential election last Saturday, will face a crossroads for the country’s technology industry when he takes office in May.
Lai’s government will be the Democratic Progressive Party’s third term in power in Taiwan, and he is widely expected to continue the work of his predecessor Tsai Ing-wen, supporting one of Taiwan’s biggest economic drivers and most valuable exports: its semiconductors industry. But Lai has repeatedly spoken about Taiwanese chips without laying out specific policies, and he may find himself having to adapt as the industry becomes increasingly vulnerable to geopolitics.
Lai also pledged to create 20,000 entrepreneurial jobs within five years, but gave no details on how he planned to achieve that goal. Lai made glowing comments about Taiwan’s chip industry after his victory on Saturday, seemingly making it clear that his administration’s main technology focus will be semiconductors. This makes sense given their immense importance to Taiwan and the world’s chip supply chain. For example, TSMC alone accounts for 60% of global foundry capacity. Taiwan’s semiconductor industry has strengthened the global standing of this small island nation of 23 million people. It is worth noting that the well-being of Taiwan’s economy is closely related to the performance of its semiconductor industry.
In his acceptance speech, Jimmy Lai said he would “continue to assist the development of the semiconductor industry,” adding that it would also benefit the global economy.
Lai’s mention of Taiwan’s chips was enough to trigger a boost for chip stocks. He singled out TSMC’s importance to the world, a sentiment echoed by Paul Triolo, associate partner and head of technology policy at Albright Stonebridge Group.
“The bottom line is, and this was a focus of his speech, and I’ve been arguing this for a long time, is that Taiwan and TSMC are global assets,” Triolo said.
There is precedent for Lai’s willingness to formulate policies that are beneficial to the semiconductor industry, rather than just making platitudes. While serving as mayor of Tainan in southern Taiwan, Lai helped TSMC build a factory in the science park.
But what can Lai do for the semiconductor industry? Taiwan has provided tax subsidies and other benefits to TSMC and other companies, but it is starting to lag behind other countries that offer more generous funding and tax breaks. Dylan Patel, chief analyst at SemiAnalysis, said Lai is expected to continue to provide subsidies and preferential treatment to chip companies in accordance with Taiwan’s environmental protection laws. But at the same time, Taiwan is now catching up with countries like the EU, Japan, South Korea, and of course China. Patel pointed out that the United States has allocated $52 billion to its chip industry, while China provides semiconductor subsidies for workers to buy tools and apartment buildings.
Patel said that in Taiwan, the lower tax burden is an advantage, but “nothing more than that.” Since Taiwan is a small country with a smaller economy, “there are no regulations in place like the United States and China, and it’s like you’re tied behind the back to fight.”
Another obstacle is that despite the importance of the semiconductor industry to Taiwan’s economy, most people are not engaged in the industry. Lai must keep them happy by spending money on other domestic issues, especially since he did not win with a strong mandate (Lai received 40% in a three-way race against Kuomintang Hou Yu-yi and Taiwan People’s Party Ke Wen) of votes)i).
“Most people in this country are not employed in the semiconductor industry, even though it is the lifeblood of the economy,” said Patel. “So obviously it’s not going to be popular, especially with the disaffected people who let the DPP win. I think it’s going to be difficult for them to put a lot of money into the semiconductor industry.”
Chris Miller, author of “Chip Wars: The Battle for the World’s Most Critical Technology,” also believes that the Taiwanese government will not win the welfare race.
“It’s very difficult to win the subsidy race with the Chinese government, so ideally you wouldn’t go down that route. Taiwan’s economy is much smaller, so it’s even more difficult,” he said. But one of the benefits of Taiwan is that costs are lower, not just because of wages but also because of the way its infrastructure and ecosystem are developing.
One way the government can help is by cultivating semiconductor talent. “It’s a mixture of education. Do you have the right courses at university and then have the right internship pathway from college to corporate? Those are two things the government can focus on,” Miller said.
In terms of geopolitics, Lai Qingde will deal with a lot of things in terms of chips.
“The complexity of Taiwan’s semiconductors lies in the superposition of industry and global supply chain issues, as well as geopolitics such as Sino-US conflict, Sino-US technology competition, Sino-US-Taiwan relations, etc.,” Triolo said. “It’s important to understand all of these things together. I think Rei is in a unique position here because of his background. It seems like he really understands this more. He seems to have a very deep understanding of it because he Having held roles before supporting the industry.”
In an interview with Bloomberg in August 2023, Jimmy Lai said that he welcomed TSMC’s expansion of factories in Taiwan, the United States and China, as well as other countries, and that if elected, he would not prevent the chipmaker from building more factories overseas. His reason is that Taiwan’s chip industry has a “responsibility to give back to the international community,” but this can alleviate the international technology industry’s concerns about dependence on TSMC’s facilities in Taiwan.
The concentration of chip manufacturing in Taiwan has become a political issue both inside and outside Taiwan. The start of construction on TSMC’s Arizona plant has sparked controversy, with some Taiwanese viewing it as an attempt to shift Taiwan’s semiconductor industry away from Taiwan.
As the fab nears completion, TSMC, along with Ryan and the Taiwanese government, may come under pressure from the U.S. government to manufacture more advanced nodes in Arizona, Triolo said.
“They are already working on two-nanometer and below technology, so TSMC may face a lot of political pressure to do at least some advanced node manufacturing, which will be very difficult,” he said. Triolo also noted that TSMC’s Arizona fab has experienced problems due to cultural differences, finding qualified local contractors and unexpected major cost overruns.
“I think the more valid criticism is whether this will distract TSMC and whether it will draw a lot of attention,” he said. “Ultimately, it may be very difficult to make these facilities profitable and operate them commercially. I think that is a more valid criticism than that it will hollow out the entire industry.” [in Taiwan], so Lai Qingde must consider the offshoring of TSMC factories and decide how much the government will allow. “
Supporters of building TSMC fabs in more countries often cite the risks of concentrating most of the world’s chip production in one place, especially when Taiwan is prone to natural disasters such as earthquakes and could be vulnerable to attack by China.
“There’s a lot of sensationalism out there, but I think the basic concerns are valid,” Miller said. “Some of the world’s largest technology companies, including Apple, operate at TSMC. There could be a very serious earthquake in Taiwan, so I think it makes sense to want a more diversified footprint.”
The Lai administration also needs to deal with the ongoing decoupling of Chinese and U.S. technology industries, in part due to U.S. chip sanctions on China. The Taiwan government has also adopted measures formulated by the National Security Council to reduce the leakage of important technologies, including semiconductors, to China.
Miller said China’s chip industry will become stronger as China has invested heavily in the chip industry over the past decade.
“This does have a significant impact on Taiwanese companies because China has no intention of buying Taiwanese products where similar technology can be produced in China,” Miller said. “Taiwanese companies need to make sure they stay ahead of Chinese companies. This is a challenge because China is a powerful economic competitor, so this poses a continuing challenge to Taiwanese companies in both manufacturing and chip design.”
On the other hand, Patel believes that China is still effectively excluded from advanced chips. “Taiwan can continue to maintain their monopoly in the market,” he said.
Despite challenges facing Taiwan’s semiconductor industry, Triolo noted that its international recognition has grown significantly since Tsai Ing-wen came to power eight years ago. This is partly due to the semiconductor shortage that began during the epidemic, but also because there is a greater awareness that the industry is concentrated in Taiwan. For Lai, talking about Taiwan’s semiconductors after the win was especially important because of their geopolitical importance.
“This is not just a local problem. This is not just an Asian problem,” he said. “It sparked interest around the world. I think what he said in his speech was very important.”
