The TSMC Saga: US Ambitions to Outcompete China in Semiconductor Domain Face Setback

By IMRAM KHALID | Gwadar Pro Jul 29, 2023

Editor's Note: The writer is a freelance columnist on international affairs based in Karachi, Pakistan. The article reflects the author's opinions and not necessarily the views of Gwadar Pro.

In a surprising twist of events, US President Joe Biden's ambitions of bolstering domestic chip production – to outcompete China - have encountered a setback. Last week, Taiwan Semiconductor Manufacturing Company (TSMC) dealt a substantial blow to Washington's plans by revealing a delay in the production from its cutting-edge Arizona plant until 2025, attributing the setback to an acute shortage of skilled workers.

Taiwan Semiconductor Manufacturing Company (TSMC) now grapples with unexpected challenges on American soil. The much-anticipated unveiling of TSMC's Arizona chip foundry, initially scheduled for a debut in late 2024, now finds itself adrift amidst a tempest of considerable delays. The repercussions of this disconcerting delay are nothing short of portentous, especially at a moment when we are witnessing unprecedented surge in investment in the realm of artificial intelligence. As a vanguard supplier of AI chips, TSMC's delay casts an ominous shadow over the Biden administration's frantic efforts to rapidly expand the domestic chip industry within the United States.

In a move that bears the unmistakable stamp of political strategy rather than a purely business-driven endeavor, the Trump administration's announcement of the plant signified a clear intention to secure America's grip on the intricate web of global semiconductor supply chains. The overarching objective was designed to consolidate the United States' influence in this critical sector. To achieve this ambitious goal, the US deftly employed a two-pronged approach. Firstly, it exerted substantial pressure on major chip companies, compelling them to establish a presence on US soil. Secondly, Congress threw its weight behind the initiative, providing extremely generous financial subsidies to TSMC and other players from Japan and South Korea to construct semiconductor foundries in the US.

However, owing to some congenital defects in the planning, the long-term viability of this plan amidst the intricacies of the supply chain of semiconductor market remained a subject of scrutiny and debate. As TSMC grapples with the delays at its Arizona chip foundry, its approach appears to involve cost-cutting measures and an influx of workers from Taiwan. According to the media reports, TSMC acknowledged in June that the exact count of additional workers headed there is yet to be determined, asserting that their presence will be temporary.

This strategic maneuver aims to navigate the challenges and move towards resolving the pressing timeline issues in their chip production venture. “While we are working to improve the situation, including sending experienced technicians from Taiwan to train the local skilled workers for a short period of time, we expect the production schedule of N4 process technology to be pushed out to 2025,” said TSMC chairman Mark Liu in a recent media talk. This highlights the inherent flaw in Washington's hurried efforts to establish semiconductor foundries in Arizona without adequate consideration of the project's feasibility.

A supply chain comprises a network of interconnected businesses operating in close proximity to one another, collaborating to provide various related products and services. For optimal efficiency and cost-effectiveness, strategically situating the semiconductor foundry within a well-connected and accessible area would have been a wiser choice. Being in close proximity to suppliers, skilled labor, and transportation hubs enables streamlined operations, reduced logistical expenses, and improved responsiveness to market demands. In their fervent quest to outcompete China, American policymakers disregarded the fundamental principles of supply chain management in pursuing this project.

As a consequence, they now grapple with the fallout. TSMC finds itself compelled to send skilled workers from Taiwan, while reports also suggest that the American workforce is embroiled in disputes with the management over salary and compensation-related matters. The rush to snub China seems to have overshadowed crucial considerations, leaving the project facing significant challenges on multiple fronts. In a display of conspicuous defiance to business logic, TSMC overlooked the geographic realities of their supply chain and ventured into an Arizona production facility.

The decision, devoid of any practical business or cost-based rationale, is intrinsically political. Despite the enticing promise of hefty subsidies from the US, TSMC's troubles bear witness to the flaws in this approach. With Arizona situated far from the epicenter of the global supply chain, cost efficiency is non-existent.

Moreover, the absence of specialized semiconductor talent in the region has caused massive problems. At the same time, the dearth of aggregated supply chain elements further escalates expenses, culminating in a pricier and less competitive process overall. The TSMC saga exemplifies the pitfalls of hasty, politically motivated decisions by Washington.

Unlike China, which boasts established industrial capacity, seamless regional supply chain integration, and abundant local talent, America's approach appears ill-conceived. This rush to outcompete China in the realm of semiconductors may lead to an unprofitable, inefficient, and costly semiconductor supply chain. Washington's ill-advised projects are now facing the repercussions of their allure to snub China.

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