US House Speaker Nancy Pelosis’ visit to Taiwan on Tuesday reignited the trade war between China and the United States. Because the territory that seeks greater autonomy from the Chinese is also strategic for the technological development of the two powers.
The island has 23 million inhabitants and is the world market leader for semiconductors. About 54% of the chips produced in the first half of 2022 were manufactured by the Taiwanese company TSMC (Taiwan Semiconductor Manufacturing Company). The dispute over this market, which is important for China and the USA, became even more tense after the congressmen’s trip.
Beijing recognizes the island as part of its territory and has said it opposes Pelosi’s trip. A day after the US representative landed, the Chinese government imposed sanctions on Taiwan and stopped imports of agricultural, fish and citrus products, but did not impose restrictions on the import of chips.
Executives from Taiwanese companies Speedtech Energy (solar energy), Hyweb Technology (technology), Skyla (medical equipment) and SkyEyes (cold chain vehicle fleet management) have been banned from entering mainland China.
In addition, the country has decided to stop exporting natural sand to Taiwan. The government has said further action will be taken if necessary, but has not yet announced what those actions would be.
O power 360 spoke to 2 experts from the semiconductor market:
- Luiz Carlos Kretly, Associate Professor of Electrical Engineering at Unicamp (State University of Campinas);
- Helton Ricardo Ouriques, Professor of Economics at the UFSC (Federal University of Santa Catarina).
Kretly explained that there are two types of companies in the market: fabless or design house and foundries or factories.
Fabless or Design House are companies that design special circuits for semiconductors. Foundries or factories produce the technologies contained in these projects.
The largest chip manufacturer (foundry) is TSMC. In this way, the economic sectors that need semiconductors to manufacture depend on Taiwan.
WHAT ARE SEMICONDUCTORS
Kretly explained that the chips are made of silicon, which is extracted from sand. The raw material goes through a purification process that results in sheets that look similar to glass but are not transparent.
These blades are called wafers and go through a long chain of processes in which the structure of the chips is built according to the design defined by the fabless.
The electrical engineering professor explained that semiconductors are present in people’s daily lives. “It’s hard today to imagine any type of application, even military, that doesn’t rely on semiconductors,” Kretly said.
For example, the GPS present in agricultural machines works with semiconductors. Cars also need technology to be produced, as do electronics, household appliances and smartphones.
“The entire control and safety of an aircraft is based on chips,” explained the professor.
The SIA (Semiconductor Industry Association) 2021 Market Report showed that the computer industry bought $142 billion worth of semiconductors in 2020. Smartphone companies spent $137.6 billion to acquire the chips. The automotive sector, on the other hand, consumed $50.1 billion with the technology. Here is the full text (4MB in English).
The forecast for 2022 is that the semiconductor market will hover around $613 billion.
According to Kretly, the market is going through a technological revolution of “miniaturization” of semiconductors: the goal is to reduce energy costs for manufacturing and increase the processing speed of chips.
There are different sizes of semiconductors. The 3 nanometers are the smallest and most technologically complex available today. Only 3 companies have the technology to manufacture them: TSMC, Intel and Samsung.
TSCM has announced that it will start mass production of 2nm chips from 2025. The technology has higher performance than those available on the market.
According to Helton Ouriques, China has developed a strategy to reduce its dependency on TSMC. But the country is “two generations behind” in technology compared to Taiwan.
The United States also has a project to expand its semiconductor production. On July 28, the US Congress passed the CHIPS Act, providing a $52 billion subsidy to encourage chipmakers to build factories in the country. The proposal was sent to US President Joe Biden for approval.
“There aren’t many foundries in the US that make chips for other companies. This is mainly happening in Taiwan, Japan and South Korea,” Kretly said. The electrical engineering professor explained that Intel is the third largest producer in the world, but manufactures the components for its own production.
THE BATTLE FOR TAIWAN
China and the United States have a long history of “trade wars,” he told the power 360 the Professor of International Relations at UFU (Uberlândia Federal University) Filipe Almeida.
However, the dispute is not limited to the market. It is also a competition for influence, arms, military power and more space in the international system.
China and Taiwan have a complex relationship. The island has been governed independently since 1949, but Beijing considers it part of its territory and a breakaway province. Since 1971, the UN General Assembly has recognized the area as part of China.
The United States has also officially recognized China’s sovereignty over Taiwan since 1972. ThenPresident Richard Nixon resumed diplomatic relations with the Chinese after 23 years of the Chinese revolution that brought the Communist Party to power.
Nancy Pelosis’ visit was the first visit by a member of the US Congress in 25 years.
“China regards Taiwan as part of its territory and uses this type of internal articulation to pursue a ‘zero tolerance’ policy. The question [da Ilha] is not an issue for the Chinese,” he explains.
Biden said the US is okay with the “one China policy,” but the idea that Taiwan could “be taken by force is not appropriate.”
Ouriques also assessed that the development of Taiwan’s economy based on chip production is part of North America’s strategy.
For the electrical engineering professor, Taiwan has become “a scene of technological debates”. Ouriques also believes semiconductor manufacturing involves “geopolitical and economic issues.”
“These are technologies that can be used in the civilian and military environment. By controlling the chips, you can develop more and more advanced products for the defense industry. This is absolutely strategic from a US perspective. control the production of [semicondutores] should be at the forefront of the arms industry. It is in the US interest to deny China access,” said the economics professor.
DEVELOPMENTS
Filipe Almeida said China’s response is under control. Biden and Chinese President Xi Jinping spoke by phone ahead of Pelosi’s visit.
According to the professor, it is possible that there was a hearing about the military exercises. John Kirby, a Pentagon spokesman, went so far as to say that the Chinese government’s response was “as expected.”
He also stressed that the visit was an isolated step that did not have White House approval. “It’s important that this is very clear: Pelosi was the one who started the crisis in this case, not China,” he said.
The annexation of Taiwan is a possibility for the professor: “Nancy Pelosi’s visit could prompt some more definitive measures to solve the problem once and for all [ilha]”, said.
Almeida also said that a scenario in which Taiwan is annexed would lead to sanctions against China.
From an economic point of view, however, these would work in opposite directions due to China’s importance in the North American market and in the rest of the world.
“There would not be many effective tools that could reverse this decision by China in this hypothetical scenario. But we don’t know if that’s on the Chinese agenda. Maybe now after Pelosi’s visit,” he explained.
This report was prepared by journalist interns Júlia Mano and Luísa Guimarães under the supervision of assistant editor Lorenzo Santiago.
correction
Aug 7, 2022 (8:30am) Contrary to what is written in this post, Nancy Pelosi is not at the “highest level of government”. He is President of the Chamber of Deputies, i.e. the legislature. The text has been corrected and updated.