The Riddle of American Chip Dependency: Why the US Relies on TSMC

The question of why the US relies heavily on Taiwan Semiconductor Manufacturing Company (TSMC) for advanced chip manufacturing is a complex one, rooted in economic, policy, and technological realities. This riddle is often romanticized and oversimplified, painting an image of a nation that can no longer produce its own advanced chips due to a lack of discipline and effort. In reality, there are deeper underlying factors at play.

Why the US Relies on Foreign Manufacturers

It’s a common analogy to describe the US’s reliance on foreign countries for everyday items like toilet paper, diapers, and even cheese. This analogy is, admittedly, an overstatement, but it does highlight a fundamental issue: the US, despite its technological prowess, often depends on other nations for specialized manufacturing processes. This is no less true for the semiconductor industry, where the US is heavily reliant on TSMC, a Taiwanese company, for advanced chip fabrication.

The core reason lies in the intricate nature of chip manufacturing. Unlike designing computer chips, which the US is proficient in, the actual manufacturing process is painstakingly demanding. It requires immense precision, industrial scale, and a sustained level of skill that are hard to meet within the US. As one commentator humorously put it, the quality of work in such manufacturing necessitates discipline—a trait hard to find in a nation known for its more leisurely lifestyle.

Lack of Domestic Manufacturing Capabilities

One key point is that the US does not possess the technology to produce cutting-edge chips domestically. Instead, it has expertise in designing these chips. This means that even leading US technology firms must rely on TSMC to fabricate their designs. The technological gap between design and manufacturing is significant, reflecting the specialized nature of semiconductor fabrication.

Economic and Financial Constraints

The financial reality also plays a critical role. Building state-of-the-art semiconductor fabrication facilities (fabs) can cost anywhere from $20 billion to $50 billion. These investments require a long-term commitment that spans multiple years, aligning with the innovative yet speculative nature of the semiconductor industry. American investors, heavily influenced by quarterly earnings reports, often find such substantial and extended investments unappealing. The traditional American financial focus on shorter-term returns clashes with the long-term investments necessary for semiconductor manufacturing.

Labor and Engineering Challenges

Another significant challenge lies within the domestic labor market. The US lacks the requisite number of skilled engineers and labor for advanced semiconductor manufacturing. Even those few who are available may not be willing to work the grueling, 24/7 shifts required. American semiconductor companies have struggled to keep up with the technological advancements in this field, as highlighted by Intel’s past failures in catching up with TSMC. The manufacturing process is both complex and labor-intensive, a challenge that many Americans are not willing to embrace.

Global Strategies and Competitive Advantage

The situation is further influenced by the driven and strategic economic policies of countries like Taiwan. As an advanced but resource-limited nation, Taiwan realized early on that the best path to economic success was to become a leader in technology. With a focus on the semiconductor industry, Taiwan managed to achieve an advantageous position. Located in Asia, Taiwan benefits from low labor costs and a ready supply of trained engineers from nearby countries such as Thailand, Indonesia, and Malaysia. This disrupts the labor cost dynamics that US semiconductor companies face in maintaining fabs within their own borders.

Taiwan’s strength also lies in its existing industrial capacity. Local expertise and years of experience in the semiconductor industry provide a significant edge over foreign competitors in terms of cost and efficiency. This has enabled TSMC to maintain its position as the world leader in advanced chip manufacturing, despite the technological and financial hurdles.

In conclusion, the US’s heavy reliance on TSMC for advanced chip manufacturing is a multifaceted issue. It involves a combination of the specialized nature of the manufacturing process, economic and financial constraints, and a lack of domestic support and willingness in the labor market. Moreover, the strategic focus and cost-effective approach of countries like Taiwan have significantly influenced the global semiconductor landscape. While the US remains a leader in chip design, it must address these challenges to become more self-reliant in the production of advanced chips.