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Initially, nothing predestined this small representative democracy with a semi-presidential regime to become one of Asia's greatest economic powers. However, its vitality, technological prowess, and constant innovation in numerous fields have allowed Taiwan to become the strategic pivot of the Asia-Pacific region. Its technological genius and geostrategic position give this small island of 23 million inhabitants, located southeast of mainland China, a unique advantage in the world and draw the attention of both Beijing and Washington. The recent visit by U.S. House Speaker Nancy Pelosi—the highest-ranking U.S. official to visit since Newt Gingrich in 1997—only further deteriorated the already strained Sino-American relations. In response to this visit, considered a hostile foreign intervention in Chinese internal affairs, China suspended all cooperation with the United States on climate change and several other areas. In Beijing's eyes, Taiwan is a separatist province that belongs to the People's Republic of China, and any attempt to challenge the "One China" principle—established in the late 1940s—is perceived as a threat to its sovereignty and territorial integrity.
The Taiwan Strait: A Vital Maritime Artery
In January 2010, the Obama administration's resumption of arms sales to Taiwan for $6.4 billion and the increased naval presence of NATO countries in Asia marked a shift in U.S. strategy in the region.
On September 15, 2021, Australia, the United States, and the United Kingdom announced the establishment of a new trilateral military alliance known as 'AUKUS' (an acronym for Australia, United Kingdom, and United States) to counter China's expansionism in the Indo-Pacific. For the United States, the goal is to maintain regional military superiority and curb China's hegemony, which runs contrary to its interests in the region. Taiwan—and particularly its strait—is at the heart of the American strategic pivot in the Western Pacific. The Taiwan Strait is not just any strait; it is a vital maritime artery for international trade. This highly strategic strait is part of the South China Sea and connects it to the East China Sea to the northeast. The Taiwan Strait is a crucial passage for the main maritime trade flows linking Europe, the Middle East, and the major ports of China, Korea, and Japan.
Disrupted by the pandemic, destabilized by the Russo-Ukrainian war, and recent military maneuvers organized by China around Taiwan, global maritime freight is facing one of the greatest crises in shipping history.
As manufacturing activity continues to contract in China, other factors are exacerbating this crisis: catastrophic weather—the heaviest rains in China in a century—and labor shortages... The duration of container voyages has now been extended by several days.
The global economy has never been more dependent on the sea and its straits, and free passage and the absence of blockages on maritime routes are more vital than ever. While most maritime oil traffic (85%) passes through the straits of Hormuz, Malacca, Bab-el-Mandeb, Suez, and the Bosphorus, 48% of the 5,400 container ships in operation worldwide transited through the Taiwan Strait in 2022, according to data compiled by Bloomberg. Because the Taiwan Strait is one of the most strategic axes in the world, the outbreak of war in the region would have catastrophic consequences for maritime transport and the global economy.
The Chip Wars Have Already Begun
The semiconductor industry has not escaped the rising Sino-American rivalry, with numerous Chinese companies—Dji, Huawei, Hikvision, Semiconductor Manufacturing International Corporation (SMIC)—being placed on the Entity List, preventing any American company from collaborating with them. By targeting the giant Huawei and more broadly China with a battery of sanctions, including those related to access to American technologies, particularly next-generation semiconductors designed in the United States, the Americans are outlining their new geo-techno-political doctrine. The semiconductor industry, at the center of global geopolitical and economic stakes, is where Sino-American tensions crystallize.
China, the United States, and Taiwan—the world's largest consumer, leading producer, and undisputed leader of semiconductors smaller than 7 nanometers (nm), respectively—play a central role in the geopolitics of chips. The demand for this new "black gold" has increased significantly in recent years due to the heightened digitization of the global economy. This market alone could be worth over $1 trillion by 2030. The geopolitical context, inflation, and especially the COVID-19 pandemic have significantly weakened American and Asian supply chains, highlighting their importance in modern economies.
100% of the world's most advanced semiconductor manufacturing capacity (less than 10 nanometers) is currently located in Taiwan (92%) and South Korea (8%).
An essential component of electronic devices in communications, computing, healthcare, military systems, transportation, and renewable energy, semiconductors—also known as integrated circuits or microchips—are made from pure elements, usually silicon or germanium, or compounds such as gallium arsenide. In a process called doping, small amounts of impurities are added to these pure elements, causing significant changes in the material's conductivity. Some of these raw, unprocessed minerals—also called rare earths—form the upstream value chain of semiconductors and are primarily produced in China. Indeed, China dominates this sector with nearly 75% of global rare earth production and concentrates the majority of processing and separation plants. To consolidate its dominance, or even strengthen it, China established the sector giant China Rare Earth Group in December 2021, born from the merger of major national operators (China Minmetals Rare Earth, Chinalco Rare Earth & Metals, and China Southern Rare Earth Group). This new giant controls more than 62% of local production and dominates the global market alongside the other Chinese giant, Aluminum Corp of China, and Australian behemoths: Lynas Rare Earths Ltd., Arafura Resources Limited, and Iluka Resources Limited.
In 2019, amid the trade war between Beijing and Washington, Xi Jinping publicized his visit to a rare earth processing plant to highlight China's strategic advantage in precious metals.
In recent years, global giants have embarked on a veritable race for power and the miniaturization of chips. The explosion of R&D costs has led to spectacular advances, with microprocessors that once contained 4,000 transistors now housing nearly 80 million on the same surface... TSMC— the crown jewel of Taiwan's economy and Asia's largest market capitalization ($440 billion), ahead of Tencent—dominates the field of miniaturization with 92% of global semiconductor production below 7 nanometers (nm). TSMC also announced the production of semiconductors smaller than 2 nm by 2025.
At the center of all desires, TSMC is today the most strategic company in the world. More than ever, Taiwan has become the central issue around which the new Sino-American Cold War is being shaped.
By imposing sanctions against several Chinese tech companies, Washington has encouraged China's rise in the semiconductor industry. Already far ahead in artificial intelligence and fintech, China harbors great ambitions for technological hegemony.
In recent years, China's semiconductor sector has benefited from massive support for the electronic components industry through the creation of the National Integrated Circuit Industry Fund, better known as the Big Fund due to its size.
To aim for self-sufficiency, Beijing has implemented a favorable regime in terms of taxation and intellectual property. Aware of China's unstoppable rise and the need to strengthen American semiconductor supply chains, on February 4, the U.S. Senate passed the U.S. Innovation and Competition Act (USICA) in June 2021, a vast competitiveness legislation.
The U.S. House of Representatives voted Thursday to approve subsidies for domestic chip manufacturing and accelerate scientific research, with the adoption of the $280 billion CHIPS and Science Act. About $52 billion of the spending bill—known as the CHIPS Act—will be devoted to building semiconductor manufacturing facilities on American soil.
While Europe lags far behind China and the United States, the old continent has two gems: British ARM and especially Dutch ASML, a leader in photolithography machine manufacturing for the semiconductor industry. By leveraging the power and expertise of these two international champions, investing massively in R&D, and attracting the best talents in the field, Europe can hope to create an offering commensurate with the stakes, provided it gives itself the means. The vast plan unveiled by Brussels last January, with 42 billion euros of public investment in the semiconductor industry by 2030, seems to be a step in the right direction, though it may not be enough given the significant lag behind China and the United States.
This semiconductor crisis comes against the backdrop of a health crisis, global inflation, a general questioning of globalization's benefits, and the decline of Western industrial activity.
A Revenge on History
The normalization of relations between the United States and China, initiated by Richard Nixon and Mao Zedong, now seems a distant memory. While no one can predict whether a war will break out between the dominant power and the rival rising power aspiring to dominate the former, the consequences of a military conflict would undoubtedly be catastrophic for both sides and the rest of the world. While all comparisons are risky—given how different the situation is—the Thucydides Trap, inspired by the Greek historian's account of the Peloponnesian War between Sparta and Athens from 431 to 404 BCE, teaches us an essential lesson: in our historically tragic past, the rapid rise of any new power has resulted in war in 11 out of 15 cases since 1500, as American political scientist Graham Allison reminds us.
On July 1, 2021, the Chinese Communist Party celebrated its 100th anniversary. On this occasion, President Xi Jinping, from Tiananmen Square in the heart of Beijing where Mao Zedong proclaimed the founding of the People's Republic, pledged to reunify Taiwan with China in front of a crowd gathered for the event. Xi Jinping often recalls that China has a long memory, frequently referring to the two Opium Wars fought in the 19th century by Western powers, which are felt as a national humiliation.
The new Chinese nationalism is fueled by a strong sense of revenge against the West, guilty of having once invaded Chinese coasts before imposing unequal treaties on the Middle Kingdom. Because China seeks to avenge its history, Xi Jinping has made the conquest of Taiwan a goal that, as he declared, cannot be postponed "from generation to generation."
Sources:
2021 State of the U.S. Semiconductor Industry - Semiconductor Industry Association (semiconductors.org)
China Rare Earth Group au cœur du marché mondial des terres rares - Consommation & Société (consommationetsociete.fr)
Minmetals plans rare earths restructuring with Chinalco, Ganzhou - CGTN
16 - Les guerres de l’Opium | Cairn.info
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