Stronger than Article 5 of the NATO Agreement, US Will Defend Taiwan for Taiwan TSMC Chips?

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Simone Gao: Hello everyone. Welcome to Zooming In China Tea Time. I’m Simone Gao.

In an interview with ABC News on August 19th, President Biden suggested that the U.S. would intervene if the CCP invaded Taiwan. Arguing that the situation in Taiwan was “not comparable” to the one in Afghanistan, Biden said that “We have made, kept every commitment. We made a sacred commitment to Article 5 that if, in fact, anyone were to invade or take action against our NATO allies, we would respond. Same with Japan, same with South Korea, same with Taiwan.”

But there is a problem with Biden’s claim. The agreement between the U.S. and Taiwan is different from the agreements with South Korea, or Japan, or NATO. Under Article 5 in the NATO agreement, an attack on one NATO member is an attack on all. In that context, the U.S. is sworn to stand and defend all other NATO nations. Article 5 does not extend to non-NATO nations, so it does not automatically apply to either South Korea or Japan or Taiwan.

The agreement between the United States and South Korea is the U.S.-Korea Mutual Defense Treaty signed in 1953. Under this treaty, if either South Korea or the United States is attacked in the Asia-Pacific region, the other will provide military assistance. In the nearly 70 years since the signing of that treaty, South Korea has sent military support to assist in most of the major wars America has been involved in. During the Vietnam War, South Korea sent 320,000 troops to assist the U.S. military. For its part, the United States stations nearly 30,000 troops in South Korea as a deterrent to their hostile neighbor to the north.

There is also the Treaty of Mutual Cooperation and Security between the United States and Japan that permits the presence of U.S. military bases on Japanese soil and commits the two nations to defend each other if one or the other is attacked.

In the case of Taiwan, though, the defense commitments offered in the Taiwan Relations Act of 1979 are much weaker. The Act mentions only that "the United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.”

While the Act does say that the U.S. will consider “any effort to determine the future of Taiwan by other than peaceful means…a threat to the peace and security of the Western Pacific area and of grave concern to the United States,” grave concern does not necessarily equal a willingness to go to battle. But while the U.S. is not obligated to send troops in support of Taiwan, there has recently been a very public show of America’s support for Taiwan in the face of mounting pressure from China.

And there is a good reason for that support. Though little talked about in the press, Taiwan is the epicenter of technology manufacturing, especially the hi-tech semiconductor chips that power most of our modern devices. From computers, cell phones and cars to household devices like washing machines and refrigerators, most of today’s devices function through semiconductor chip technology. And most of these chips are produced in Taiwan by the Taiwan Semiconductor Manufacturing Company, or TSMC.

Although TSMC is not the only semiconductor foundry in the world, it is by far the largest. TSMC has a market share of 56% in the global semiconductor foundry market. It manufactures 80% of the world's most advanced semiconductors.

TSMC is also the go-to producer for the silicon powering companies like Apple, Nvidia and AMD. Intel will be contracting through TSMC in 2022 as well, once their 3nm process is fully functional. And because of advances in technology, including 5G technologies, demand has outpaced their ability to produce the needed components, leading to their current two-year backlog on production. TSMC’s manufacturing capacity for all of 2021 and 2022 is already fully scheduled.

To catch up to the climbing demand in the industry they dominate, TSMC has outlined a $100 billion investment plan over the next three years. That plan includes a $12 billion semiconductor wafer production plant in Arizona with the possibility of as many as six new factories in that location over the next 10-15 years. But while production has already begun on the facility, the wafer plant is not expected to be fully operational until 2024.

The U.S. government has come to realize the critical importance of technology pipelines, tying them directly to national security interests. To secure those interests, encouraging manufacturing and production companies to bring their resources to America was critical. And while the first TSMC plant will account for just a small part of their current total production capacity, the U.S.’s $54 billion subsidies are drawing interest from Intel, Samsung and others as well.

Even if these other manufacturers could replace TSMC, even if they had similar technologies, and it would not be possible to immediately transfer production capacity from TSMC to other manufacturers. Each company has unique processes that are incompatible with those of others. It would take years for new manufacturers to complete the redesign necessary to produce TSMC chips.

But TSMC’s top-notch technology is not something that could be replaced by other manufacturers. Many original chip manufacturers were replaced by TSMC because they could not develop these top-notch technologies. In 2018, AMD transferred its chip manufacturing to TSMC in order to be more competitive in the chip market. One of the key reasons AMD has now surpassed Intel is that Intel has been unable to catch up with the 7-nanometer chips produced by TSMC. So, this is more than a question of funding and time. It is also a question of technological ability. And for now, technological breakthrough rests largely in the hands of TSMC.

It is clear that the U.S. needs TSMC, but this is not a one-sided relationship. While TSMC has developed the ability to manufacture these chips, the designs and patents for the chips come from the United States. If the U.S. withdrew their permission to use their technology, TSMC’s business would be paralyzed. We saw an example of this when the U.S. imposed an export ban on China, preventing any chips with American technology from being sold to China which led to substantial losses for Chinese companies, including Huawei.

As we move forward in the fast-paced world of emerging technologies, The U.S. and Taiwan need one another. The U.S. does not have the manufacturing capacity to replace that of TSMC. Taiwanese companies cannot afford to lose access to the technologies of the U.S. This kind of reliance on one another is not any weaker than the bonding force of Article 5 from the NATO agreement.

When I interviewed Keith Krach, former U.S. Under Secretary of State, I asked him if the U.S. intended  to establish diplomatic relations with Taiwan in the later period of the Trump administration. He said that while he could not share the specifics, they had a strategy, which was to encourage the rest of the world to invest in Taiwan and set up factories. In this way, the security of Taiwan would be directly related to the commercial interests of these countries, and they would be more willing to maintain peace in the Taiwan Strait and restrain the CCP.

This pattern was formed because of the existence and relevance of TSMC. Taiwan is not only tied to China and the United States but also has a very important stake in the rest of the world. A loss of TSMC to the control of the Chinese government would mean global economic and communications disruptions. Because the impacts are global, the protections offered to Taiwan need to be global as well. In this way, TSMC can be the sacred mountain for protecting their homeland that Taiwanese people have long claimed it to be.

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