Taiwan Semiconductor Manufacturing Co. (TSMC) has broken ground its first production site in Europe.
The mentioned factory is located in East Germany. It is worth noting that the European Union is currently demonstrating a very unambiguous and explicit desire to ensure what can be described as technological autonomy or technological sovereignty. Against the background of growing tensions in the space of geopolitical relations, the localization of production facilities is gradually becoming a matter of strategic importance. In this context, it is worth noting that the consistent deterioration of the condition of interaction between the two largest economic systems in the world, including the Chinese and the US, generates various kinds of risks and instability factors for the global supply chain. Moreover, the experience of the coronavirus pandemic indicates that any force majeure situation that is realized at the global level and transforms in the shortest possible time into a prolonged difficult state of affairs, which is a challenge to what can be called the space of international reality, disrupts production and trade relations. In the context of such scenarios, which are not a permanent system of conditions and circumstances, but can still materialize at a certain moment, the importance of technological sovereignty is obvious. The ability of a country to provide a full cycle of production of goods on its own largely determines its economic potential and corresponding prospects, which, among other things, have a significant impact on the position of a particular capital in the geopolitical system, and the internal social system. From this point of view, the European Union’s desire to build manufacturing sites is logical and corresponds to the specifics of reality in the production aspect of its economic dimension.
Besides, it is worth noting that chip-making is currently a critically important industry. Nowadays, microcircuits are used in many products. Chips are necessary to ensure the functioning of gadgets, which are already de facto what can be described as a tool for constant human interaction with the digital environment that forms in a sense a virtual dimension of that aspect of life, which is traditionally called everyday life. However, in the relevant context, the most important thing is that chips are necessary to train and ensure the process of subsequent functioning of artificial intelligence systems. AI is gradually becoming the main technology at the current stage of the development of human civilization within the framework of its progressive evolution in the space of material culture in the broad sense of the corresponding definition. Artificial intelligence also has the potential to become a new means of producing global impact. Against the background of the relevant prospects, the access of a certain country or block of countries to advanced solutions in the AI industry and the ability to develop their own products in this technological plane is very important. The mentioned opportunities will soon most likely determine the economic potential and political position of the states in the context of the paradigm of international relations. There is also another objective reason, which in a certain sense has the character of the problem of the current period on the trajectory of the historical movement of the world as the space of human existence, for the development of chip production on its own territory. In this case, it implies the negative impact of the deterioration of relations between Beijing and Washington on the global industry of making microcircuits. The United States is one of the largest bases for chip developers. At the same time, China has for many years formed and consolidated its status as a global manufacturing center, including for the chip industry. The deterioration of the interaction between these large spaces of science and production for other regions of the world forms a situation of being between two fires. Many companies are already starting to take steps to diversify production outside of China or have similar plans, fearing sanctions from the United States. For example, Apple considers India as an alternative assembly center for its products in Asia. It is also worth noting that US policymakers have limited the supply of advanced chips to China. These measures also relate to the equipment necessary for the production of high-end microcircuits. Washington’s restrictive policy has been joined by some of its allies. It is worth noting that the deterioration of relations between the United States and China continues and so far shows no signs of normalization or partial improvement of the situation in the short term or later, but still at a distance of the foreseeable future. These geopolitical realities increase the importance of technological sovereignty.
Against the background of deteriorating relations with Beijing, Washington is developing domestic chip production. In August 2022, US President Joe Biden signed the Chips and Science Act. This initiative of Washington provides for the allocation of funding for the development of production in the semiconductor industry and research in the corresponding sphere activities. The total amount of government financial injections for the mentioned purposes is approximately $280 billion. Some of the money is provided in the form of subsidies and loans. Last week, it became known that Texas Instruments, a chip manufacturer, will receive $1.6 billion from the US Commerce Department to build three new factories. Moreover, In April the US Commerce Department announced the allocation of a $6.6 billion subsidy to the local TSMC unit.
German Chancellor Olaf Scholz, who attended the ceremony of the start of construction of the Taiwanese manufacturer’s plant in Dresden on Tuesday, August 20, stated the critical importance of semiconductors for technologies of a sustainable future. He also underlined that Germany should not depend on the supply of chips from other regions of the world.
The cost of the plant, which began construction on Tuesday in Dresden, is 10 billion euros ($11 billion). About half of the funding will be provided by government subsidies.
It is worth noting that Germany is currently in kind vanguard of the implementation of large-scale efforts by the European Union aimed at ensuring that by the end of the current decade, a fifth of the global volume of semiconductors is produced in this region. The effectiveness of the specified efforts will partially depend on the success of the United States in developing domestic chip manufacturing and China’s progress in a similar direction.
It is worth noting that Europe’s ambitions in the context of efforts to become a major center for making microcircuits may face limited opportunities. According to many experts, local investment volumes may not be enough to create the infrastructure for the production of a fifth of all chips in the world. Over time the volume of financing may increase, but this is only a hypothetical assumption, the probability of which is not minimal, but also not close to the maximum, given that the situation in the European economy is currently not so optimistic as to generate the possibility of additional large-scale costs. At the same time, investing in the semiconductor industry is strategically important and is likely to bring benefits in the future, but it is very difficult to predict the specific time frame for achieving the corresponding result. Germany is not the only European country with intentions related to the development of chip production. At the same time, in other parts of the region, the materialization of such projects faces various difficulties and obstacles. In this case, the main problem is the insufficient funding. The production of chips requires significant costs. The desire and aspiration alone are not enough to develop the making microcircuits industry. The economic basis is one of the main conditions for success. The lack of internal funds can be compensated by raising investments, but in the context of the mentioned problems of European countries, the implementation of an appropriate solution proved difficult. Moreover, in this case, the absence of a semiconductor ecosystem is another barrier. For example, in 2022, Spain announced its intention to allocate subsidies worth almost $11 billion for the development of semiconductor manufacturing. However, Madrid provided only a small part of the planned amount because of the lack of a semiconductor ecosystem. According to the calculations of the European Commission, the total amount of public and private investments in the EU chip manufacturing area is more than 108 million.
TSMC is currently the world’s largest contract maker of microcircuits. The company manufactures chips for such giants of the technology sector as Apple Inc. and Nvidia Corp. TSMC will anchor the Dresden project and receive a 70% stake in the plant. It is known that the manufacturing of chips for the automotive and industrial sectors will be carried out at this production site.
TSMC chief executive officer C.C. Wei attended the ceremony of the start of construction of the Dresden plant. Moreover, the event was also attended by the President of the European Commission Ursula von der Leyen, and the heads of Infineon Technologies AG, NXP Semiconductors NV, and Robert Bosch GmbH, which each own 10% of the stake of the production site.
Olaf Scholz is currently the largest backer of the semiconductor industry in Europe. He is committed to developing Germany’s technology sector. Olaf Scholz’s goal is also to ensure the supply of critical components for the country’s production sites.
The German government intends to spend 20 billion euros to bolster domestic chip manufacturing. These funds include, among other things, the costs of the TSMC’s project and aid for 10 billion euros for the construction of the Intel Corp. plant in Magdeburg.
Ursula von der Leyen said that the EU authorities approved Germany’s allocation of a subsidy for the building of the factory in Dresden. The amount of this subsidy is 5 billion euros.
The construction of plants like Dresden contributes to the gradual reduction of Europe’s dependence on Asia in the context of technology supplies, which are classified as vital. As for the corresponding German efforts, in this case, an important factor in stimulating appropriate activity was the interest shown by local automakers, including Volkswagen AG and Porsche AG, in increasing chip production in the domestic market. It is worth noting that the automotive sector faced difficulties when, during the coronavirus pandemic, disruptions occurred in the supply chains of microcircuits. This experience has become an example of the vulnerability of an economy that relies heavily on the system of international production and trade interaction, which in a negative sense is very sensitive to various stress factors in the form of unforeseen situations that spread to most countries of the world and limit or stop many processes.
TSMC is currently stepping up efforts to expand its presence abroad. It is worth noting that to a certain extent, appropriate actions are what can be called a response to the challenges generated by the present configuration of geopolitical reality. Currently, there is a tendency of growing tension around Taiwan, where the bulk of the company’s production facilities are located. Diversification in this case is what can be called the tool of risk minimization. Beijing, in the context of the officially declared paradigm of perception of Chinese statehood within the framework of the retrospective direction of the philosophy of history, including in the geographical aspect, identifies Taiwan as its territory and characterizes its territorial belonging as an unambiguous fact based on the dogmas of political realities of past centuries. This position means that there is a high probability that at some point military and forceful actions may be taken against Taipei to finally materialize the mentioned vision. If Beijing makes the appropriate decision, TSMC will face damage that will be very sensitive, both in the context of operative losses and in terms of long-term consequences as part of the impact on the company’s business prospects. Also, a potential armed phase of tension around Taiwan will provoke large-scale disruptions in the functioning of the global supply chain of chips.
At the same time, the mentioned risk does not negate the fact of Asia’s significant potential as one of the world’s largest manufacturing and economic centers. For example, Microsoft characterizes this region as a major market and talent pool. In the spring, the mentioned technology giant announced investments in several Asian countries. Microsoft chief executive officer Satya Nadella has repeatedly made statements about the potential of Southeast Asia in terms of technological development prospects.
This year, TSMC opened its first factory in Japan. The company announced its intentions to build this production site in 2022. At that time, the firm also announced plans to launch the operation of the plant in 2024. Many experts were skeptical about the announced deadlines for the project. As part of a kind of average practice for the semiconductor industry, the construction of the plant takes three years. Although TSMC has experience with what can be called rapid development, its intentions related to activities in Japan were assessed as unlikely in terms of prospects for implementation within the announced time frame. At the same time, the company achieved its goal by demonstrating by example that sometimes what does not coincide with a common tradition or widespread practice can become a reality. It is worth noting that in this case, TSMC interacted with Japan as a previously unknown legal system, which could potentially become a factor complicating the construction process of the plant. The opening of this factory, located in Kumamoto, took place on February 24. It is worth noting that for Japan, the mentioned production site is an important functional element in achieving the goals of technological autonomy. Tokyo is also seeking to develop domestic chip manufacturing amid rising tensions in the plane of geopolitics and in the context of awareness of the experience of the coronavirus pandemic that was witnessed by what can be called the fragility of the supply chain in the face of global challenges.
It is worth noting that in February, even before the opening of its first Japanese factory, TSMC announced its intention to expand its presence in Japan by building a second plant. The company stated that Toyota Motor Corp. will participate in this project as an investor. The second Japanese TSMC plant will be located next to the first production site of the firm in this country. It is expected that the second factory will be put into operation in 2027. Moreover, the media reported that the company is also considering the possibility of building a third plant in Japan.
