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BRUSSELS/TAIPEI — Forget Brussels, London and Washington. For the microchips industry, all eyes are on who grabs the power in Taipei this weekend.
Taiwan is gearing up for its Saturday election — and executives from chips companies are closely monitoring how millions of voters cast their ballots for both the legislature and the presidency.
Over the past decade, Taiwan has become an indispensable part of the global supply chain for microchips, which are used in everything from electric cars to smartphones. In particular, Taiwan dominates manufacturing of the most advanced chips, accounting for more than 90 percent of the global production capacity.
This comes with a disclaimer, however: China sees Taiwan as a breakaway province that will eventually return to Beijing’s fold. In his New Year’s address, Chinese President Xi Jinping said that reunification with the island was “inevitable.”
Saturday’s elections are unlikely to trigger an immediate shift in the global supply of chips. But a victory for pro-independence forces is expected to increase tensions around the island, similar to what happened when former U.S. House Speaker Nancy Pelosi visited Taiwan in August 2022. A more China-friendly vote on the other hand raises questions around the West’s strategy to pull in Taiwanese chips investments and Washington’s efforts to cut China’s access to the most advanced chips technology.
It’s all a painful reminder for some of Europe’s largest companies that deep-seated interdependency with and reliance on Taiwan is now a geopolitical risk.
A tale of two companies
At the heart of corporate links between Europe and Taiwan is TSMC, founded in 1987 and one of the few global players that can churn out advanced microchips (7 nanometers or smaller) on a large scale.
TSMC is one of the “key customers” of Europe’s highest-valued tech company, Dutch microchips printing supplier ASML, the latter noted in its last annual report.
ASML’s chip-printing machines, which became the subject of a U.S.-Chinese tit-for-tat trade war last year, underpin chips hub Taiwan: Taiwanese customers represent 38 percent of the company’s net sales and ASML has two factories on the island.
This means ASML would risk heavy exposure if China deploys military forces in response to the outcome of the Taiwanese elections — something the company has previously acknowledged.
“We have scripts for geopolitical crises,” ASML’s Chief Financial Officer Roger Dassen told POLITICO in January 2023. “And it’s reasonable that [in] Taiwan, but also South Korea, areas where there are geopolitical tensions, we have scripts for that.”
The Taiwanese risk features heavily in ASML’s communications to investors. “Changes in relations between Taiwan and the People’s Republic of China could lead to additional trade restrictions and could impact our employees and the ability to utilize our manufacturing facilities and supply chain in Taiwan for our global customers, as well as our ability to service our customers in Taiwan,” the 2022 annual report read.
The Dutch chips champion is among the companies that have been “betting on peace in the Taiwan Strait” by investing heavily in the area, said Mathieu Duchâtel, director of international studies at the Institut Montaigne. “If there’s a geopolitical crisis in the Taiwan Strait, of course, there will be questions for ASML,” he said.
ASML declined to comment for this article, citing a policy not to comment on elections.
Taiwan’s security dilemma
Since 2021, the European Union has pursued the goal of reducing its chip dependencies, both to fight pandemic-era shortages and because it felt its reliance on foreign hubs like Taiwan were a political and trade risk.
Ironically, even the EU’s aim to reshore some advanced microchips production to the Continent hinges on TSMC: The Taiwanese champion last August announced plans to open a multibillion-euro production facility in Dresden, Germany.
TSMC’s planned Dresden factory is a joint venture with a handful of European champions, including Germany’s Bosch and Infineon and the Dutch NXP. For these partners, it’s critical that TSMC isn’t blocked from trading and investing abroad.
The Dresden factory’s success is also vital for EU politicians, being key to the bloc’s goal of claiming 20 percent of the global microchips value chain by 2030, up from 9 percent now.
Moreover, it’s a sign of closer relations between Taiwan and Berlin. Last March, Germany’s Education and Research Minister Bettina Stark-Watzinger visited the island to speak with her Taiwanese counterparts — science minister Tsung-Tsong Wu and digital minister Audrey Tang — about increased cooperation on chips research and skills.
The Taiwanese firm has been developing an even larger investment in the U.S. state of Arizona worth up to $40 billion (€36 billion) that, despite recent troubles, is expected to be operational in 2025.
But TSMC’s expansion ambitions are not without controversy, even in Taiwan itself.
The chips giant has long been labeled a virtual “silicon shield” that helps deter aggression by Beijing, because China also relies on TSMC for advanced products.
This worries some politicians that Taiwan’s security depends entirely on the world’s reliance on its microchips.
“We’ve been striving for a very fine balance,” said a senior Taiwanese trade official, who was granted anonymity to share the government’s thinking.
“On the one hand, it’s about deepening the West’s connection with Taiwan’s leading company,” the official said. “On the other, we ensure that the most advanced products continue to be researched and developed only in Taiwan.”
Pieter Haeck contributed reporting from Brussels. Stuart Lau contributed reporting from Taipei.
