Supply chain networks in the Indo-Pacific are being selectively reconfigured and diversified away from China due to black swan events such as the COVID-19 pandemic and the risk of arming sensitive technologies, supply chains and rare earth materials.
Semiconductors were of particular note, as was Taiwan Semiconductor Manufacturing Co (TSMC). Given its dominant position, which produces 92 percent of the world’s most advanced (10 nanometers or smaller) chips, and after the COVID-19 pandemic exposed vulnerabilities and bottlenecks in the chip supply chain, TSMC suddenly found itself in the midst of a technology rivalry between the US and China in the spotlight .
In its attempt to diversify out of China, TSMC has considered Kaohsiung in southern Taiwan as a new manufacturing hub.
On August 8, TSMC and the Kaohsiung City Government held a groundbreaking ceremony at the Nanzih Technology Industrial Park where the new plant will be built.
Visits by President Tsai Ing-wen (蔡英文) and former US Secretary of State Mike Pompeo followed last month to promote Kaohsiung as a new hub for high-tech business investment.
TSMC’s Kaohsiung fab is to produce 7-nanometer and 28-nanometer chips – the latter primarily for the automotive industry and particularly important for German car manufacturers. The chip giant plans to spend $100 billion over several years to expand its manufacturing capabilities in Taiwan, the United States and Japan.
The Nanzih Technology Industrial Park is set to become the core of Taiwan’s southern semiconductor “S Corridor,” a policy priority envisaged by the government of Kaohsiung Mayor Chen Chi-mai (陳其邁) to create a technological industrial cluster to form in Kaohsiung.
The project would connect Tainan Science Park, Renwu Industrial Park, Ciaotou Science and Technology Park and Nanzih Technology Industrial Park in an S-shaped corridor.
Besides TSMC, other big tech companies such as Germany-based Merck Group, Netherlands-based NXP and Win Semiconductors Corp have already been drawn to the area, and the Nanzih Technology Industrial Park is home to Advanced Semiconductor Engineering Inc – Taiwan’s second largest semiconductor company.
With well-established high-tech clusters in Hsinchu and Tainan, Kaohsiung might seem an odd choice for TSMC given its historical reputation as a “Rust Belt City” and industrial hub.
However, factors in the past year have brought Kaohsiung to the fore as TSMC’s preferred location for domestic expansion.
As TSMC already has Fab 18 in the Tainan Science Park, it sought a nearby 300-hectare site for the next phase of its expansion process.
An article in CommonWealth Magazine said the Southern Taiwan Science Park was planning its land expropriation for next year’s expansion, but the bid for the Kaohsiung site came in earlier.
Kaohsiung is also a traditional stronghold for Tsai’s Democratic Progressive Party and Chen.
However, the city’s water supply could be the main reason for choosing TSMC. Last year, Taiwan experienced its worst drought in 56 years, prompting TSMC and other chipmakers to scout for water needed for manufacturing processes, with tanker trucks transporting water from Kaohsiung.
This incident highlighted the challenge that water scarcity poses to the entire semiconductor industry, as TSMC and Intel fabs in Phoenix, Arizona also face similar land and water restrictions.
With TSMC’s entry into the “S Corridor”, Kaohsiung and southern Taiwan are emerging as a critical hub, not only in the global semiconductor supply chain, but also an important logistics center in support of Tsai’s New Southbound Policy for further trade integration in the Indo-Pacific region.
Kaohsiung is also Taiwan’s busiest port and the 15th busiest in the world, ahead of Germany’s Hamburg at 17 and US’s Long Beach at 22. As the “S Corridor” and related tertiary business and service sectors expand, Kaohsiung’s is growing poised to become a major center for trade and logistics in the Indo-Pacific.
Taiwan defense analysts have suggested Kaohsiung port could become a cooperative security site after US bans access to Hong Kong port.
This could work in conjunction with NATO’s quest for cooperative security and expanded partnership roles for Asian nations like Japan and South Korea, and possibly Singapore and Taiwan, given their global leadership in several emerging and disruptive technology sectors.
Although Singapore is not an Asian NATO partner, it has been involved in NATO Science and Technology Organization events. Since Taiwan is a de facto key non-NATO ally, it could potentially engage in similar cooperative security exchanges – particularly in the area of marine technology.
Some US analysts want to go a step further, like Pompeo’s China adviser Miles Yu (余茂春), who suggested expanding the NATO alliance to include the Indo-Pacific states in a broader North-Atlantic Indo-Pacific Treaty Organization ( NAIPTO) to confront an emerging China.
Others, however, express doubts that this would come to fruition.
In an email interview, Alessandro Politi, director of the NATO Defense College Foundation, wrote: “China is not seen by many NATO members as a threat unless it follows Russia’s path in relation to Taiwan,” and certainly not as one Priority while this is the case The Ukraine conflict is ongoing.
“NATO has a very precise geographic definition of its treaty and Article 5 depends on it, even in the case of Kyiv,” he added.
Therefore, the more realistic scenario for enhancing the security of the transatlantic and Indo-Pacific supply chain might not be an expanded NAIPTO military alliance – which would mean decoupling from China – but instead a targeted “high-tech” alliance, as proposed by the former, NATO Secretary General Anders Fogh Rasmussen.
NATO can engage Asian partners in the cooperative security of emerging and disruptive technology sectors while maintaining China’s economic interdependence and selective diversification, as China remains a key trading partner for Taiwan, Japan and other Asian and European countries.
Even Taiwan’s TSMC got an exemption from Washington’s new semiconductor export control rules, allowing it to continue expanding its manufacturing facility in Nanjing, China.
As James Lewis, senior vice president and director of the Strategic Technologies Program at the Center for Strategic and International Studies, said, increasing supply chain diversification and sovereignty “does not mean the end of interdependence, but a greater emphasis on domestic production and regional ones supply chains.”
To this end, Kaohsiung’s role in the ongoing regionalization of the Indo-Pacific high-tech supply chain is likely to continue to increase.
Christina Lin is 2022 Taiwan Fellow at the Ministry of Foreign Affairs and Visiting Scholar in the Department of Asia-Pacific Industrial and Enterprise Management at National University of Kaohsiung. She has extensive US government experience working on Chinese security issues and is the author of the volume “NATO and Asia-Pacific”.
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