Lai Ching-te, who won Taiwan’s presidential election last Saturday, will face a crossroads in the country’s tech industry when he takes office in May.
Lai’s administration will be the third term of Taiwan’s Democratic Progressive Party rule and is widely expected to continue the work of his predecessor, Tsai Ing-wen, when it comes to supporting one of the country’s biggest economic drivers and most valuable exports. : its semiconductor industry. But Lai has spoken several times about Taiwan’s chips without laying out specific policies, and he may need to adjust as the industry becomes increasingly vulnerable to geopolitics.
Lai has too pledged to create 20,000 new jobs within five years, but has given few details on how he plans to achieve it. Lai made passionate comments about Taiwan’s chip industry after his victory on Saturday that appeared to make it clear that his government’s main technology focus will be on semiconductors. This makes sense, given their great importance to Taiwan and the global chip supply chain. For example, TSMC alone accounts for 60% of global foundry capacity. Taiwan’s semiconductor industry boosts the global standing of the country, a small island with a population of 23 million. And specifically, the prosperity of Taiwan’s economy is closely intertwined with the performance of the semiconductor industry.
In his acceptance speech Lai said it will “continue to help the development of the semiconductor industry.” adding that this would also benefit the global economy.
Lai’s mention of Taiwanese brands was enough give a boost to chip stocks. He particularly emphasized TSMC’s importance to the world, which was applauded by Albright Stonebridge Group partner and head of technology policy Paul Triolo.
“The big thing was that it was the focus of his speech, and I’ve been arguing this for a long time, that Taiwan and TSMC are global assets,” Triolo said.
There is a preponderance that Lai is willing to enact policies favorable to the semiconductor industry rather than just talk price lists. While serving as mayor of Tainan in southern Taiwan, Lai helped set up a TSMC factory in a science park;.
But what can Lai really do for the semiconductor industry? Taiwan has provided TSMC and other companies with tax subsidies and other benefits, but it is starting to lag behind other countries that provide more generous funding and tax breaks. SemiAnalysis chief analyst Dylan Patel said Lai is expected to continue to provide chip companies with subsidies and favorable treatment under Taiwan’s environmental protection laws. At the same time, however, Taiwan is now playing catch-up with places like the European Union, Japan, South Korea and, of course, China. Patel notes that the US has allocated $52 billion to the chip industry, while China subsidizes semiconductors to buy tools and apartment buildings for their workers.
In Taiwan, there is the advantage of a lower tax burden, but “that’s about it,” says Patel. “There is nothing like the US and China have enacted and you are fighting with your hand tied behind your back,” since Taiwan is a small country with a small economy.
Another obstacle is that although the semiconductor industry is important to Taiwan’s economy, most people do not work in it. Lai has to keep them happy by spending on other domestic issues, especially since he didn’t win with a strong mandate (Lai got 40% in a three-way race with the Kuomintang’s Hu Yu-yi and the Taiwan People’s Party’s Ko Wen je) .
“Most people in the country don’t work in the semiconductor industry, even though it’s the lifeblood of the economy,” says Patel. “So obviously it’s not going to be popular, especially for the kind of disgruntled people who gave the DPP that margin of victory. I think it’s going to be very difficult for them to put serious money into the semiconductor industry.”
Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology,” also believes that Taiwan’s government is not going to win the concession race.
“It’s very difficult to win a subsidy fight with the Chinese government, so ideally you wouldn’t go that route. Taiwan has a much smaller economy, so it’s even more difficult,” he says. But one benefit that Taiwan has is lower costs, not only because of wages, but also because of how its infrastructure and ecosystem has been developed.
One way Lai’s management can help is to nurture semiconductor talent. “It’s a combination of education. Do you have the right programs at universities and then the right internship routes from students to companies? And those are two things that governments can focus on,” says Miller.
On the geopolitical front, Lai will be dealing with a lot when it comes to brands.
“The complication here with Taiwan semiconductors is that you have the industry, the global supply chain issue, and then the geopolitical overlay of the US-China conflict, the US-China technology competition, the US-China-Taiwan relationship,” he says Triolo. “Understanding all these things together is important. I think Lai is uniquely placed here because of his background. He seems to really understand it more. He seems to have a very deep understanding of this because he has been in positions before supporting the industry.”
In an August 2023 interview with Bloomberg, Lai said that welcomed TSMC’s expansion, which has fabs in Taiwan, the US and China, among other countries, and would not prevent the chipmaker from building more facilities overseas if elected. His reason was that Taiwan’s chip industry has a “responsibility to give back to the international community,” but this may ease concerns about the international tech industry’s reliance on TSMC’s facilities in Taiwan.
The concentration of chip production in Taiwan has become a political issue, both outside and inside Taiwan. Before construction began on the TSMC plant in Arizona, there it was controversy like some Taiwanese he saw it as an attempt to move Taiwan’s semiconductor industry away from the island.
As the fab nears completion, Triolo says TSMC, and by extension Lai and the Taiwanese government, may face pressure from the US government to build more advanced hubs in Arizona.
“They’re already working at two nanometers and below, and so there may be a lot of political pressure for TSMC to at least do some advanced node manufacturing, and that’s going to be very difficult,” he says. Triolo also notes that TSMC’s Arizona fab ran into problems due to cultural differences, finding skilled local contractors and large unexpected cost overruns.
“I think a more valid criticism is whether this is a distraction for TSMC and needs a lot of attention,” he says. “Ultimately, it will probably be very difficult to make these facilities profitable and operate commercially. I think that’s a more valid criticism than if the industry is going to be destroyed [in Taiwan]so Lai will have to look at the offshoring of TSMC’s facilities and decide how much the government wants to allow.”
Proponents of building TSMC fabs in more countries often cite the risks of having most of the world’s chip production in one place, especially when Taiwan is prone to natural disasters like earthquakes and potentially vulnerable to attacks from China.
“There’s a lot of sensationalism, but I think the basic concern is valid,” Miller says. “Some of the biggest technology companies in the world, such as Apple, operate at TSMC. There could be a really bad earthquake in Taiwan, so I think it makes a lot of sense to want a more diversified footprint.”
The Lai administration also has to deal with the ongoing decoupling of China and the U.S. technology industries, driven in part by U.S. sanctions against China over chips. Taiwan’s government has also taken measures such as those set by the National Security Council to reduce leaks to China about important technologies, including semiconductors.
Miller says China’s chip industry will become stronger because of the money China has invested in the chip industry over the past decade.
“It has big implications for Taiwanese companies because China has no intention of buying Taiwanese products in places where China can produce comparable technology,” Miller says. “Taiwanese companies need to make sure they stay well ahead of Chinese companies. This is a challenge because China is a capable economic competitor, so it is a constant challenge for Taiwanese companies in both chip manufacturing and chip design.”
On the other hand, Patel believes that China is still effectively blocked from advanced brands. “Taiwan must continue to maintain this monopoly that it has in the market,” he says.
Despite the challenges facing Taiwan’s semiconductor industry, Triolo notes that its international recognition has grown significantly since Tsai took office eight years ago. This was partly due to the semiconductor shortage that started during the pandemic, but also because people became more aware of the concentration of the industry in Taiwan. It was especially important for Lai to talk about Taiwan’s semiconductors after the victory because of their geopolitical importance.
“It’s not just a local problem. It’s not just an Asian problem,” he says. “He’s interested in the world. I think it’s very important that he said that in his speech.”
