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Is Donald Trump’s White House giving up on trying to create a US national champion in chip manufacturing? And, if so, how can it guarantee a supply of the advanced semiconductors that are likely to play an increasingly important role in its economic and national security?
Those questions loomed large this week after TSMC, the Taiwanese chip manufacturer, promised to increase its investment in US manufacturing by $100bn to avoid punitive import tariffs.
A day later, the US president issued his latest threat to scrap the Biden administration’s Chips Act. The act’s subsidies were intended to bring more chip making to the US and have been of particular importance to Intel, which has manufacturing operations that are chronically uncompetitive.
An end to the Chips Act subsidies would be a loss for TSMC, but it would be a much bigger blow to Intel. That explains the TSMC chair’s relative lack of concern at the prospect: TSMC would still be the most efficient producer around and able to pass any higher costs it faces on to customers.
Meanwhile, in the latest sign of its retreat from an ambitious investment plan intended to put it toe-to-toe with TSMC, Intel has just put back the start of chip production at a giant new plant in Ohio. Many chip industry observers have been wondering about how much extra support the US will need to provide. The idea that it might try to withdraw what it has already promised would be a disaster.
That does not reflect the mood in Washington this week. For a buoyant Trump, the Taiwanese company’s pledge was a clear victory for the president’s favourite political weapon, tariffs. The deal is also likely to please the techies close to his administration, starting with Elon Musk, whose companies rely on AI processors made by TSMC in Taiwan. Bringing more of that production to the US could ensure a more reliable supply.
While potentially a huge shot in the arm, however, the TSMC deal does not resolve a key strategic question: what happens if China moves to take control of Taiwan by force? TSMC’s $100bn promise to the US barely dilutes the company’s overriding dependence on Taiwan. Its cluster of massive chip fabrication plants near Taipei will still produce most of its advanced chips, while its main talent and research base will stay in Taiwan. And it will still play a central role politically as the country’s “Silicon Shield”, in an attempt to deter a Chinese invasion.
There have been other signs, meanwhile, of the Trump White House looking to TSMC to help make up for American shortcomings in chip production. It emerged last month that it had tried to broker a deal that would involve the Taiwanese company taking over management of Intel’s chip fabrication plants, or fabs.
Most chip experts discount this idea. The huge complexity of chipmaking and the different manufacturing processes used by the two companies would make a merger of the fabs “like putting diesel fuel into a gasoline engine”, according to Dan Hutcheson, a veteran chip analyst at TechInsights.
Yet the news was confirmation that the US company has actively considered shedding its manufacturing operations. And if TSMC is not a candidate, it is hard to see who would have the management skills to take on the challenge.
Intel has at least made big strides in closing the gap with TSMC when it comes to manufacturing technology. But there is a gulf between that and manufacturing advanced AI or smartphone chips on behalf of other companies — a service-type business in which it is far behind TSMC.
Trump’s threats to cut subsidies are not new and may be bluster. But if Intel is forced to retrench further — or if its board decides to quit manufacturing altogether — the loss would be felt in more ways than just national security. Big TSMC customers such as Nvidia, Apple and Qualcomm might welcome having the company on American soil, but they would be tied long-term to a monopoly supplier.
An Intel retreat would also jeopardise an important source of technical innovation. As Hutcheson points out, some of the biggest recent advances in chipmaking — like a new transistor design known as gate all around — were invented at Intel before being taken up by TSMC.
A TSMC without serious competition and a US without a national chip champion are not prospects Washington should welcome. As the White House pats itself on the back for bringing more chip fabs to American soil, it should also feel a renewed sense of urgency to find a solution for Intel.
richard.waters@ft.com
