Rachel’s note: Today, we’ll look at one of the most important global concerns at the moment.
As longtime readers may remember, Taiwan plays a key role in a vital industry… and recent events are drawing attention to this island…
So Casey Research colleague and technology investment expert Jeff Brown will break down the geopolitical trend between China and Taiwan… what it means for semiconductor chips… and why the sector is already moving in the right direction – despite current threats.
By Jeff Brown, editor, The Bleeding Edge
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Dear Reader,
Last week, Nancy Pelosi’s trip to Taiwan put the tensions in that region of the world back in the spotlight.
China and Taiwan sit within 200 kilometers of each other (as seen below). China has long claimed Taiwan as part of its territory, despite Taiwan’s independent governance.
And there’s one critical reason this dispute should get everyone’s attention… As longtime readers may recall, Taiwan is the epicenter of the most advanced semiconductor manufacturing in the world.
Taiwan Semiconductor Manufacturing Company – abbreviated as TSMC – is one of my favorite companies.
It produces the most advanced semiconductors in the world, working years in advance. It is the most important company on the planet, but very few people even know it exists.
If China were to take control of Taiwan, it would create a massive global crisis.
Taiwan-based chipmakers like TSMC are responsible for the semis in almost all of our electronics – from medical devices and home appliances, to our cars and phones… and beyond.
This would give China the ability to control, alter, allocate, or completely stop the supply of key semiconductors in electronics that we use and need every day.
Military Protection Isn’t Enough
Now, some believe that Taiwan is fine. It’s very hard to land there… We’ve got all of these military installments… China can’t possibly breach Taiwan…
But when we think like a military strategist, we get a very different view:
A million troops versus Taiwan’s 88,000.
Thirty-two Destroyers versus 4.
Sixteen-hundred Fighters versus Taiwan’s 400.
And China has 450 bombers in attack planes, whereas Taiwan has zero.
That doesn’t look too good…
Even so, it still doesn’t paint the full, political picture.
The reality – and I’ve been to Taiwan more than 100 times – is that China is already there.
A Different Kind of Attack
China has been in Taiwan for decades. And they’ve been slowly building administrative control over Taiwan… just as they did in Hong Kong.
I was in Hong Kong when it was handed over from the British to China. The move was already in the works for decades. Many were fearful of what might come once the handover was complete.
They were correct in their concerns. But they were wrong about the timeframe. China took more than two decades to slowly and methodically take complete control. This is a drawn-out process that continues to unfold today.
China is brilliant at playing the long game. So it’s already happening in Taiwan, whether we realize it or not.
It’s now just a matter of time until it asserts control. Any military presence will largely be just for show, and it will make for flashy headlines in the media.
But executives like me in the industry have known this, and we’ve been taking action…
Manufacturers Are Planning Ahead
Last year, Intel announced a new $20 billion investment in Arizona to build two semiconductor plants.
And at the start of this year, it said it’s making a $100 billion investment in Ohio. They want to build the world’s largest semiconductor manufacturing facility in cornfields.
This is not happening in Silicon Valley. This is extraordinary – and it’s the most exciting thing I’ve seen from Intel in a decade.
Similarly, Intel is planning to build a $19 billion mega factory in Europe.
And Intel isn’t acting alone…
Samsung is planning to construct a $17 billion chip plant in Texas by 2024.
And returning to TSMC – it’s in the process of building a $12 billion chip factory in Arizona.
Why is TSMC building in the United States?
It’s scared it’s going to be taken over when China asserts control. It needs to diversify its supply chain and move manufacturing onto reliable soil… where it can keep producing semiconductors, then ship them elsewhere.
It’s also why TSMC is in discussions to build a multibillion-dollar manufacturing complex in Singapore, and another in Japan.
Another company, Micron, is looking to spend as much as $40 billion in either Arizona or Texas.
ON Semiconductor, GlobalFoundries, and Akoustis – among others – are also making moves to expand and upgrade their facilities.
The good news is, these semiconductor companies are finally getting some legislative support…
Incentivizing the Right Behavior
Policy or legislation is finally moving in the right direction on this subject.
Both the House and the Senate approved the CHIPS Act at the end of July. This will be a boon for U.S. manufacturing, as it offers great incentives for expansion and research.
This bill is long overdue. The global architecture for manufacturing has been shifting from centralized to decentralized for years now, and the pace is finally picking up.
The cost advantages of manufacturing in mainland China have narrowed. And we’ve never felt the importance of secure supply chains for critical components as we do today.
Even so, the CHIPS Act isn’t the only potential legislation to move us in the right direction…
Another group of policymakers has proposed the FABS Act, which would offer tax credits for constructing and upgrading semiconductor manufacturing equipment. This type of bill incentivizes the right behavior.
The key point is, the industry has been on top of this for the last decade.
China still poses a big threat to Taiwan – and through it, a threat to the world.
But as we can see, the industry – and now the government – isn’t sitting on its heels. We’re going to see more announcements of new FABS in the U.S. and around the world in the near future.
While it will take time for the industry to adjust to this new dynamic and build out the necessary infrastructure, we’re on the right track.
Regards,
Jeff Brown
Editor, The Bleeding Edge
Rachel’s note: If you’d like to learn more about the money flowing toward the semiconductor industry… and how it impacts investments in this space…
Check out financial expert Nomi Prins’ Distortion Report, where she tracks five investment themes that will benefit from what she calls The Great Distortion between the financial markets and the real economy – including Transformative Technology trends powered by semiconductor chips.
Her goal is to use her tenured experience working on Wall Street to help you secure financial freedom. To learn more about this Distortion… and what it means for your money… watch this.