Shifts in the Semiconductor Supply Chain: An Analysis of TSMC’s Fab Locational Decisions

Relations between China and Taiwan have been fraught since the Chinese Civil War, when Taiwan became independent from the People’s Republic of China (PRC). The PRC views Taiwan as a part of mainland China, an ongoing sovereignty debate that has left many third-party actors to ambivalently declare allegiance to China to maintain trade relations while also maintaining informal ties with Taiwan. Many countries in the West ideologically align with Taiwan but have no formal diplomatic ties to the country. The Taiwan question has been answered with strategic ambiguity since the Chinese Nationalist Party (KMT) fled China. During the 1970s and 1980s, Taiwan’s technology sector grew, along with Taiwan’s national identity. Over this period of economic growth, the semiconductor manufacturing industry became largely concentrated in Taiwan. Foreign countries, which all have economic development stakes in the semiconductor industry, also began to have increased stakes in a country they do not even formally recognize. To make matters more complex, the PRC has economic ties to all these countries, which are now reliant on Taiwan’s semiconductor manufacturing industry and its leader Taiwan Semiconductor Manufacturing Company (TSMC). The PRC itself depends on TSMC and Taiwan’s robust semiconductor industry to manufacture its semiconductor chips’. This creates a problem in international relations because states must determine how to conduct economic transactions with a company with ties to a state they do not even formally recognize. Additionally, the significant bargaining power of a single company, TSMC, raises important considerations for the future of technology development, international economics, and international peace and security. My research seeks to analyze TSMC’s corporate strategy and understand its rationale for placing its fabs more clearly. Examining the various economic and political factors will yield insight into TSMC’s supply chain diversification strategy.