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The US Department of Commerce officially added seven Chinese supercomputing entities to the Entity List in early April, among them Tianjin Phytium Information Technology, amid allegations that they have been involved in building supercomputers for China’s military.

Taiwan Semiconductor Manufacturing Co., the spearhead of Taiwan’s IC industry as well as Alchip Technologies Ltd, a listed Taiwanese company specialized in IC design, are among those impacted by the economic blacklist as key suppliers to Phytium. 

The crucial role played by TSMC in the global semiconductor industry, and consequently the strategic role of Taiwan, has already been prompted to the fore multiple times, especially following the US decision to blacklist Chinese tech champions such as Huawei and Semiconductor Manufacturing International Corp. (SMIC) as well as the recent global chip shortage crisis, in which automakers worldwide were severely hit as they strove to adapt their traditional way of manufacturing to a software-defined era.

Following the US decision to blacklist Phytium, Taiwan’s IT industry is once again reminded of its awkward role as the country is caught between a Sino-American competition mainly unfolding along tech fault lines. 

TSMC – a key supplier to Chinese military?

While Phytium used American EDA tools from Cadence Design Systems and Synopsys, it nevertheless depended on TSMC for manufacturing and relied on Alchip as an intermediary for communication with the former.

In response to the Entity List, Alchip has stopped production for Phytium until permit for Phytium products has been obtained from the U.S. Bureau of Industry and Security, despite the fact that Phytium contributed to 39% of Alchip’s revenue in 2020.

Meanwhile, TSMC has reportedly halted production for Phytium, even though it has refrained from making public comments, only stressing that the company has a rigorous export-control system and was not aware of their products’ alleged military application.

Even though the revenues of TSMC are hardly scratched by the Phytium case, as the Chinese company merely accounted for less than 0.1% of TSMC’s annual output, concerns have been raised that Taiwan’s IT industry will soon be forced to pick a side in the ongoing Sino-American conflict and consequently lose its neutrality, especially as China is the fastest-growing market for semiconductors. 

Heading toward systematic competition 

Amid calls for re-shoring, decoupling and autonomy, the Phytium case once again switched global attention onto the decisive role of Taiwan’s semiconductor industry.

Largely thanks to TSMC’s neutrality, the traditionally nicknamed “Silicon Shield” of Taiwan’s semiconductor industry has not only sheltered the country from Chinese aggression as the latter still depends on Taiwan for its chip industry, but also won global recognition as the linchpin of the global IT industry.

However, few are concerned with its long-term trajectory as US-China heads for a systematic competition in which both sides strive to fundamentally undermine each other’s economic system more and more characterized by a deep fusion between government, industry and military.

The recent “Strategic Competition Act”, enjoying bipartisan support in the US Senate Foreign Relations Committee and currently waiting for Senate consideration, further consolidates this overall strategic direction and will probably, in due course, challenge Taiwan’s silicon shield much in a similar way that Nvidia acquisition of the hitherto neutral ARM would raise UK national security issues. 

An opportunity for long-term cooperation? 

Simultaneously, neutrality-related issues faced by the likes of ARM and TSMC could also be a foundation for future strategic cooperation among countries reluctantly caught in the crossfire between China and the United States, ultimately paving the way to an alliance of countries seeking to pursue various degrees of digital sovereignty independent of China and the US.

In this sense, Taiwan’s semiconductor prowess can once again be a coveted advantage as countries like those in the EU seek to chart a similarly neutral course and secure their own digital sovereignties.

As the EU embarks on its own plan to build local foundries, TSMC has been chosen as an ideal cooperation partner – could this be a stepping stone toward a more comprehensive cooperation? 



Source: EETAsia, EETChina, US Dept Commerce, FT, Reuters