Supply chain networks in the Indo-Pacific are reconfiguring and selectively diversifying outside of China due to black swan events such as the COVID-19 pandemic and the risk of technology weaponization sensitive materials, supply chains and rare earth materials.

Semiconductors were of particular concern, as was Taiwan Semiconductor Manufacturing Co (TSMC). Given its dominant position in producing 92% of the world’s advanced chips (10 nanometers or less), and after the COVID-19 pandemic exposed vulnerabilities and shortages in the chip supply chain, TSMC suddenly found itself in the spotlight amid a tech rivalry between the United States and China. .

In its attempt to diversify from China, TSMC has turned to Kaohsiung in southern Taiwan as a new manufacturing hub.

On August 8, TSMC and the Kaohsiung city government held a groundbreaking ceremony at the Nanzih Technology Industrial Park, where its new factory is to be built.

This was followed last month by visits by President Tsai Ing-wen (蔡英文) and former US Secretary of State Mike Pompeo to promote Kaohsiung as a new investment hub for high-tech companies.

TSMC’s Kaohsiung plant is to produce 7-nanometer and 28-nanometer chips – the latter primarily for the automotive industry and particularly important for German automakers. The chip giant plans to spend $100 billion over several years to expand production capacity in Taiwan, as well as the United States and Japan.

Nanzih Technology Industrial Park is set to become the core of southern Taiwan’s semiconductor “S Corridor”, a policy priority envisioned by the administration of Kaohsiung Mayor Chen Chi-mai (陳其邁), to form an industrial hub technology in Kaohsiung.

The project would connect Tainan Science Park, Renwu Industrial Park, Ciaotou Science and Technology Park and Nanzih Technology Industrial Park in an S-shaped corridor.

Besides TSMC, other major technology companies such as Germany-based Merck Group, Netherlands-based NXP and Win Semiconductors Corp have already been attracted to the area, and Nanzih Technology Industrial Park is home to Advanced Semiconductor Engineering Inc – the Taiwan’s second largest semiconductor company. .

With well-established high-tech clusters in Hsinchu and Tainan, Kaohsiung might seem like an odd choice for TSMC given its historic reputation as a “rust belt city” and industrial area.

However, factors over the past year have propelled Kaohsiung to the fore as TSMC’s preferred location for domestic expansion.

As TSMC already has Fab 18 in the Tainan Science Park, it turned to a nearby 300-hectare plot for the next phase of its expansion process.

A CommonWealth Magazine article said the Southern Taiwan Science Park had scheduled its land expropriation for expansion next year, but the offer from the Kaohsiung site came earlier.

Kaohsiung is also a traditional stronghold of Tsai’s Democratic Progressive Party, as well as Chen’s.

However, the city’s water supply could be the main reason for choosing TSMC. Last year, Taiwan suffered its worst drought in 56 years, forcing TSMC and other chipmakers to seek water needed for manufacturing processes, with tankers carrying water from Kaohsiung.

This incident highlighted the challenge that water scarcity places on the semiconductor industry as a whole, as TSMC and Intel factories in Phoenix, Arizona also face similar land constraints. and water.

With TSMC’s entry into the “S Corridor”, Kaohsiung and southern Taiwan are emerging as a critical node, not only in the global semiconductor supply chain, but also as a key logistics hub supporting of Tsai’s new southbound policy for deeper trade integration. in the Indo-Pacific region.

Kaohsiung is also Taiwan’s largest port and ranks 15th in the world, ahead of Hamburg in Germany at 17th and Long Beach in the United States at 22nd. is becoming a key center for trade and logistics in the Indo-Pacific.

Taiwanese defense analysts have proposed that the port of Kaohsiung should become a place of cooperative security now that the United States no longer has access to the port of Hong Kong.

This could work in conjunction with NATO’s exploration of cooperative security and enhanced partnership roles for Asian countries such as Japan and South Korea, and perhaps Singapore and Taiwan, as they are leaders in multiple emerging and disruptive technology sectors.

Although not an Asian NATO partner, Singapore has participated in NATO Science and Technology Organization events in the past. Likewise, as Taiwan is a de facto major non-NATO ally, it could potentially engage in similar cooperative security exchanges, particularly in the area of ​​maritime technology.

Some US analysts want to go further, such as Pompeo’s Chinese adviser Miles Yu (余茂春), who has proposed expanding the NATO alliance to include Indo-Pacific countries in an Indo-Pacific Treaty Organization North Atlantic (NAIPTO) to face a rising China.

However, others are expressing doubts that this is coming to fruition.

In an email interview, Director of the NATO Defense College Foundation, Alessandro Politi, wrote: “China, unless it follows Russia’s lead on Taiwan, will not be considered a threat” by many NATO members, and certainly not a priority as long as the conflict in Ukraine is ongoing.

“NATO has a very precise geographical definition in its treaty and Article 5 is based on that, even in the case of kyiv,” he added.

As such, the most realistic scenario for enhancing transatlantic and Indo-Pacific supply chain security may not be an expanded NAIPTO military alliance – which would denote a decoupling from China – but rather an “alliance of targeted high technology, as proposed by former NATO Secretary General Anders Fogh Rasmussen.

NATO can engage Asian partners in the cooperative security of emerging and disruptive technology sectors, while pursuing economic interdependence and selective diversification from China, given that it remains a key trading partner for Taiwan. , Japan and other Asian and European countries.

Even Taiwan’s TSMC received an exemption from Washington’s new semiconductor export control regulations, allowing it to continue expanding its Nanjing manufacturing facility in China.

As James Lewis, Senior Vice President and Director of the Strategic Technologies Program at the Center for Strategic and International Studies, has put it, increasing supply chain diversification and sovereignty “does not mean the end of interdependence , but more emphasis on indigenous production and regional supply chains”. .”

To this end, Kaohsiung’s role is expected to continue to increase in the ongoing regionalization of the Indo-Pacific high-tech supply chain.

Christina Lin is a 2022 Taiwanese Fellow at the Ministry of Foreign Affairs and Visiting Scholar at the Department of Asia-Pacific Industrial and Trade Management at National Kaohsiung University. She has extensive US government experience on Chinese security issues and is one of the authors of the NATO and Asia-Pacific volume.

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