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Summary: Taiwan Semiconductor Manufacturing Co’s decision to delay the opening of a much-lauded $40 billion Arizona plant into 2025 shows the US still has more hurdles to overcome in reshoring domestic chip capacity. Education and other elements of the complex ecosystems that Asia has developed will take time to scale up in the US, meaning that global semiconductor supply chains will continue to run heavily through the island of Taiwan.

Taiwan’s air defense zone has been violated hundreds of times by the Chinese military over the past several years, and increasingly strict trade restrictions targeting China’s chipmaking capabilities could increase the incentive for China to exhibit greater aggression toward the island. Though Taiwan has long benefitted from its “silicon shield”, the strategic value of the island’s advanced fabrication technologies, China’s desperation to avoid falling further behind its adversaries in chip tech, and Beijing’s widening ties with Moscow, may soon outweigh the global economic turmoil that would result from a war in Taiwan.

Related ETF and Stocks: iShares Semiconductor ETF (SOXX), Taiwan Semiconductor Manufacturing Company Limited (TSM)

Earlier this week, Taiwan Semiconductor Manufacturing Co (TSMC) announced that the start of production at a planned facility in Arizona will have to be postponed from late 2024 until 2025, citing a shortage of skilled workers and expenses running higher than in Taiwan. Delays like this, if they become more common, will force the world to continue relying on Taiwan for an outsized portion of its most advanced chips. Per Voice of America, chip powerhouse TSMC accounts for more than 90% of output of advanced chips, and 65% of all semiconductors. It is the leading chip contractor as well, manufacturing chips for companies as large as Nvidia and Apple. While it was forced to push back the timetable on their new Arizona plant, TSMC said it would invest around $2.9 billion in an advanced packaging facility in Taiwan, meant to advance the integration of multiple semiconductors in a single package.

The US has tried to siphon off some of this capacity by bringing a larger share of chip fabrication back to its domestic market. A White House report states that 37% of global semiconductor production occurred in the US as recently as 1990, but that share tumbled to just 12% by 2022. Last year, congress enacted the distribution of tens of billions of dollars in investment tax credits and other incentives for chipmakers building in the US via the CHIPS and Science Act. That legislation will certainly have some positive impact but leaves other issues unaddressed – particularly education. A new study prepared by the Semiconductor Industry Association (SIA) and Oxford Economics finds the US will experience a projected shortfall of 67,000 technicians, computer scientists, and engineers by 2030 at the current rate that prospective employees are graduating from schools.

Bloomberg has reported that producing chips in the US still takes 25% longer and costs nearly 50% more than doing so in Asia. Some experts, like Singaporean Cyber Security Agency Chief David Koh, have highlighted specific issues with trying to rapidly re-deploy semiconductor capacity in the Western world, largely relating to…

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