- An Assessment and Analysis of Taiwan’s Private Equity Environment
- Private Equity Report: Executive Summary
Statement: Taiwan Is an Important U.S. Partner in the Chip Supply Chain
Taiwan Is an Important U.S. Partner in the Chip Supply Chain
(Arlington, Virginia, February 25, 2021)
This morning, during the Senate Finance Committee hearing on Katherine Tai’s nomination to become United States Trade Representative, Michigan Senator Debbie Stabenow stated:
Right now, for example, our manufactures of automobiles, home appliances, other products, are being forced to shut down a line or a plant temporarily because of a single company in Taiwan, which has reduced its shipments of semiconductor chips to our manufacturers.
It’s only a slight change, but we’ve seen profound losses, billions of dollars in losses in key U.S. manufacturers, because of that decision.
Senator Stabenow suggests that the chip supply challenges currently confronting American manufacturers are a function of a “decision” made by a Taiwan company to “reduce shipments” of semiconductor chips to U.S. companies. This statement is both incorrect and misleading.
The American automobile industry is currently facing a chip supply issue, but it is primarily a function of the industry itself miscalculating its production needs. At the onset of the pandemic, the U.S. auto industry significantly reduced its orders for chips, expecting a significant reduction in demand for vehicles. That drop in vehicle demand did not materialize fully, and the industry is therefore left with existing chip orders that do not match their manufacturing needs.
The flow of semiconductor chips is a commercial matter. Companies make orders for chips based on expected demand, and those orders are executed along legally contracted boundaries. The absence of enough chips to run American plants is absolutely not a function of any deliberate punitive actions by a Taiwan company. It is instead the result of American manufacturers failing to order enough chips.
The American Automotive Policy Council (AAPC) is now asking the U.S. government to pressure chip suppliers – many of which are located in Taiwan – to give priority to the auto industry. But the AAPC’s insistence on prioritizing the auto industry will not be without repercussions.
The global production of semiconductor chips is currently topping 90% to 100% of manufacturing capacity. There is high demand for chips in a whole range of sectors, including for 5G networking and for the myriad technologies that enable the massive global shift to a Work From Home environment during the pandemic. Given the tight supply, moving automotive chips to the front of the line will likely have a domino effect whereby other U.S. industries and sectors – whose chip orders must perforce be modified to accommodate the change in priority – will suffer the repercussion of the auto industry’s miscalculations.
The impact of chip supply issues on the American automobile industry, on American workers, and on the American economy is of significant concern. But the suggestion that this situation is a function of punitive action by a Taiwan company is manifestly incorrect. Additionally, the view that the U.S. government can pressure companies, foreign and domestic, to make changes to legally binding contracts to accommodate preferred business sectors raises serious concerns about the nature of international commerce and the laws that govern it.
The U.S. and Taiwan governments are working to identify ways to help ease U.S. chip supply constraints, and Taiwan supply chain manufacturers and their global customers are already taking steps to assist.
Rupert J. Hammond-Chambers
US-Taiwan Business Council