– Speech delivered by Dr Harry Tseng, TECO Canada, at the TECO – Toronto Region Board of Trade (TRBOT), conference titled “Pathways to Prosperity: Redefining the Canada-Taiwan Economic Partnership,” September 11, 2024.
Dr Harry Tseng is the Representative of the Taipei Economic and Cultural Office in Canada, a role he has held since August 2022. A seasoned diplomat and scholar, Dr Tseng holds a Ph.D. in Government and Foreign Affairs from the University of Virginia (1993), an MPA from Princeton’s School of Public and International Affairs (1991), an MA in East Asian Studies from National Chengchi University, Taiwan (1985), and a BA in Foreign Languages and Literatures from National Taiwan University (1981).
Dr Tseng has a long history of serving in high-level diplomatic positions within Taiwan’s Ministry of Foreign Affairs (MOFA). He was Deputy Minister of Foreign Affairs from 2020 to 2022, Deputy Secretary General of the National Security Council (2016-2017), and Deputy Secretary General of the Office of the President (2016). He has also served as the Representative to the European Union and Belgium, Ambassador to Palau, Representative to Ireland, and Director General of MOFA’s Department of North American Affairs.
By Dr Harry Tseng
On August 20, 2024, German Chancellor Olaf Scholz, European Commission President Ursula von der Leyen, and other influential European political and business leaders gathered in Dresden for the groundbreaking ceremony of a new semiconductor plant, a strategic investment by TSMC, the world’s largest chip maker. This marks a significant milestone for TSMC, which had announced its intention to establish a facility in Dresden over a year ago.
The €10 billion factory, named the European Semiconductor Manufacturing Company (ESMC), is a joint venture with TSMC holding a 70 percent stake, while German partners Infineon and Bosch, along with NXP from the Netherlands, each hold a 10 percent stake.
The Dresden foundry is expected to commence production by the end of 2027, generating over 2,000 high-tech jobs. This development is part of TSMC’s broader global expansion strategy, which includes building additional foundries in Arizona, USA, and Kumamoto Prefecture, Japan. TSMC has described the Dresden plant as a “significant leap” in addressing the strategic capacity and technological needs of its European clients. It must not be taken lightly; because cozying up to Taiwan is not a strong suit for Germany, where the business lobby (i.e. automakers) sees China as the most important market, even amid an extended economic slowdown in the Chinese economy.
The National Research Council (NRC) of Canada has organized a delegation of ten semiconductor industry experts to participate in SEMICON Taiwan 2024. This initiative featured a Canadian Pavilion at the exhibition and included a specialized semiconductor seminar, jointly sponsored by the Canadian team and their Taiwanese counterparts, aimed at exploring further opportunities for bilateral collaboration.
Semiconductors have long been the cornerstone of Taiwan’s economy, recently gaining unprecedented global attention. The combination of advanced chip manufacturing capabilities and AI innovation has catapulted Taiwan onto the global geopolitical stage. Leading industrial nations are increasingly engaging with Taiwan to leverage its technological prowess, lest they should lag behind to ride the tide to the coming age of AI.
It has never been so clear that AI (Artificial Intelligence) now stands as the impetus behind today’s technological progress, prompting countries big and small to rival in formulating their AI strategies to uphold a competitive advantage.
Some argue that TSMC’s investment in Dresden, Germany, as well as its other investments in the United States and Japan, will inevitably push the production cost higher, potentially impacting competitiveness. But as the TSMC would argue, it is a necessary step to strengthen supply chain resilience and greater competitiveness. Diversification of production sites will also offer TSMC more opportunities to nurture closer ties with its major clients and further consolidate their partnership.
In contrast to TSMC’s expansion in Germany, I am sorry to say, that Intel has recently suffered a huge loss and was compelled to lay off 15,000 employees, equivalent to 15 percent of its entire workforce. Intel’s planned investment in Germany has been put on hold, highlighting a stark difference in strategic execution and resilience between Intel and TSMC. TSMC’s ability to deliver on its commitments, such as the new Dresden facility, underscores its competitive strength and reliability.
With the burgeoning semiconductor manufacturing industry in Germany, European nations like the United Kingdom, France, the Netherlands, Italy, and Belgium are gearing up to participate in this expanding market. Each country brings its own comparative advantages, whether in advanced technologies, manufacturing equipment, or critical materials. TSMC and other Taiwanese companies are eager to collaborate with European partners, capitalizing on these strengths to drive innovation and build robust supply chains.
What is the secret of Taiwan? Why could Taiwan outperform so many big competitors in the ICT industry, especially in the semiconductor arena?
Well, before we explore the full potential of AI, we should bear in mind that the future of AI will still be powered by semiconductors and chips that are even more advanced and effective than they are today. AI cannot thrive without the help of more progressive and specialized chips.
Let’s imagine a world with chips that are only used in personal computers (PCs), laptops, and notebooks. Even if every individual possesses more than ten computers of different types, the total number of chips needed in the computer can be calculated. The ceiling is not sky high. But when the age of ICT has progressed to the age of IoT (i.e. Internet of Things), suddenly, the realm of chip application has broadened immensely and the demand has multiplied innumerably. Furthermore, we are now on the threshold of the age of AIoT, i.e. a combination of IoT technology and AI innovation. Just imagine what new world we are entering!
Taiwan’s semiconductor industry emerged in the 1970s. In the nascent stage, we played a small role in the downstream of the making of the IC (integrated circuit). Back then in the 1970s and 80s, the electronics industry was only burgeoning. It was very different from what they are today, which is much more advanced and specialized in different phases of its supply chains. There is no secret to Taiwan’s success. It was a mixture of good luck, good timing, technical skills, hard work, and wise government policies that have altogether made Taiwan such a success in the semiconductor industry.
Looking back, it’s no exaggeration to say that developing the electronic industry was a deliberate policy of our government and the Industrial Technology and Research Institute (ITRI), a government-sponsored organization, played a crucial role to introduce the application of electronics, a new technology of the time, into Taiwan. In the initial stage of development, the government poured in assistance by holding significant stock shares, only to sell them after the companies were able to firmly stand. For example, The UMC (United Microelectronics Corporation) was established in 1980; the TSMC in 1987 and the Vanguard International in 1994. Without support from the government, it would have been next to impossible for them to start from scratch. (The government only holds 6.38% of TSMC stock shares today.)
The making of chips is roughly divided into three phases: (1) IC designing, (2) manufacturing, and (3) testing and packaging. It looks clear cut, but in fact, it is a very long and complicated supply chain that involves more than 1, 000 companies from the upstream to the downstream. Even in the Hsin-chu Science Park of Taiwan (the Taiwanese version of Silicon Valley), where we are proud to have a cluster of more than 500 companies in semiconductor-related industry (the largest cluster in the world), we still need international collaboration for our chip manufacturing.
The fact is no single country can maintain a full and complete supply chain.
Among the three phases mentioned above, in the first phase of IC designing, the technology of EDA (Electric Design Automation) is most important, and the United States is undoubtedly world #1 in this phase. In the second phase of manufacturing, Taiwan takes the lead but the related crucial materials needed in this phase, such as high-purity chemicals and high-purity electrical coated materials, are provided by the US, Japan and EU companies. In the third phase of testing and packaging, Taiwan is also world #1, but many countries are trying to catch up. In short, due to its complexity, there is no single country that can monopolize a full and complete supply chain. It is very clear that collective efforts are necessary.
As it stands today, Taiwan manufactures 60 percent of chips for the global market, including 90 percent of advanced chips used to make smartphones and for other applications. We are capable to maintaining our technology edge because the TSMC had developed a pure foundry business model years ago. TSMC does not have its own brand. What it does is to offer manufacturing services to its clients, including Apple, Nvidia, AMD, Qualcomm…etc., the so-called fabless or IC design companies. They use the TSMC-made chips inside their products and sell to the market to earn a higher share of profits. So, even though Taiwan is #1 chip maker in the world, but in terms of the revenue share of the global semiconductor market, the U.S. takes up 38 percent as #1 winner, Taiwan 21 percent as #2, the R.O.K. 18 percent as #3, followed by Japan, China and the European Union.
Let me briefly digress on a disruption of chip supplies that once occurred. As you may recall, during the pandemic, a severe global shortage of chips was strongly felt in the auto industry due to the industry’s policy of keeping low inventory. Just like other industries, the auto market suffered a big loss because of the pandemic. But it was quite unexpected that the drop in the auto market in the first half of 2020, forcing the auto companies to withdraw their chip orders, saw a sudden return of robust demand in the final quarter of the same year. The TSMC was urged by some G7 economic ministers to speed up and expand its chip production. It is a good example of how Taiwan showed its resilience in the global supply chain.
The auto chip or IC shortage that we went through during the pandemic was a wake-up call to our global economy, reminding us of how vulnerable the supply chain can be. Before the pandemic, what everybody talked about was a swift supply chain, some calling it a just-in-time supply chain. The main objective was to minimize the inventory and lower the cost of production. Now that the pandemic is over, what people emphasize is a safe supply chain, shifting the stress from just-in-time to just-in-case; and the minds of people focus on what if an unexpected disruption happens? Hence, resilience came to mean that if unforeseen situations happened, we could still use the minimum resources required to maintain operation without disruption and return to normal operation afterwards.
Out of the pandemic, we also came to realize the importance of chips. Major countries hastened to pass legislation to protect their semiconductor industry with different versions of the Chip Act, all trying to avoid disruptions in their supply chains under a range of scenarios. It was during this period that TSMC, as well as other chip makers in the world, began diversifying their investments. The recent Dresden facility, which I mentioned earlier, is a prime example of this strategic shift.
The purpose of diversification is sure to enhance resilience. But it should be noted that an arguably possible side-effect of moving abroad is the so-to-speak “hollowing out” of the industry. Therefore, the TSMC intends to keep its most advanced chips to be produced domestically. New production sites were chosen in Taiwan, for example, a fab in Hsin-chu to make 2 nanometer chips, a fab in Kaohsiung to make 3-5 nanometer chips, and one in Taichung for 7 nanometer chips. Domestic diversification is also to avoid keeping all eggs in one basket.
Now, let’s turn to the new chapter of AI and look forward into the future.
COMPUTEX 2024, under the theme of “Connecting AI”, has attracted more than 80,000 visitors.
Participating global AI tech giants promoted each other to help transcend into a new age of AI. Jensen Huang, the Taiwan-born founder and CEO of Nvidia, converged wide attention with the “Jensanity” phenomenon. He became a national hero of Taiwan. and attributed Nvidia’s AI dominance to the exceptional system makers in Taiwan. Huang emphasized his reliance on Taiwanese partners and pledged to continue harnessing Taiwan’s strength for further advancement and views Taiwan’s ascent in the era of AI as an established reality.
There is no doubt that the global AI boom has lifted tech share prices and the demand for semiconductors and electronics. Against this backdrop, Taiwan is one of the biggest winners as ICT industry forms 20 percent of its GDP and 60 percent of its exports. We have seen Taiwan’s ICT export fueled by the strong global demand and grew at 16 percent year-on-year in the 2nd quarter of 2024. Moreover, with favorable polices encouraging reshoring, Taiwan’s local production ratio for ICT export orders surged from 8 percent in 2019 to 19 percent in June 2024. It has consequently created a virtuous circle between exports and investment.
As Taiwan continues to lead the world into a new era of AI innovation, there is a significant opportunity for Canada and Taiwan to capitalize on this momentum. By leveraging our complementary strengths in the innovation ecosystem, we can build more resilient supply chains and turn these challenges into opportunities for growth and collaboration. I am confident that many share this vision and recognize the potential for a meaningful partnership between our two nations.
I think there is an increasing recognition that Taiwan’s proficiency in AI its robust infrastructure, and its leading semiconductor industry provide a fertile ground for Canadian enterprises to foster innovation and expansion. Canada’s expansive talent pool and software prowess are paramount to realizing AI’s full potential. This synergy between Taiwan’s technological capabilities and Canada’s expertise creates a powerful foundation for collaboration and mutual growth.
We are only at the dawn of an AI megacycle which is expected to endure for at least another decade. It should be noted that as AI’s potential has indeed opened the door to a myriad of groundbreaking prospects, and as a new era driven by AI is unfolding before our eyes, Canada’s Indo-Pacific Strategy, revealed in November 2022 in Vancouver, has delineated an ambitious trajectory for Canada-Taiwan cooperation, with technology being named one of the pivotal domains for fostering deeper ties.
Following the IPS roadmap, we are happy to see that since last December, Canada has concluded with Taiwan the long-anticipated Foreign Investment Promotion and Protection Arrangement (FIPA), as well as an Arrangement Concerning Science, Technology and Innovation. In addition, both sides have also adopted a Collaborative Framework on Supply chain resilience, paving the way for more cooperation in the future.
As we look toward this exciting future, the promise of AI for both Taiwan and Canada becomes increasingly clear. AI has the potential to be a true embodiment of Taiwan’s national slogan, “Taiwan Can Help.” That all-time favourite expression sums up how Taiwan consistently demonstrates itself to be a capable, reliable, and trustworthy partner for the world. In our pursuit of greater prosperity and innovative excellence, collaboration between like-minded partners is key to achieving success.
It is precisely this spirit of partnership that prompted Taiwan to seek membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada is currently serving as the rotating chair. Taiwan not only meets all the high standards required for accession, but we share a steadfast commitment to democracy, hard work, and free market principles with all CPTPP members. I hope that the whole of Canadian society will support Taiwan’s bid to join the CPTPP. Together, we can build a future defined by shared prosperity, innovation, and unwavering commitment to democratic values.
