That the Taiwan Semiconductor Manifacturing Company is central to the global economy, the failure of supply chain delivery would be devastating, is by now common knowledge. Technologically, TSMC is also making huge quantum leaps, now wants to mass produce the 3nm chip and next produce 2nm and 1nm chips, while the PR China can only mass produce 24nm chips so far, especially since the USA wants to stop and slow down China with its Chips Act and further sanctions from technological development.

„Mon, Dec 26, 2022 page12

TSMC to begin 3nm mass production

TAINAN FAB: The firm in an unusual move is to hold a ceremony to launch mass production, which analysts said seeks to affirm its continued presence in Taiwan

Staff writer, with CNA

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) on Saturday said that it would hold a ceremony on Thursday to mark the beginning of mass production using its 3-nanometer process.

The company is to mark the placing of the final beam at its Fab 18 in the Southern Taiwan Science Park (南部科學園區) in Tainan.

It would also detail its plans for expanding 3-nanometer production at the facility in the coming years, TSMC said.

The fab currently mass produces chips using the 5-nanometer process.

It is unusual for TSMC to hold a ceremony to mark the beginning of commercial production of a new technology.

Analysts have said that the ceremony aims to announce TSMC’s intention to continue using Taiwan as a hub for research and development (R&D) and production, despite its overseas investments.

Speculation has risen that the company could relocate its production and R&D centers to the US.

The rumors arose after TSMC on Dec. 6 said at a tool-in ceremony for its 12-inch wafer plant in Phoenix, Arizona, that it would increase its planned US$12 billion investment there to US$40 billion to build a 3-nanometer fab by 2026, in addition to its planned 4-nanometer plant due to be completed in 2024.

The concerns intensified after TSMC sent a large group of Taiwanese engineers to support the Arizona plant, raising investors’ fears that the move could undermine the firm’s base in Taiwan.

The planned Arizona plants are expected to produce more than 600,000 wafers a year, TSMC has said.

Last week, TSMC chief executive officer C.C. Wei (魏哲家) told a forum held by the Mount Jade Global Science and Technology Association in Taipei that there was “no chance” that a single wafer fab would give a location a technical advantage over other semiconductor manufacturing sites.

TSMC plans to start mass producing chips using the N3E process next year. The process is based on the 3-nanometer technology and produces more efficient chips with a better yield rate.

The company is also developing a more sophisticated 2-nanometer process and plans to build a 2-nanometer fab in Hsinchu, with mass production scheduled to begin in 2025.

The 3-nanometer process uses 16-nanometer fin field-effect transistor technology, which is a 3D transistor structure that allows a chip to run faster using the same amount of energy or to run at the same speed on reduced power.

Chips made using the technology are 10 to 15 percent faster and 25 to 30 percent more energy-efficient than those produced with the 5-nanometer process, whose mass production started last year.

Apple Inc and Intel Corp are expected to place orders for chips made with TSMC’s 3-nanometer process, analysts have said.

The 2-nanometer process would be the first technology in which TSMC employs a gate-all-around structure, which reduces undesirable variability and mobility loss, making the technology the most competitive and efficient on the market, the company has said.

Early this month, Wayne Wang (王永壯), director general of the Hsinchu Science Park Bureau, said TSMC has plans to build a 1-nanometer process fab in the Longtan (龍潭) section of the Hsinchu Science Park (新竹科學園區).

TSMC has yet to confirm Wang’s announcement.

https://www.taipeitimes.com/News/biz/archives/2022/12/26/2003791392

New catch phrase: Silicon Shield and whether it will hold. Some expert fear that the USA will push Taiwan and TSMC to cut off its China business without exemptions and that Xi could attack Taiwan if he sees that China technologically will fall behind and has nothing left. Similar to the Peak Power Theory .In an case, a fierce debate has now broken out in Taiwan about to which extent the TSMC production should be kept in Taiwan, whether and what and how much should be diversified and to what extent this was a sell out of national interests and Taiwan´s gold treasures as gifts to the USA.

“TSMC must keep top chips at home

• By Jason Hsu 許毓仁

Often referred to as the “Silicon Shield,” Taiwan produces a staggering 65 percent of the world’s semiconductors, and more than 90 percent of its highest-end chips. As such, no company is more singularly important to the global economy than Taiwan Semiconductor Manufacturing Co (TSMC).

TSMC’s advanced microchips are indispensable to iPhones, medical devices, missile launch platforms and many other technologies, and they are largely unrivaled. Countries and companies that cannot avail themselves of TSMC’s most advanced semiconductors simply cannot develop certain critical technologies. The company’s decisions thus bear directly on matters of global security.

With the outlook for Sino-American relations grim, TSMC announced plans to invest US$40 billion to build a second fabrication plant in Arizona, where it is to make 3-nanometer chips. The first plant, for 4-nanometer chips, is scheduled to be up and running in 2024.

The company’s decision to site more production in the US is understandable now that tensions over Taiwan have taken center stage.

Following US House of Representatives Speaker Nancy Pelosi’s visit to Taipei in August, China conducted unprecedentedly aggressive military exercises, launching missiles near the nation and simulating a blockade in the Taiwan Strait.

Then, in October, US President Joe Biden’s administration announced sweeping new export controls designed to cripple China’s ability to produce advanced chips and pursue other high-tech manufacturing.

Although China has invested massively in domestic chip production, the results have been disappointing. Now that Chinese President Xi Jinping (習近平) has secured a third term, his regime could retaliate by terminating US tech firms’ contracts to build data centers for Chinese provincial governments.

While TSMC has received a one-year exemption from the new US export controls, there could come a time when Washington might push it to cut off most of its business in China. The Biden administration worries that China is using TSMC chips in a new class of hypersonic missiles, and to pursue global dominance in artificial intelligence.

China’s dependence on Taiwanese chips has served as a form of deterrence and protection for Taiwan, because the Chinese government cannot seize its highly sensitive chip-manufacturing facilities by force.

While some observers worry that China might regard TSMC as a reason in itself to take Taiwan, TSMC chairman Mark Liu (劉德音) has said that a war would inevitably destroy TSMC’s fabs or render them inoperable.

Still, TSMC finds itself caught in the middle of a great-power competition, because it produces chips that both sides want and has operations on either side of the Taiwan Strait. While the Chinese market accounts for 10 to 12 percent of the company’s total revenue, the US is its largest customer base, and Taiwan is still its major center of production, research and development.

TSMC is diversifying its chip manufacturing capacities to avoid becoming entangled in geopolitical complexities. Beyond Arizona, it plans to open fabs in Japan, and it is in the process of evaluating sites in Europe.

However, there is a limit to how far TSMC’s diversification can go before it deprives Taiwan of its silicon shield.

China is almost certain to fall behind in the semiconductor race, because it lacks access to the lithography machines needed to manufacture the most advanced chips. Nonetheless, it is likely to dominate the market in legacy chips (those ranging from 28 to 44 nanometers), and it is working quickly to develop its own technology standards.

While the US has sought to reduce its own dependence on Taiwanese chips by enacting the CHIPS and Science Act, any increased federal support for domestic semiconductor producers would not resolve the issue entirely. TSMC is set to manufacture the most advanced chips for the foreseeable future, with much of the supply chain remaining in Taiwan.

Therefore, US policymakers must be prudent when it comes to export controls. Policies that succeed in cutting off China entirely from advanced chips could change the deterrence calculus and leave China with nothing to lose by invading.

As President Tsai Ing-wen (蔡英文) said in a recent speech, the superpowers’ shared dependence on Taiwanese chips must continue to be seen as “not a risk, but … the key to the reorganization of the global semiconductor industry.”

As geopolitical tensions rise, maintaining deterrence in the Taiwan Strait is more important than ever. Xi’s address in October to the 20th National Congress of the Chinese Communist Party showed that he is serious about unifying Taiwan with China — by force, if necessary — although when remains unclear.

As the US and Taiwan head into their own presidential election cycles, politicians might feel increased domestic pressure to take decisive action.

That said, TSMC’s goal remains the same: to maintain its status as the unrivaled industry leader. To do so, it must play a smart long game. That means making necessary sacrifices in its Chinese business, pacing itself with new investments and diversification overseas, and ultimately keeping its most advanced chips in Taiwan.

China and the US are likely to see each other as strategic rivals for many years to come, and technology and national security are to remain at the center of their competition. Ensuring that Taiwan’s economy, trade and technology supply chains are resilient and less dependent on China is in the US’ vital interest.

Caught in the middle of the 21st century’s great-power competition, TSMC can only hope that US leaders continue to recognize this.

Jason Hsu is a senior research fellow at the Ash Center for Democratic Governance and Innovation at Harvard Kennedy School, and a former at-large member of the Legislative Yuan.

https://www.taipeitimes.com/News/editorials/archives/2022/12/27/2003791473

TSMC remains a hot topic, even in the Taiwanese election campaign. The National Party KMT now accuses the DDP of selling out and giving away TSMC to the USA, saying that Intel will be the winner and TSMC will become USMC. The DDP is ruining Taiwan’s economy and is not a national force, and TSMC owes its existence to the KMT’s industrial policy. It will be interesting to see to what extent this will be a campaign issue, especially since Tsai and the DDP suffered a blow in the local elections when they wanted to put their China policy to a kind of referendum.

Wed, Dec 28, 2022 page2

KMT accuses government of ‘gifting’ TSMC to US, warns of economic doom

• By Jason Pan / Staff reporter

Chinese Nationalist Party (KMT) lawmakers on Monday accused the government of “ruining” Taiwan Semiconductor Manufacturing Co (TSMC) by “gifting” it to the US due to pressure from Washington, adding that the move would hollow out Taiwan’s economy.

“It is the KMT that cultivated TSMC and turned it into a leader of the semiconductor industry, but now the Democratic Progressive Party [DPP] government is giving it away. TSMC will surely become ‘USMC’ in the future,” KMT caucus convener Tseng Ming-chung (曾銘宗) told a news conference at the legislature.

KMT caucus deputy secretary Wu I-ding (吳怡玎) said that “the DPP government is not only pressuring it [TSMC] to set up plants abroad, it is also giving away gifts, such as Taiwanese experience and talent in chip production, to other countries,” Tseng said. “In doing so, the DPP has ruined TSMC as well as Taiwan’s economy,” he added.

TSMC had total capital expenditure of about NT$1.8 trillion (US$58.65 billion at the current exchange rate) from 2019 to last year, which is equivalent to about 12 percent of overall domestic capital expenditure in Taiwan, Tseng said.

“It [TSMC] is an important leader of the nation’s economy, and has supply chain and industry clusters in Taiwan, as well as a vital role in the global economy,” he said.

“TSMC is now building a plant in Arizona with initial investment of US$12 billion. The 4-nanometer chip facility is due to start production in 2024. It is also planning a 3-nanometer plant with US$40 billion investment,” he added.

“Meanwhile, its main competitor, Intel, also has a plant in Arizona for 4-nanometer and 3-nanometer chips, only an hour’s drive away from TSMC’s plant,” Tseng said.

“Industry executives and experts have said Intel would be the winner by taking new technology from TSMC and improving its production yield rate,” he said.

“Intel offers salaries three to five times higher those offered by TSMC… It is tantamount to TSMC training engineers and technicians for Intel,” he added.

“We demand that the administration of President Tsai Ing-wen (蔡英文) provide the support needed to come up with concrete policies to keep the ‘Silicon Shield’ in Taiwan,” Tseng said.

KMT Legislator Alex Fai (費鴻泰) said the domestic semiconductor industry accounts for about 20 percent of Taiwan’s GDP and about one-third of the nation’s exports.

“TSMC has already sent 1,000 engineers to Arizona and the number is expected to reach 2,000 by the end of next year,” he said.

“When 3-nanometer chip production begins in 2026, it [TSMC] will have to poach engineers from Taiwan’s other semiconductor firms,” he added.

“The brain drain of Taiwan’s semiconductor professionals to the US would escalate in the coming years. Then what will Taiwan be left with?” Fai asked.

“TSMC is in its 35th year, but since President Tsai assumed office, she has caved in to pressure from the US government on the pretext that TSMC’s cutting-edge technology for producing advanced chips must not fall under China’s control,” he said.

KMT lawmakers also reiterated their version of TSMC’s establishment.

Fai said Taiwan had two outstanding figures — Sun Yun-suan (孫運璿), who served as economics minister and premier from the 1960s to the early 1980s, and economist Lee Kuo-ting (李國鼎), who served as finance and economics ministers, as well as a Cabinet adviser, from the 1960s to the 1980s.

“When Sun took charge as premier, he asked Lee to convince [TSMC founder] Morris Chang (張忠謀), who was then working at Texas Instruments in the US, to move to Taiwan by offering a higher salary and other promises,” he said.

“Chang then headed up the Industrial Technology Research Institute, then he founded TSMC in 1987,” he added.

https://www.taipeitimes.com/News/taiwan/archives/2022/12/28/2003791557

But the DDP-affiliated Taipei Times does not stop at geopolitical and geo-economic considerations, the „Democracy Chips“ and democracy so praised by Tsai before do not play a role there for the time being, but tops this macroscopic perspective: What is Taiwan’s role in anthropocene and human history, indeed its vital contribution for mankind and the future? Here, too, reference is made essentially to Taiwan’s geopolitically significant role in high-tech and chip production (unspoken TSMC), which is the technological precondition and solution for almost all problems of mankind and the anthropocene, including man-made climate change, even if one should no longer produce useless goods and buy Christmas presents without plastic.

„Wed, Dec 28, 2022 page8

EDITORIAL: Taiwan’s place in the Anthropocene

The days between Christmas and New Year’s offer the opportunity to take a step back and put the bigger picture into view.

Maybe the expectation to reach people in a contemplative mood affected the Anthropocene Working Group’s decision to schedule a panel on Saturday before Christmas to more narrowly define the Anthropocene, a proposed geological epoch defined by a human-induced “great acceleration” of processes that leave an imprint on the planet. The New York Times reported on the event by the international academic group.

What is the role of Taiwan, a nation of 0.3 percent of the world’s population and 0.007 percent of its landmass, when looked upon through a lens that puts a very large frame of reference into view?

Taiwan’s greatest recent contribution to the world might be its high-tech products, such as semiconductors powering essential machinery worldwide. It has become a high-income country, like many others in Asia, a trend economists describe as a long-term eastward shift of global wealth.

Taiwan’s GDP per capita ranked 27th worldwide last year, IMF data showed. Its average monthly wage was US$1,398 in August, which would rank slightly lower, at 35th, if Taiwan were included in Organisation for Economic Co-operation and Development data sets.

Its carbon emissions of 11.72 tonnes per capita per year, probably its longest-lasting contribution to the Anthropocene, ranked 21st, according to Worldometers.

Lowest in that ranking are mostly poorer countries, such as Mali and Somalia. Some developed economies in Europe, such as Sweden (78th), also rank below Taiwan, although their wealth is in part generated using high-tech hardware made in Asia, the production of which is usually not factored into their carbon footprint.

However, the general trend is clear: The wealthier a population, the more carbon it emits. Extreme examples of billionaires’ vanity projects, such as Amazon founder Jeff Bezos’ joyride on a rocket to space last year, are a case in point — and unfortunately one that might make the average person wonder why they should even try to reduce their carbon footprint.

Without finding a sufficient answer to the “why should I?” question, Taiwanese, or anyone who feels connected to Taiwan, might instead pride themselves on the role the nation’s industry, despite being a large emitter, plays in the global shift to a low-emissions future, with “green” solutions powered by sophisticated chips made in Taiwan.

However, doing good on a larger scale and in the longer term does not outweigh doing less so individually and immediately. Taiwanese chips can power high-tech solutions seeking to keep Earth hospitable, but also harmful vanity projects.

The eastward shift of wealth, if it continues to materialize, adds another dimension to the problem. People switching from gasoline-powered scooters and taking public transportation on large electrical vehicles that accommodate heavy, resource-intensive batteries would not alleviate the burden on the planet. The same is true for people moving to lavish, much more resource-heavy condominiums, including those advertised as “sustainable.”

People need to be aware that all consumer goods — the Christmas present for a loved one or the plastic bag that makes the way home from the breakfast shop more convenient — contribute to their, and Taiwan’s, carbon footprint. Taiwanese should follow the global trend and ask themselves whether it is in any case worth it; for the Christmas present, something useful at best, the answer might be yes, for the plastic bag it might be no.

Taiwan must find a way to grow its economy without increasing its output of goods that are not worth it by Anthropocene standard

https://www.taipeitimes.com/News/editorials/archives/2022/12/28/2003791537

China has now held threatening maneuvers over Taiwan again, 6 groups of air carrier and 78 aircraft had violated Taiwanese air and sea space beyond the middle line. The Global Tines comments on these maneuvers, while China held simultaneously Russian-Chinese maneuvers in the East China Sea, that it is no longer just about deterring seperatist forces and the DDP. They are reacting to provocations from the U.S. and Taiwan, specifically the new arms deliveries under the NDAA 2023 and the announcement that Taiwan will participate in the U.S.-led Pacific Rim naval maneuvers, according to the Global Times:

“PLA actions are more than just to deter ‘Taiwan independence’: Global Times editorial

By Global Times Published: Dec 27, 2022 12:16 AM

The DPP authorities have been like frightened birds in recent two days. The roar of the PLA fighter planes put them in a state of high tension. Although they’re pretending to be calm and trying to embolden themselves, it is still hard to hide the inner panic and fear. This is exactly what we hope to see. Since the DPP authorities and the „Taiwan independence“ separatist forces don’t give up or restrain their manipulation of „relying on the US to seek independence,“ the Chinese mainland has many ways to make them restless, and will eventually get them to face their final doom.

On December 25, the PLA Eastern Theater Command has held cross-service joint alert patrol and fire strike drills around the Taiwan island. According to statistics from the Taiwan military, in the 24 hours from 6:00 am on December 25 to 6:00 am on December 26, a total of 71 PLA military aircraft and seven PLA warships were operating around the Taiwan Straits, of which 47 aircraft flew over the „middle line“ of the Taiwan Straits and entered the „airspace“ to the southwest of the Taiwan island. Media on the Taiwan island said that this recorded the largest scale of PLA military aircraft flying around Taiwan this year, and the second largest number of aircraft entering the island’s southwestern „airspace,“ and flying through the „middle line“ of the Straits.

Facts have proved that the PLA applying military pressure has the most direct and strongest psychological impact and deterrence on the „Taiwan independence“ separatist forces. But we also want to warn the DPP authorities that the relevant actions of the PLA are not just to deter „Taiwan independence“ forces, nor are they just to show will and determination of reunification. There is also a crucial point: the PLA is exercising and strengthening capacity and practical preparation to take decisive measures in times of emergency. „The command troops will take all necessary measures to resolutely safeguard national sovereignty and territorial integrity.“ The PLA will continuously let „Taiwan independence“ and external forces realize the weight of this sentence.

Spokesperson for the Eastern Theater Command of the Chinese PLA made it clear that this exercise is a „resolute response to the US and Taiwan’s current escalation of their collusion and provocation.“ US President Joe Biden just signed the National Defense Authorization Act (NDAA) for Fiscal Year 2023 on December 23. One of the contents is that in the next five years, it will provide Taiwan with a total of $10 billion in „military assistance“ with a maximum of 2 billion US dollars per year. The NDAA also calls for expedited processing of Taiwan’s military purchase request, and proposes to invite Taiwan to participate in the Rim of the Pacific 2024. These vicious clauses seriously violated the one-China principle and the three China-US joint communiques, and caused serious damage to the peace and stability of the Taiwan Straits.

Chinese side has lodged a solemn representation with the US side. At the same time, two days after the NDAA was signed, the PLA held a large-scale military exercise in the Taiwan Straits, using powerful military actions to demonstrate its firm attitude. The US is still pursuing the so-called „porcupine strategy,“ trying to turn Taiwan into a military porcupine that the mainland cannot bite through military aid and arms sales to Taiwan. It sounds like a strategy, but in fact, the US and Taiwan island can’t achieve it at all. The trend of the military strength comparison between the two sides of the straits cannot be changed because of $10 billion in military assistance and the sale of some outdated weapons by the US. Second, the mainland will not sit idly during this period. Every time the US increases its support for the DPP’s resistance toward reunification, we will double the pressure on it to promote reunification and oppose „independence“ to ensure that the US-Taiwan collusion will not obstruct the reunification process, but instead accelerate its realization.

The mood of the DPP authorities is like taking a roller coaster. They were grateful to the US just a few days ago, imagining that they have acquired more capital to „confront the mainland and seek independence,“ but the PLA drill immediately brought them back to reality. They are feeling extremely insecure internally, and in the future they will feel even more nervous. The drill is highly targeted. It means the PLA army, navy and air forces in relevant theater command are always ready for responding to emergencies. The cross-service joint alert patrol and joint fire strike drill also have a high degree of actual combat. The DPP politicians need to carefully think about it. 

The last thing that the Chinese people want is a war breaking out in the Taiwan Straits. The outsiders cannot possibly care more about the peace and stability of the Straits than we do. The problem now is that there are „Taiwan independence“ separatist forces on the island who are unwilling to give up, and outside the island, the US is constantly taking action to „exploit Taiwan island to contain China.“ The Chinese mainland must make full preparations in military. There is always a sword of Damocles hanging over the heads of DPP and „Taiwan independence“ separatist forces.

https://www.globaltimes.cn/page/202212/1282696.shtml

While the German Ministery of Economics under Habeck prepares for the scenario that “China will annex Taiwan in 2027 at the lattest”, the PLA is just training for such a case:Many experts are now criticizing Habeck for being a provocateur himself, for pouring oil into the fire, for wanting to fuel the conflict with China and for setting the date accordingly dramatically: “China will annex Taiwan by 2027 at the latest”.

Just as if a Sino-American war could be triggered and decided by Germany. The times when the three main imperialist great powers USA, China and Russia understood each other quite well and against this background the Schröders and Merkels could imagine that she was something like “the most powerful woman in the world”. have been over since Trump at the latest. Now, in view of this escalating conflict between the three great powers, people in Europe and Germany are realizing that they have entered into cruel dependencies, that they are no longer the supposed leading power, they are now trying to become one in competition within the EU against each other , or otherwise as the Körber Foundation hopes for a German-French-Polish axis that could form a strong European and integrative axis. In fact, however, the USA, Russia and China determine the conflict and how it will develop, Europe and Asia is the venue and possibly the battlefield of their competition and the rest of Asia and rest of Europe can provide the respective auxiliary troops and sort themselves into this bloc formation. Baerbock, like Merkel, thinks she is the most powerful woman in the world because she is currently acting under Biden’s US whistle and Blinken speaks with her also on a first-name basis, but at the latest with Trump it could all be over again and even now it’s not the way she imagines it would be. So real power and imagined power are two different things, especially if you can at best imagine a conventional Weimar axis as a power option, but which wouldn’t even know where it got its nuclear protection from.

But to come back to the topic of an CHinese Taiwan invasion and possible sinoamerican war: Tt’s not just a tactical question, it’s a very fundamental one: Global Review would like to defend Habeck here. One can argue about invasion dates, but we were already considered crazy back then when we pointed to a coming Sino-American conflict with the possibility of war in our GR article „How should Germany positioned in a Sino-American war?“, which was also publish on the website of the think tank of the Russian Ministry of Foreign Affairs RIAC, because at that time we still had the illusionary hope ala Mearsheimer’s offensive realism and Merkel or Schröder that Russia could be brought to the western side in such a Sino-American conflict or just kept neutral. Irrespective of the specualtive choice of date for a Chinese invasion of Taiwan, Germany should have at least strategic stockpiling as a consequence, which can compensate for or at least mitigate a loss of supply from China for at least a year, especially since the US chief strategist at Offshore Control TX Hammes clearly explains that in the event of such a Sino-American War, world trade would collapse in the beginning as it did during World War I, especially since world trade today is much more extensive, intensive, interdependent and global. In this respect, Habeck is right to address it at all and to press the pedal, since there are problems at every corner, from the energy transition to German rearmament. And I would also be careful if Xi is really the rational thinker and Go- strategist. We had previously said that about Putin, especially since he was the first sober Russian and apparently neo-realistic chess player in contrast to the drunk Yeltsin. In addition, one must also take into account that such a war could also be triggered by a Trump, Pompeo, Ron De Santis or China hawks on the US side or the interplay of provocations between Xi and the US side. We’ll leave this question open for a moment, but we think that the organization of strategic stockpiling and reserve should at least be promoted, beacuse even under the most harmless scenario of Offshore Control, a maritime blockade of China ala TX Hammes, the snaction effects against Russia and the backlash were harmless. Of course, that doesn’t mean Nintendo consoles for video games for Christmas as the delay in delivery caused by the stranded container ship in the Suez Canal has already triggered half a national crisis,but about real strategic stockpiling of essential core goods and raw materials. Not easy, because since just-in-time and lean production, logistics, warehousing and the associated infrastructure first have to be learned and built again. Sort of back to the milk lakes and butter mountains of the old EG and other things—but vice versa, we haven’t heard anything about it from Habeck either. That would be more of a criticism and the question if there couldn´t be also diplomatic initiatves.

An LMU professor commented:

„The only thing is that it could be that there are forces in the U.S. that want to do exactly that. You cut China off for so long and at the same time force Taiwan to export its technology to the USA until Xi really attacks. Then the trap snaps shut and you’re rid of the competitor, just like Russia is now.“

Yes, such forces exist in the U.S. ,in the most prominent and well-known places such as Pompeo, Bolton and Larry Wortzel. But this is only the tip of the iceberg, especially since the presidential election campaign in Taiwan and the USA will begin next year, and the USA is planning to completely abolish the current exemption regulation for TSMC exports to China, which some experts, especially representatives of the peak power theory, already see as a potential reason for war. 

Regardless of the question of the date and the possible war guilt, it is necessary that Germany and the EU build strategic stocks, which could bridge at least 1 year supply failure from China. In the short time propably not so easy to do, but it should be begun. We also advocate this in this Global Review article and on Habeck’s advice this is now also being considered by the German government and the EU:

„Supply chains Full warehouses instead of just-in-time: a new era is dawning for companies

by Leonie Düngefeld

26.07.2022

Japan, China and the USA are leading the way, and Berlin and Brussels are also discussing it: To relieve supply chains and ensure production, companies could build up reserves of raw materials. So far, however, this has been too expensive. Government stocks could also be part of the strategy.

When Peter Handley, head of unit for raw materials in DG Grow, presented the first building blocks for the EU’s raw materials package in mid-July, he did not reveal whether strategic raw materials stocks would also be part of it. The industry has been calling for political support for this tool since the beginning of the pandemic. This is because higher stock levels provide a buffer that companies can use to bridge supply bottlenecks in the short to medium term, cushion price risks and thus reduce their dependence on suppliers.

The EU Commission is at least currently examining „possible options for strategic stocks at EU level,“ an EU official told Europe.Table. In the Versailles Declaration, EU leaders had given the Commission a mandate to explore strategic stockpiling of critical raw materials. The Parliament’s report, adopted in November 2021, also calls on the Commission to include „strategic stockpiling“ in its action plan. This involves the most economically important raw materials with a high supply risk, which the Commission last listed in 2020.

„However, the responsibility for ensuring a constant supply for manufacturing processes lies primarily with industry,“ the commission representative said. „They should pay attention to their security of supply, diversify their supplies and invest in resilient supply chains.“

Companies participate in mining projects

Matthias Wachter, head of the raw materials department at the Federation of German Industries (BDI), also supports this. „Companies know their raw material needs and procurement markets better than government institutions.“ That’s why stockpiling under the responsibility of industry is the most efficient solution, he says. The problem: Until now, it has had a negative impact on the balance sheet when companies store raw materials – hence the just-in-time production that has been practiced for decades. „Warehousing is always associated with additional costs for companies,“ explains Wachter. Stored material also means a significantly higher capital commitment. „There is thus no incentive to stockpile critical raw materials for a rainy day.“

The global economy is currently at a low ebb for small parts. It is said that car manufacturers are dismantling Playstation consoles to get their hands on chips. No wonder investors are fearful of the coming reporting season

In July 2020, the first year of the pandemic, the BDI surveyed its members about the impact of the pandemic on raw material supplies. More than half of the companies surveyed had increased their own stockpiles at that time. Most of them wanted greater political support for this, for example through tax breaks for stockpiling. The BDI proposes a „raw material stockpiling reserve“. In balance sheet and tax terms, storage should only take effect when the stock is liquidated again and the corresponding raw material is used.

In other countries, it is quite common to stockpile non-fossil raw materials as well. For example, the Chinese Food and Strategic Reserves Administration stores copper, aluminum and zinc. Government loans allow imports during periods of low prices. When commodity prices rise, the authority then releases reserves to ease the burden on companies.

Japan is also considered a successful example. There, companies participate in international mining projects. „This is an indirect way of stockpiling, because by directly participating in a mine, there is proportionate long-term availability,“ explains Peter Buchholz, head of the German Raw Materials Agency (DERA). „With long-term supply contracts, you can organize just-in-time production well across the supply chain and secure stable prices in the long term.“

State reserves for defense industry

In addition, the state-owned Japan Oil, Gas and Metals National Corporation (JOGMEC) coordinates with companies on raw material requirements for crisis situations, then purchases and stores them on world markets. JOGMEC also explores new raw material deposits, then sells the licenses to Japanese companies.

Government reserves beyond strategic oil and gas reserves could also make sense in Germany, Buchholz explains. „If the state is responsible for a certain stockpile, it can better manage risk provisioning in terms of the national economy, for example for strategically relevant industries and population protection.“ One possibility, therefore, could be the U.S. model: There, the Defense Logistics Agency, which is part of the Department of Defense, stocks certain raw materials relevant to defense. Currently, 42 metals – ranging from base metals like zinc, cobalt, chromium and manganese to precious metals like iridium and platinum – with a market value of about $1.1 billion are stored at six different locations in the United States.

The disruption to supply chains will become dramatic for many companies in the coming weeks and months. Frank Arnold outlines one way that corporate executives can work together to tackle supply problems

In Europe, France, Sweden, Slovakia and the UK stockpiled strategically important metals starting in the 1970s and 1980s. In 1979, the Federal Republic of Germany also planned to build up a raw materials reserve for economic purposes. One option discussed at the time was tax incentives for the private sector, which would bear responsibility for the stockpiles. However, the government feared that stockpiling could thus be used as a means of private-sector speculation. The plan was therefore abandoned a short time later.

Today, it is being considered again: The Federal Ministry of Economics is examining „support measures that go beyond the measures adopted in the German government’s raw materials strategy in 2020,“ a spokeswoman told Europe.Table. „This also includes various aspects of stockpiling.“ Reviews of possible measures are ongoing, and so far there are no results, according to the BMWK.

Stockpile when prices fall

The time frame for stockpiling by companies should be set by policymakers, thinks Matthias Wachter of the BDI. He suggests, „If you have a few months‘ buffer, you could continue to produce in the event of a supply disruption and secure alternative sources of supply in the meantime.“ If inventories last for at least half a year, you can usually weather short- and medium-term crises well, says DERA head Peter Buchholz as well.

In view of the high raw material prices, however, setting up storage facilities would currently only make sense to maintain production, Buchholz said. For strategic storage, he says, one would have to wait until prices fall again. „Commodity markets are cyclical and very volatile,“ he explains. „Countercyclical behavior would have to be much more ingrained in the industry.“ China is in a better strategic position in this regard. Their import figures for copper show: China imports massively when prices are low.

According to a study commissioned by the German Federal Institute for Geosciences and Natural Resources (BGR), three factors are crucial for successful implementation and use of raw material stocks: constant demand and therefore predictable sales, material specifications, and the relationship between raw material prices and available financial resources. Peter Buchholz suggests a planning horizon of about five years. During this period, for example, you could buy material at low prices, store it, and then produce competitively when prices rise again. In strategically important industries, you could also plan over ten years and replenish stocks again and again during favorable phases.

Which raw materials are suitable for storage in the first place is another question. Some metals are not weather-resistant and rust quickly. In addition, unprocessed raw materials are better suited for storage than processed materials – though processing currently takes place mainly in China. „It makes no sense to store a raw material here if you can’t process it further,“ says Peter Buchholz.

Strategic raw material storage must therefore be part of a larger package. Matthias Wachter speaks of the „multi-pillar model“: „We also need diversification of supply sources, more recycling and more extraction in Germany and Europe.“

https://www.capital.de/wirtschaft-politik/volle-lager-statt-just-in-time–fuer-firmen-bricht-eine-neue-zeit-an-32571010.html

Whether Sino-American war or economic war or „protracted war“(Xi), people in the U.S. also criticize that they have not yet really adjusted to the paradigm shift. According to Dan Blumenthal (American Enterprise Institute) and Erik Scissirs (Heritage Foundation), China has for the time being given up the goal of overtaking the USA in the near future. Instead, they say, the Chinese Communist Party now wants to make the country more independent and resilient, and to turn other countries‘ dependencies on China into weapons of geopolitical blackmail and coercion.

“Breaking China’s Hold

As Beijing’s ambition of overtaking the American economy stalls, its strategy is shifting to economic coercion. The U.S. must be prepared.

By Dan Blumenthal and Derek Scissors

The United States is in danger of missing a profound change in the economic component of China’s geopolitical strategy. Chinese President Xi Jinping has downgraded the Communist Party’s ambition to overtake the U.S. in economic size (though that is still officially a goal). Instead, his priority is to minimize China’s dependence on other countries and maximize its ability to coerce them economically. This is an implicit acknowledgment that China can’t achieve the aim of being a truly rich nation anytime soon. But the U.S. cannot afford to be complacent: China can wield its very large economy as a strategic weapon.

Just as the U.S. previously needed to respond to a China that was bent on becoming the world’s foremost economy, Washington now needs to respond to a China bent on long-term economic coercion to secure the interests of the Communist party and the Chinese nation. Domestic action by the U.S. is important, and is easier to achieve, starting with better understanding Xi’s goals. Internationally, to persuade friends and allies to limit their reliance on China, the U.S. must revive a moribund trade policy.

Xi clarified China’s new approach in a series of speeches in 2020, claiming that the “powerful gravitational field” of the state-controlled Chinese market can be used to reshape supply chains in Beijing’s favor. In Xi’s view, this is essential in what he’s called the “great struggle” against Western efforts to limit China’s technological advancement and target its import vulnerabilities.

China has, of course, long engaged in industrial espionage and coercive technology transfer. And Xi’s “Made in China 2025” industrial plan has, since 2015, provided sweeping government assistance to such sectors as semiconductors and electric vehicles. Xi now seems to believe that China must redouble efforts to tilt economic leverage in its favor, as Beijing responds to what it views as an evolving American strategy of containment. Xi may see the decoupling of the two countries’ economies as ultimately inevitable—and may now be actively advancing it, on his preferred terms.

At home, Xi evidently fears that a thriving private sector risks powerful constituencies developing outside party control—he has cracked down on activities perceived as threatening in this respect. With the party determined to retain control of the economy, potentially productive industries face many barriers to expansion. In their place are sectors that serve the party’s interests first. This is not conducive to innovation and scientific breakthrough and, along with deteriorating demographics and high debt, will continue to limit growth.

This hardly means that China has given up on competing with the U.S. and others, but it will do so through state-shaped technological development and, crucially, its preeminent position in global supply chains. China will be neither the world’s low-tech factory nor its leading tech pioneer, but will aim instead to make itself indispensable as a producer of high-value goods upon which even its adversaries depend. This is a perceptive and potentially fruitful alternative to rapid economic growth.

Regarding electric vehicles, for instance, China owns substantial overseas reserves of lithium and cobalt and is rushing to add more. It also seeks to become the premier processor for these minerals. Green-energy equipment may be made elsewhere, but it will rely on Chinese materials. In biopharma, China dominates the production and export of basic pharmaceutical ingredients and is looking to expand final manufacturing of pharmaceuticals.

In aerospace, Airbus, Boeing, and Bombardier will soon face a Chinese competitor, COMAC, whose planes look a lot like theirs. If the Chinese planes improve, the foreign firms will have more trouble selling theirs to China. Then COMAC will start exporting on a large scale, beginning with poorer countries. For semiconductors, the PRC has a strong position in testing and packaging at the end of the supply chain. It seeks to greatly expand the production of low-end chips. Without a better defense against Chinese oversupply, foreign competitors will be killed off, and China could dominate major parts of the industry.

If this proves to be the new order, the U.S. and a few other countries will remain richer than China, and their industries will make big breakthroughs, such as in mRNA vaccines and high-end microchips. Beijing will continue to largely absorb foreign innovation and then eventually drive foreign producers out of business. The dominant feature of the Sino-American commercial competition will not be a race based on economic growth or on technological advancement, as many anticipate. Rather, through subsidies, coercive technology transfer, and unbalanced market access, inferior Chinese firms will win market share at the expense of more dynamic competitors.

China will still seek growth, just not as its main priority. It will spend heavily on science and technology. But its focus will be on strategic economic leverage. Beijing’s theory of victory in this clash is that its combination of strategic planning, manufacturing prowess, and a huge market will undermine foreign innovation, insulate the party from American pressure, and arm Beijing with more tools of economic coercion. This could also force more deindustrialization in the U.S.

If American policy makers and the private sector want to avoid this fate, considerable decoupling must occur. The U.S. will need to revise its economic strategy or it will continue on a course toward asymmetric dependence on China. This must start with changes to the world’s wealthiest national economy. The low-cost consumption that Americans enjoy through trade with China will have to give way so that more reliable production is a priority. This will cause some short-term economic pain, but it is protection against China’s inevitable disruptions of future American consumption.

The coronavirus pandemic has already pushed the private sector in this direction. Government policy must now codify and amplify the shift. These policies cannot be pushed through by executive fiat; they require a bipartisan consensus and new or modified law.

Some production will need to leave China so the U.S. can exchange cheap goods for greater economic resilience. A new economic strategy will mix producing more in North America with importing goods from trustworthy trading partners. There is already bipartisan support for boosting production at home—the 2022 CHIPS and Science Act is the best example to date.

Read: Where U.S.-China competition leaves climate change

The international component of American strategy is more difficult because there is bipartisan support for protectionism as well. To tackle this problem, Washington should consider updating free-trade agreements, complex as that will be, after exploring narrower, sector-specific agreements for crucial supply chains and creating bilateral technology agreements. All of these measures should get congressional approval.

Bilateral technology agreements are relatively simple: Only a handful of countries matter in technology development, and the American goal should be only to limit transfer to China. America’s partners will be activated by their own national-security concerns, as well as worry over China’s record of copying technology, then driving out the original developers. But some of them will also have to free themselves from entrenched dependence on China, which will require time and consistent American policy to overcome.

Agreements covering particular industrial sectors can be useful, involving not only tech but others, such as pharmaceuticals, as well. The approach involves strictly enforcing limits on Chinese participation in a supply chain serving the U.S. This same enforcement creates opportunities for firms to make gains in the American market as the subsidized Chinese competition is blocked. Some partners, with their own concerns about Chinese participation in supply chains, may not need much incentive.

An administration and Congress—both motivated by unfair Chinese competition—should be able to agree on pursuing such negotiations under the Trade Promotion Authority, through which Congress gives the president negotiation instructions in exchange for an up-or-down vote on any deal. If this occurs, the next step is to make the case to partners to partly replace the role played by China’s large labor force; South Asian and Southeast Asian countries such as India, Indonesia, and the Philippines are well positioned to benefit.

How far and fast Xi’s new economic strategy will go is debatable, but some signs of coercive economics are already apparent. In 2017, China blocked consumer products, travel, and cultural trade with South Korea because it deployed a U.S. anti-missile system (aimed at North Korea). In 2020, Beijing restricted trade with Australia as punishment for Canberra’s desire to investigate COVID-19’s origins. In late 2021, China began boycotting Lithuanian goods in response to the Baltic nation’s establishing closer diplomatic ties with Taiwan. If unchallenged, China’s bid on supply chains will further shift patterns of production and trade in its favor.

China is creating more enterprises like Huawei in semiconductors, biotechnology, and other industries. At some point, if Washington does something Beijing dislikes, China may simply stop the supply of crucial goods in these sectors. The nature of China’s economic challenge has changed. America must adapt to meet it.

Dan Blumenthal, a senior fellow at the American Enterprise Institute, is the author of The China Nightmare: Grand Ambitions of a Decaying State.

https://www.theatlantic.com/international/archive/2022/12/china-economic-coercion-united-states/672524/