TSMC’s experience in Camas, Washington (Greater Portland) over the past 25 years adds to the doubts about the promise of the Phoenix project. Despite initial hopes that the Portland facility would become TSMC’s flagship in the US market, the company has struggled to find enough workers to stay competitive. After a quarter of a century with the same training and the same equipment, manufacturing costs in the US are still 50% higher than in Taiwan. As a result, TSMC has decided not to expand operations in Portland.
The basic problem is that although human resources in the US are highly skilled in chip design, the country lacks human resources with the desire or skills necessary for chip production.
TSMC Phoenix will continue to struggle because too few American workers have the skills needed for semiconductor manufacturing. Therefore, seeking economic security by moving semiconductor production to the US is a “costly but futile homework exercise,” as TSMC founder Morris Chang warned in 2022. The $52 billion figure in the CHIPS Act may seem like a large number, but it is not enough to create a self-sustaining semiconductor ecosystem in Phoenix.
Industrial policy can work, but only under the right circumstances. TSMC is proof of that. Taiwan’s industrial planners clearly chose a niche based on their existing strengths in manufacturing. They did not try to copy Intel, the leading semiconductor company at the time, because too few Taiwanese workers had the necessary design skills to do so. Japan’s subsidies to attract TSMC are likely to be successful because Japan already has many highly skilled manufacturing workers.
Like war, industrial policy has many unintended consequences. The availability of free money threatens to change TSMC from a company relentlessly focused on innovation to one more concerned with securing subsidies. The more TSMC’s management tried to fix its problems in Phoenix, the less attention TSMC paid to other problems. Those problems are so serious that they are said to have led to TSMC Chairman Mark Liu’s resignation in December 2023.
The CHIPS Act poses three major risks. First, if TSMC loses focus on innovation, the biggest losers will be its customers and suppliers, most of whom are American companies. The broader AI revolution – largely powered by chips made by TSMC – will grind to a halt. Furthermore, TSMC may reduce investment in increasing capacity in Taiwan, making the entire industry less resilient to spikes in demand.
Ultimately, TSMC may be so lost that another company will replace it as the leader in advanced semiconductor manufacturing. Many in Taiwan have viewed the CHIPS Act as an American attempt to appropriate Taiwanese technology.
According to the article, despite its good intentions, the CHIPS Act was poorly designed. Instead of creating a sustainable semiconductor manufacturing cluster in the US, it could cause long-term damage to TSMC and ultimately to Taiwan’s economy.
Building capacity in countries like Japan (where operations are less likely to damage TSMC’s business) may be a wiser strategy.
