Column by the President of Hitachi Research Institute, Mizoguchi
The charm of Taiwan’s night markets lies in their disorder. Steamed buns, fried chicken, noodles, oyster omelets, mango-flavored shaved ice, and more are lined up in no particular order in food stalls, general stores, and game arcades. There seems to be no distinction between the shops and the road. There isn’t a clear difference between customers and staff either. On top of that, the glittering neon lights make it hard to tell the time of day. In such a space, people of all ages, genders, and nationalities are enjoying themselves while jostling one another. This free-spirited atmosphere is hard to find anywhere else. According to the latest survey by the Election Study Center at National Chengchi University in Taiwan, 64% of Taiwanese people consider themselves to be “Taiwanese,” 30% consider themselves to be “Taiwanese and Chinese,” and only 2% consider themselves to be “Chinese.” I’d like to propose the theory that the freedom and disorder of Taiwan’s night markets contribute greatly to the strengthening of Taiwanese identity.
Taiwan has a population of about 23 million and a per capita GDP of $32,300, which is almost on par with Japan. Although its economic growth in 2023 was only about 1.4%, it is expected to increase to nearly 4% in 2024. Driven by the manufacture and export of electronic components, Taiwan’s economy continues to grow steadily. Aided by a split in the opposition, the ruling Democratic Progressive Party (DPP) won this year’s presidential election, and for the first time since Taiwan’s first direct election of a president in 1996, the same party has been in power for three consecutive terms. In his inaugural address on May 20, newly elected Taiwanese President Lai Ching-te stressed the following “four firm commitments:” (1) adherence to a free and democratic constitutional system; (2) adherence to the principle that Taiwan and China are not beholden to each other; (3) adherence to the principle of no violation of sovereignty and no annexation; and (4) adherence to the principle that Taiwan’s way forward should reflect the will of all the people of Taiwan. It can be said that Taiwan has sent a clearer message than the previous administration that it does not aspire to unite with China.
Taiwan is now at the center of the global semiconductor supply chain. The global market for contract manufacturing of semiconductors is expected to reach more than $130 billion this year, and Taiwanese companies will account for about 70% of that amount. The overwhelming leader among those companies is TSMC (Taiwan Semiconductor Manufacturing Company), which has made great strides thanks to its “foundry” business model created by Morris Chang. TSMC’s market capitalization has reached approximately 940 billion dollar, while Foxconn, the second largest Taiwanese company, has a market capitalization of only about 79 billion dollar, which highlights TSMC’s outstanding presence. If TSMC’s plants ever cease operations, neither Apple’s iPhones nor NVIDIA’s GPUs can be shipped. The diverse industries supported by TSMC-manufactured semiconductors are the lifeblood of major industries around the world. Taiwan’s government provides generous support to TSMC, and if an earthquake strikes Taiwan, TSMC plants receive priority in the supply of electricity. This status is exactly why TSMC is called “the divine mountain that protects the nation.”
Countries around the world have realized the geopolitical importance of semiconductors, so they are competing to introduce policies to increase their own semiconductor-production capabilities: Japan formulated its semiconductor and digital-industry policy in June 2021; the U.S. passed the CHIPS and Science Act—to support manufacturing and development of semiconductors—in August 2022; the EU adopted the European Semiconductor Act in July 2023; and India is planning to domestically produce its own semiconductors. TSMC is building plants in Kumamoto, Japan; Phoenix, Arizona in the U.S.; and Dresden, Germany by taking advantage of the support of the governments of those countries and regions. From the viewpoint of TSMC, establishing these overseas plants will help reduce investment costs, improve market access, and diversify supply-chain risk. However, TSMC’s cutting-edge technology will continue to be introduced in Taiwan first, so the reduction in the risks to the global semiconductor supply will be limited.
The Chinese government has repeatedly declared its intention to unify Taiwan with mainland China. While China does not rule out the option of using force to achieve unification, it has not set a clear deadline for reunification of Taiwan. In response to this situation, the U.S. government has adopted the “One China Policy,” which recognizes the People’s Republic of China as the sole legal government of China and “acknowledges the Chinese position that there is but one China and Taiwan is part of China” without endorsing that position as its own. Whether the U.S. military would protect Taiwan if China tried to invade the island by force remains ambiguous. Responding to this ambiguity, some American politicians are beginning to argue that the U.S. should explicitly state that it will defend Taiwan by force because the current ambiguous strategy can no longer deter China’s aggression.
One of the characteristics of the DPP is its clear “Taiwan first” approach, and it places a high priority on upholding Taiwanese identity. In response, this June, the Chinese government announced guidelines for punishing activists advocating independence for Taiwan. The importance of semiconductors in advanced-technology fields such as generative AI has become even clearer, and the understanding of Taiwan’s role as a key part of the semiconductor supply chain supporting the global economy has also grown. The perception of semiconductor-chip foundries is evolving from being low-value-added subcontractors to becoming central players in the industry. The blurred boundaries between politics, economics, and technology are gradually shrinking. Will the loss of ambiguity over Taiwan lead to the loss of the freedom and disorder of the night market? And will it lead to the emergence of geopolitical risk? The outcome of this “ambiguous game” will have a major impact on the world.
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