INDUSTRIAL POWERHOUSE: Taiwan gains place of pride in global trade

The new Cold War, between the United States and China, is increasingly focused on access to just one industry in one place: computer chips made in Taiwan. Over the past year, Taiwan has taken a lead in the race to build thinner, faster and more powerful chips, or semiconductors. Its fastest chips are the critical building blocks of rapidly evolving digital industries like artificial intelligence and high-speed computing. The thinnest chips will be powering the coming “internet of things,” in which homes, cars, appliances and even clothes will connect to smartphones and voice-activated speakers over 5G networks.

As of now, any country looking to dominate the digital future has to buy these superfast, ultra-thin chips from either Taiwan or South Korea. And Taiwan has the edge in both technology and market power. It is a small island of just 24 million people, but it is at the center of the battle for global technological supremacy. Pound for pound, it is the most important place in the world. As the Cold War between China and the United States intensifies, that importance will only continue to grow.

After World War II, only two major emerging economies managed to grow faster than 5 per cent for five decades in a row and to rise from poverty into the ranks of developed economies. One was Taiwan, the other South Korea. They kept advancing up the industrial ladder by investing more heavily in research and development than did any of their rivals among emerging economies. Now they are among the research leaders of the developed economic world as well.

How did they accomplish this feat? Competent governments played a major role. South Korea nurtured giant conglomerates like Samsung and Hyundai, which exported consumer products under their own brand names. Taiwan cultivated smaller companies focused on making parts or assembling finished products for foreign brands. Today the flexibility goes a long way toward explaining its success. Taiwan always managed to stay near the cutting edge, at first by borrowing technology from Western nations. As early as the 1970s, electronics had replaced textiles as its leading manufacturing industry. Through every phase of the computer revolution, from PCs to software to the mobile internet, Taiwanese factories managed to retool fast enough to remain important global suppliers.

Inspired by Silicon Valley, Taiwan’s government in 1980 set up the first of its science parks. Each park would have its own tech-focused university, and the government offered bonuses for Taiwanese-born engineers to return home from other countries to work there. Mixing overseas experience with young local graduates, the science parks became hothouses for entrepreneurial start-ups.

A few start-ups went on to become giant companies, though still relatively unknown to the global public. By the 2010s a Taiwanese company, Foxconn Technology, was assembling 40 per cent of the world’s consumer electronic products, using plants in Asia, Europe and Latin America. Today Taiwanese companies are major suppliers of a wide range of parts — smartphone lenses, e-paper displays — and the indispensable suppliers of computer chips. Historically, the importance of Taiwan was calculated in geopolitical terms. A small democracy thriving in the shadow of a Communist giant stirred sympathy and support in Washington. Now, as a by-product of its successful economic model, Taiwan has become a critical link in the global tech supply chain, adding economic weight to the geopolitical calculations. And that weight is likely to increase as the battle for global tech supremacy heats up.

Sharma is the chief global strategist at Morgan Stanley Investment Management. NYT©2020