You might have missed something dramatic over the weekend. Chinese warplanes flew more than two dozen sorties off the southwest coast of Taiwan. It was the latest in a series of provocative moves by the communist giant to not only intimidate Taiwan — the high-tech democracy less than 100 miles from the Chinese mainland — but to also warn the United States to stay away.
The Chinese show of force came days after investors sent shares of semiconductor giant Intel Corp. /zigman2/quotes/203649727/composite INTC +1.29% tumbling, thanks in part to incoming Chief Executive Officer Pat Gelsinger’s announcement that the iconic semiconductor manufacturer would continue to make the bulk of its chips in the United States, rather than outsource production to Taiwan Semiconductor Manufacturing Co. (TSMC).
“We work to close any gaps with external foundries as well as keep ahead,” Gelsinger said. “And clearly we’re not interested in just closing gaps, we’re interested in resuming that position of the unquestioned leader in process technology.”
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Connecting the dots
Investors were displeased, but perhaps they’re not connecting the dots here. They want production moved to Taiwan, but seemingly aren’t concerned about a Chinese takeover? Beijing’s communist masters have long viewed Taiwan as part of China, and have vowed for years to seize it—by force if necessary. Their military is now strong enough to do so, some U.S. analysts think.
It seems unlikely, but that’s what risk analysis is all about. Imagine an American semiconductor firm’s production capacity coming under the potential spell of Beijing?
For years, China has offered Taiwan a deal: a “one country, two systems” formula, under which Taiwan would be given autonomy if it accepted Chinese reunification.
But this was the same promise Beijing once made to Hong Kong nearly a quarter-century ago. But bit by bit, what made Hong Kong Hong Kong—its freedoms, its openness, its economic vitality—has been eroded, gradually at first and now, seemingly all at once. Why should anyone believe its treatment of Taiwan, should Beijing ever succeed in taking it over, would be any different?
National security concerns
Intel’s announcement that it would continue to make chips in the U.S. apparently wasn’t made with these geostrategic fears in mind. Yet long-term fiduciary responsibility to shareholders—not to mention U.S. national security and patriotism—are damn good reasons to do so.
I don’t particularly care if my running shoes are made in China, but I do care if semiconductors are. Any investor who is displeased that Intel isn’t upping its exposure to Taiwan should take a step back and view these broader considerations.
Intel’s decision to double down on America stands in contrast to major U.S. firms such as Apple Inc. /zigman2/quotes/202934861/composite AAPL +1.87% , Qualcomm Inc. /zigman2/quotes/206679220/composite QCOM +2.29% and Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +5.63% , which have deep ties to TSMC—the world’s biggest contract chip maker — or South Korea’s Samsung Electronics Co. Ltd. /zigman2/quotes/209800866/delayed KR:005930 -0.24% .
But this could soon change, thanks to a U.S. government program designed to boost semiconductor manufacturing on American soil. The Department of Defense is soliciting proposals for a program to provide incentives to boost manufacturing capabilities.
Some companies appear to be responding. The Wall Street Journal reported last week that Samsung is looking to invest as much as $17 billion in a U.S.-based chip factory, and is looking at sites in Arizona, Texas and New York. The plant would employ up to 1,900 people, the report said.
TSMC itself has come under pressure to shift manufacturing to the U.S., based on concerns that chips destined for everything from the F-35 jet fighter to command, control and communication (C3) systems can be made “free from potential Chinese interference,” Japan’s Nikkei Asian Review reported last year.