One company, TSMC, makes almost all advanced semiconductors. The US wants in on this game — but TSMC founder Morris Chang says it won’t be easy.
In a fascinating talk this past fall at MIT, Chang tells the story of why so much chip manufacturing wound up in one little island.
Why Taiwan Is an Awesome Place to Make Semiconductors
Making semiconductors requires enormous skill. Some of TSMC’s chips contain as many as 20 billion transistors.
Overseeing plants in Texas and Japan at Texas Instruments early in his career, Chang noticed one huge difference between them.
“[In Japan] their turnover was like 2% a year. Whereas in Texas, it was like 15% when there was a recession…and 25% when times were good.”
Workers were cycling through the Texas plants so fast that they never really learned how to make a chip well. Japan didn’t have this problem.
When Chang founded TSMC in 1987, he had the same advantage Japan did: a dedicated workforce.
Taiwan’s GDP per capita in 1987 was only about 1/7th that of the US. Semiconductor manufacturing was a great job, and workers stayed put.
The US, meanwhile, became a victim of its own success. The American workers had lots of job opportunities at great pay.
The Taiwanese and Japanese workers didn’t, so they stayed where they were.
How the US Could Compete
Although Texas Instruments may have had high turnover in America, not all businesses do.
Costco’s is famously low, 17% overall and just 6% a year after 1 year’s employment, according to a Harvard analysis. Costco’s turnover is low because it has better pay and benefits than most comparable jobs.
So if chip manufacturers want to keep US workers, the solution seems pretty simple: pay more.
However, those chip manufacturers will be competing with Taiwan, Korea and others. The higher costs may make that difficult, unless the US government subsidizes them indefinitely.
“South of the Border, Down Mexico Way…”
It’s hard to make chips in America at a competitive price. But there might be another way…
The US wants to bring chip manufacturing home because we’re worried China will invade Taiwan. That could cut off our flow of advanced semiconductors, crippling our economy.
But instead of building fabs in Arizona, what if we built them a couple hours drive away, in Mexico?
Mexico’s GDP per capita today is about 1/6th of America’s. They’re basically where Taiwan was in 1987.
Semiconductor manufacturing jobs would be some of the best jobs available in Mexico. Retaining workers while keeping costs reasonable should be easy.
Meanwhile, we in America still get our chips.
War could cut us off from Taiwan. But it’s highly unlikely to cut us off from land routes to Mexico.
Mexico gets great jobs, we get the chips we need, everybody wins.
Wrap-Up
Even Morris Chang admits that Taiwan can’t remain dominant in chip manufacturing forever. He predicts that countries like India and Vietnam may begin to displace Taiwan.
After all, Taiwan is a much richer country these days. Semiconductor jobs are no longer the only game in town.
But Mexico may be the best choice of all. It serves US interests to keep this critical manufacturing close, even if we can’t do it ourselves.
Where do you think the chips of the future will be built? Leave a comment and let us know!
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Thanks to the excellent Bg2 Pod for pointing me to Chang’s talk!
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