On September 9, 2024, the Asia Pacific Foundation of Canada (APF Canada) welcomed Dr. Harry Tseng, Representative of the Taipei Economic and Cultural Office in Canada, for a keynote address and discussion at APF Canada’s Vancouver office. With local business and diplomatic representatives and members of the public in attendance, the event centred around competition for leadership in artificial intelligence (AI) and semiconductors, the geopolitical implications of that competition, and opportunities for Canada-Taiwan co-operation. APF Canada’s Vice-President Research & Strategy, Vina Nadjibulla, moderated the discussion.
Dr. Tseng began by highlighting Taiwan’s predominance in the semiconductors industry – a result, he said, of good luck, good timing, high-tech talent, and smart government policies. Today, Taiwan produces 60 per cent of the world’s semiconductors, including 90 per cent of advanced chips. Unsurprisingly, many leading industrial nations are now trying to engage with Taiwan to leverage its technological prowess in this industry.
For example, the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor manufacturer, is rolling out a global expansion strategy that includes a new €10-billion semiconductor factory in Dresden, Germany, along with other new foundries in Arizona (U.S.) and Japan. Dr. Tseng noted that some observers predict that these investments will raise production costs, impacting TSMC’s competitiveness; however, he added, this expansion is necessary to build supply chain resilience. The chip-manufacturing supply chain is long and complicated, involving as many as 1,000 companies and demanding international co-operation.
Dr. Tseng continued by saying the chip shortages we experienced during the COVID-19 pandemic were a wake-up call on the vulnerability of these supply chains. While connected economies used to focus on swift supply chains that minimize inventory and lower production costs, now they prioritize safe supply chains that can withstand global disruptions. Post-COVID, many countries passed legislation to protect their supply chains – including their semiconductor industries. As a result, TSMC and other chipmakers worldwide began diversifying their investments to strengthen and expand their supply chains. The Dresden facility is an example of this strategic shift. He added that while diversification can enhance resilience, it can also result in the “hollowing out” of domestic industries. Therefore, Dr. Tseng explained, TSMC will continue to produce its most advanced chips in Taiwan.
Turning to what he called “the dawn of an ‘AI megacycle,’” Dr. Tseng said that this boom in AI has raised the demand for semiconductors and electronics. This, he said, is an opportunity for closer Canada-Taiwan co-operation, especially with Canada’s strengths in tech talent and software development.
Some recent government announcements on both sides of the Canada-Taiwan relationship provide a framework for deepening this co-operation. These include Canada’s Indo-Pacific Strategy (IPS) (2022), the bilateral Foreign Investment Promotion and Protection Arrangement (FIPA) (2023), the Collaborative Framework on Supply Chains Resilience (2023), and the Arrangement Concerning Science, Technology and Innovation (2024). In addition, in April 2024, Canada and Taiwan signed a lesser-known – but very important – Science, Technology, and Innovation Arrangement.
It is in this spirit of partnership, Dr. Tseng noted, that Taiwan is also seeking membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which Canada is chairing in 2024. He added that Taiwan not only meets all the high standards required for accession, “but we share a steadfast commitment to democracy, hard work, and free market principles with all CPTPP members.”
During the moderated discussion, Ms. Nadjibulla touched on the geopolitical tensions and challenges emanating from the competition between the U.S. and its allies on one side, and China on the other, over areas of emerging tech – AI, quantum computing, biotech, and semiconductors. All of these areas are critical to economic development and national security and are increasingly subject to export controls and investment screenings. She referred to a point Dr. Tseng made in his keynote remarks that these controls have been effective in hindering China’s ability to produce advanced semiconductor chips. However, she noted, some are suggesting that these control measures need to be further tightened. What is Taiwan’s perspective, Ms. Nadjibulla asked, on how these could be tightened, perhaps through the multilateralization of these export-control frameworks?
Dr. Tseng responded that Taiwan is among those working most closely with the U.S. on an expanding regime of export controls around emerging tech – the others include Japan and the Netherlands. However, he agreed that China is still able to produce semiconductor chips that can be used in military hardware, including hardware provided to Russia for its war on Ukraine. As concern about this war, especially among G7 countries, continues to grow, the export control regime is growing accordingly. Taiwan will continue to co-operate with that regime, Dr. Tseng said.
Ms. Nadjibulla raised another question that she acknowledged is controversial but nonetheless worth asking: If China’s dependence on Taiwan for certain types of semiconductors were to be severed, could that remove any hesitancy Beijing may hold in engaging kinetically against Taiwan? In other words, if these two spheres are completely bifurcated, could it ultimately make Taiwan more vulnerable?
In response, Dr. Tseng said the main thing Taiwan is doing now is differentiating its products from those made by Chinese competitors. He explained that China has the capacity to produce (even overproduce) a lot of semiconductors but is not, at this time, able to catch up with Taiwan in making advanced chips. It is not impossible that China could someday develop this capability, but it will be difficult, as it would require China to have more open access to certain types of equipment and materials that other economies produce. The industry is highly competitive, Dr. Tseng continued, and is also capital-intensive, energy-intensive, and talent-intensive. Given that combination of requirements, he said China will struggle to catch up to top-tier countries in the chip space, particularly as those in the top tier continue to work collaboratively.
Ms. Nadjibulla said that Canada, in addition to promoting its AI-related research, wants to play an expanded role in energy security. What, she asked, are promising areas for Canada-Taiwan co-operation in this area?
Dr. Tseng responded that “there is a lot” that Canada and Taiwan can do together. Recently, he noted, ports in British Columbia began exporting liquefied natural gas (LNG) to Asia, energy supplies that were quickly bought up by Japan and South Korea. He applauded efforts in Canada to expand port capacity to support further market diversification, particularly in the energy space, in Asia. But, he added, Taiwan is also prioritizing renewable energy, especially wind power, and Canada must consider this transition – which is being embraced by many economies in the region – in strategizing its future role in energy security in the Asia Pacific.
For more on Dr. Tseng’s keynote address and moderated discussion with Ms. Nadjibulla, please view our encore recording here.