India should be pragmatic in its approach to manufacturing semiconductor chips domestically, according to Kristy Hsu, Director of Taiwan ASEAN Studies Center at Chung-Hua Institution for Economic Research. Hsu argued it is not necessary for countries to manufacture the most advanced chips; instead, they should focus on the chips which best serve the local market.In an interview with Siddharth Upasani and Aanchal Magazine, Hsu also discussed Taiwan’s role in the semiconductor supply chain, its links to India and its engineering talent, the US’ tariff war, and the need to make supply chains resilient.Tariffs and Asia“Trump, in his second term, has taken a divide-and-conquer kind of approach in tariff negotiations – making countries that have similar export or industry structures compete with each other. This should not be the case.Story continues below this adFor Southeast Asian countries and South Asian countries, it is more about integration, collaboration, and specific distribution of supply chains. To Taiwanese companies’ understanding, it should not be (about) competition.From Taiwanese companies’ perspective, India, Vietnam, Thailand, or Malaysia – each country has its specific purpose or focus of the supply chain. We all understand that India right now – to Taiwan and to some international brands, including Apple – is emerging as a very important (part of the) supply chain for iPhones. So, in that regard, India is not actually competing with other countries. India and Taiwan should try to get the best deal together with Trump. The current situation is not that good, but we all believe this will be solved pretty soon.”No ignoring US market“If you talk about the Asian market, you are talking about Japan, South Korea, Taiwan, China, South Asia, and Southeast Asia. All these integrated together can be a huge market and also the most important places for supply chain – which means most of the products in the world are produced here. There’s no other region or subregion that can replace that. But in terms of a self-sufficient market that does not rely on the US, I don’t think that is pragmatic at this juncture.Most of these supply chains are aiming for international markets that include the richest (countries) and the huge demand in the American and European markets. So, we need to work together to maintain our status and maintain our role in accessing the US market while we also should work among ourselves – for example, not over-competing with each other and building our own supplies. For instance, under the tariff negotiations, one issue is transshipment. A lot of Southeast Asian countries – Vietnam, Malaysia, and Thailand – have two challenges: they depend too much on the export market in the US and on China for importing raw materials, intermediate goods, and components. If these countries can work together to build up supplies for intermediate goods without having to depend on Chinese imports, they can make their supply chain more resilient and sustainable.”No country for entire chip supply chainStory continues below this ad“In 2022, post the pandemic, every major country in the world wanted to have their own fabs (semiconductor fabrication plant) to produce their chips without having to depend on Taiwan or other countries. In the past three years, there has been a lot of progress. For example, the US, Japan, some Western countries, and some Southeast Asian countries like Singapore, Malaysia, and even Vietnam and India have built up either fabs or testing and packaging capacity. That means the semiconductor supply chain has been dispersed into different countries.It will not be possible for one or two countries to build out the whole supply chain because you can either focus on fabrication or testing and packaging. Even though Taiwan is well known for its ecosystem, we do not have the materials. That’s why most countries are facing the challenge that certain countries have critical minerals and rare earths. The US and others are trying to encourage development of rare earths in Vietnam, Malaysia, and other countries so that most countries will not have to depend on one or two sources. That’s a healthier development since 2022.However, Trump’s policy is American First – he’s asking the entire supply chain to reshore and home-shore to the US. This seems to be working at the moment, but it will be very, very challenging for the US to develop its own supply chain. For example, TSMC (Taiwan Semiconductor Manufacturing Company Limited) has already started producing chips in Arizona for its first fab and they are quickly building up a second fab and probably a third fab. However, at this juncture and probably for the foreseeable near future – 2-3 years from now – it’s not possible for the US to build up its advanced testing and packaging capacity in the US. That means even with TSMC producing chips in the US, it has to send them back to Asia or Taiwan for testing and packaging.”Moving away from China“My understanding is that with or without China and the US completing their (trade) negotiations, the supply chain relocation will continue. I have interviewed a lot of Taiwanese companies and they are not going back to China because even if it successfully gets a lower (tariff) rate than what people expect, the supply chain – especially Taiwanese companies’ suppliers – will have to diversify their investments from China to Southeast Asia and now to South Asia.Story continues below this adIt seems this decoupling of the supply chain is already taking place. Especially in production involving critical or sensitive technology like space and telecommunication, US customers will definitely need suppliers to produce and assemble these products outside China. Some Taiwanese companies have already been asked by their US customers that they will need to avoid or reduce the use of Chinese components in their assembly. This means Taiwanese and Japanese companies will definitely avoid the mixture of supply chains and continue to invest more in Southeast Asia, particularly in India.”India’s chip manufacturing hopes“I think it is a myth that most countries need to have their own fabs and produce the most advanced chips. It needs to relate to the market. Right now, the most advanced nodes are for the most advanced technology and currently the market for them is in the US. So even if other countries in Southeast and South Asia produce the most advanced chips, you still need to provide those chips to someone – they are not for you, they are for the international market.That’s why Singapore never aims for the most advanced technology. It’s more pragmatic. It’s aiming, for example, for automobiles and telecommunication. India needs to specify its market segment. You have a huge market for automobiles and EVs (electric vehicles). If you can produce chips for EVs here, it makes sense because you have the market.That’s the reason TSMC will produce 2 nanometre (nm), 4nm chips in the US. But TSMC’s investment plan in Japan and Dresden, Germany is 28 nm, which is mostly (used) for telecommunication and automobiles – and these two countries have an automobile industry. So, you need to be more pragmatic: identify your market and then produce the chips that are suitable for your market. Otherwise, you will need to export.Story continues below this adI understand India is expecting other chip-makers to follow PSMC (Hsinchu-based Powerchip Semiconductor Manufacturing Corporation, which has a partnership with Tata Electronics). And because Taiwan has the world’s largest testing and packaging industry, India is also looking forward to a testing and packaging company to come. So far, it has not happened, but it takes time. For example, ASE – the world’s largest testing and packaging company, a Taiwanese company – is building factories in the US because the US will have its own fabrication. And ASE is also expanding its investment in Malaysia and Philippines because they already have the testing and packaging capacity.Because there are only five projects or so right now in India, most companies are taking a wait-and-see approach. Two weeks ago, your Ministry of Electronics and Information Technology led a big delegation to Taiwan to participate in SEMICON (an annual semiconductor trade exhibition and conference). I interviewed the leader and I understand there are a lot of discussions with Taiwanese counterparts because Taiwanese companies are now very interested. But because we are all faced with this very challenging situation of Trump 2.0, most companies will have to wait a while till these tariff and export control issues are more settled. Then they can decide where to invest and where to expand their investment.”The talent problem“Taiwan, right now, is not only investing overseas. TSMC is bringing in more than 2,000 well-trained engineers to the US and around 1,000 experienced, well-trained engineers to Japan. TSMC and other companies in Taiwan have a thirst for talent. So, most Taiwanese companies and the government have been thinking India may be a good partner for training or collaboration in terms of talent. Plus, your engineers have been a very important source of software engineering in Taiwan – in Taiwan, if you go to the Science Park, you will see Indian engineers everywhere.Unfortunately, I was told most Indian engineers stay in Taiwan for a couple of years and try to find jobs in the US. Taiwanese companies, when they train these engineers, they would prefer them to stay. That culture will have to be discussed and improved. That is another way to cultivate talent for both countries. Otherwise, you just go to Taiwan for a few years and then leave.”Story continues below this adKristy Hsu is the Director of Taiwan ASEAN Studies Center at Taiwanese think-tank Chung-Hua Institution for Economic Research. She advises on the Taiwanese government and business associations’ external relations and economic and trade policies, with a focus on economic integration and supply chain resiliency, among other issues.