TSMC Chip Production Disrupted For Two Months In Imaginary Simulation Studying Competition

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In a strategy simulation exercise, the Center of New American Security (CNAS), which is an independent, bipartisan organization headquartered in Washington, DC, studied the impact of technological disruption on the Taiwan Semiconductor Manufacturing Company (TSMC) operations. TSMC is the world's largest contract chip manufacturer, and it is responsible for supplying semiconductors to most of the world's largest technology firms.

The fab's crucial role in the global economy has resulted in calls for it to bring a portion of its chip manufacturing facilities inside the U.S. At this front, TSMC is busy building a new facility in the American state of Arizona. This facility is expected to commence production by 2024.

In its strategy game which was conducted in April last year, the CNAS analyzed the impact of potential disruption of  Taiwan's semiconductor industry, with different players competing to gain an upper hand in the aftermath.

Military Power Used Alongside Grey Zone Tactics By Red Team In Strategy Game Simulation Involving TSMC

The game started out by imagining a scenario in January 2025 which saw the U.S. and China continue to engage in intense technological competition. However, despite this, both were unable to reduce their dependence on Taiwan and TSMC for leading-edge semiconductor products. An imagined political crisis brought relations to a tense extreme, which then saw TSMC's engineers discover a strange malfunction in their chip manufacturing lines.

This 'malfunction' is described by the CNAS as:

Shortly thereafter, three TSMC manufacturing facilities reported an issue in their manufacturing lines and halted all production. TSMC engineers discovered that code used to manufacture leading-edge chip designs was corrupted, although it was unclear whether it was due to software failure or a cyber attack. The result was a two- month suspension in chip fabrication, creating a global shortage in leading-edge chips.

A cleanroom inside TSMC's 8-inch Fab 3; Credit: Taiwan Semiconductor Manufacturing Co.,

This crisis then formed the basis of the entire game, with three teams tasked to develop their responses and strategies to the situation. The teams were marked as Team Red (representing China), Team Green (representing Taiwan) and Team Blue (representing the U.S.). These actions could choose to influence five factors, which were Public Sentiment, Technology levels, the financial health of target companies, their output and their demand.

An example of a response or an action by Team Red provided by the CNAS was:

For example, the China team could choose to conduct an offensive cyber operation (action) against TSMC foundry air filtration systems at its Hsinchu Science Park manufacturing facility (target) with the aim of thwarting fabrication of 2 nm chips (effect).

The game also allowed the teams to collaborate with each other or take their decisions independently. It ran for four years, for a total of four simulations, and ended in 2029 before injecting random events in between to better fashion reality.

The outcomes from this were then analyzed by the CNAS to understand the implications of the technological competition between the United States and China on the semiconductor industry. This post-game analysis indicated that when it came to the Green team,

[IT] focused on maintaining its edge in the semiconductor industry by protecting the status quo, while simultaneously seeking to deepen U.S. dependency on TSMC to enhance Taiwanese security and retain a bulwark against potential Chinese aggression. Such an approach is akin to the oil-for-security model, wherein the United States promised to protect the oil-producing Persian Gulf states in a tacit agreement for unfettered access to energy. In this case, semiconductors are the new oil, and Taiwan is trading access to semiconductors in return for security, thus using its semiconductor advantage to obtain its critical objective of safeguarding its sovereignty.

Additionally, it also highlighted that:

The Green team also sought to increase China’s dependency on TSMC, in a bid to keep China’s domestic production from threatening Taiwan’s dominant position in the global market. Such a move also provided Taipei with leverage over Beijing if needed. Moreover, the Taiwan team sought to give as many actors as possible a stake in its semiconductor industry, including European nations.

Water tankers exit TSMC's fab in Taiwan as it navigated a historic drought and chip demand last year. Image: CNA

Shifting over to Team Red, the CNAS learned from the exercise that:

The team leveraged various forms of economic statecraft, such as the provision of conditional access to Chinese markets, financial institutions, and supply chains; finan- cial and educational incentives to attract high-talent foreigners; and subsidies for joint research and development (R&D) efforts. The Red team also used more punitive economic actions, such as continuing restrictions on Taiwan’s agricultural exports and tourism, and purchasing stakes in TSMC and foreign semiconductor industry companies, such as the Netherlands’ ASML, to obtain preferential access to semiconductors.

It also noted that military power was used by the Red team either in conjunction with other tools or as a method to distract from its long-term strategy.

The list of actions available to the different players in the simulation. Image: When the Chips Are Down: Gaming the Global Semiconductor Competition/The Center for a New American Security (CNAS)

Another area studied by the nonprofit organization was Team Blue negotiating technology sharing and leading-edge offshore chip fabs with Team Green. In the game, these efforts failed and resulted in strained relations between the two. The report would go on to later outline that:

In light of this, U.S. government and industry must temper expectations about Taiwan agreeing to broad geo- graphic diversification of cutting-edge fabrication capacity. It is unlikely that Taiwan would be enthusiastic about reshoring efforts, given its desire to retain the production of leading-edge chips on its territory as added security.

The recommendations from the study made to the U.S. included the suggestions to involve other countries in the technological tussle, improve the alignment of Taiwanese and U.S. interests, prioritize intellectual property development, develop contingency plans and more.

It concluded by outlining that the semiconductor industry is crucial to modern-day life due to the ubiquity of chips in technological products. It stressed that any efforts will not b successful if they include only governments. Instead, the CNAS believes that corporate players such as Intel Corporation, Advanced Micro Devices, Inc (AMD) and Qualcomm Incorporated need to be a part of these efforts, particularly by developing research and development coordination between themselves to ensure that American dominance in the semiconductor sector stands assured.

To learn more about the global semiconductor industry take a look at:

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