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Lithuania’s showdown with China over Taiwan is poised to provide an unexpected winner for the small Baltic nation that France and Germany could only dream of: investing in microchip manufacturing.
Europe is a laggard in the all-important semiconductor industry, and a key element of the EU’s industrial strategy – aimed at keeping Europe in the economic big league with rivals such as China and the US – is a driving force for microchip production. Although EU dignitaries have sought cooperation with heavy (and democratic) Asian players in the electronics sector such as Taiwan and South Korea, their statements so far have yielded very little.
That dead end, however, seems to be breaking as a bitter trade conflict between Lithuania and China makes Vilnius and Taipei an unusual pair of geopolitical David’s allies against Goliath in Beijing. Due to the warming diplomatic ties between Lithuania and Taiwan, China has imposed a severe embargo on the Baltic nation – boycotting not only its exports, but even goods from other EU countries made with Lithuanian components.
To help ease the pain of its most stubborn European ally, Taiwan has announced a $ 200 million investment plan. And that raises the prospect of collaboration on chips.
Taiwan’s investment plans in Lithuania have not yet been completed, pending studies to be carried out by a team of Taiwanese experts within the next few months. But in an interview with POLITICO, the top Taiwanese diplomat in Vilnius said that nothing was off the table and that Lithuania could act as an entry point to the rest of the European semiconductor market.
“This is the first time for the Taiwanese government to set up such an investment fund,” said Eric Huang, head of the Taiwan Representation Office in Vilnius. “When we examine the possibility of semiconductor investments in Lithuania, we will consider the issue in the light of the whole EU market, because then it will be more sustainable, it will be profitable.”
Mighty friends
Even mention of partnership with a powerhouse like Taiwan is remarkable. Taiwan Semiconductor Manufacturing Company (TSMC) – with an oversize 54 percent share of global foundry turnover in 2020 – has been under pressure from many foreign governments to diversify its production. So far, however, Taiwan has approached the offer with extreme caution, ensuring that only such strategic partners as United States and Japan – countries that may come to the island’s defense in case of war – get the chips.
Europe has felt a severe squeeze from the shortage of microchips, especially during the coronavirus pandemic, where manufacturing strongholds like Germany are feeling pain in sectors like auto electronics.
A certain sense of proportion over the money needed is crucial. Taiwan’s proposed investment is a drop in the ocean compared to what a full-scale plant would require. TSMC’s plant in Arizona, which will be in production in 2024, requires e.g. an investment of $ 12 billion.
An EU Commission official also casts doubt on Lithuania’s economic as well as logistical ability to operate such facilities, underlining the need for cheap electricity and ample water supply.
Huang acknowledged that it would be difficult for a single EU country to duplicate the Taiwanese model of owning a complete supply chain of producing microchips that the island has developed over the past four decades.
Individual countries, he added, should develop their own strengths within the system, where Taiwan has already promised to help Lithuania focus on a particularly coveted area: talent development.
“Taiwan is playing its economic cards smart,” said Mathieu Duchâtel, director of the Asia program at the Paris-based Institute Montaigne. “It is clear that Taiwan has something concrete to offer to strengthen the European semiconductor ecosystem, and the message is that this is linked to deepening Taiwan’s international space – so this is a form of economic state art.”
Taiwan’s Minister for National Development Councils Kung Ming-hsin, who is also a board member of TSMC, will host a meeting with his Lithuanian counterpart, Economy Minister Aušrinė Armonaitė on Tuesday.
Busy week
That meeting will be followed later this week by the informal meeting of all EU foreign ministers to be held in the West French port of Brest, where EU-China relations will be high on the agenda.
According to diplomats, the meeting is likely to focus on the Winter Olympics in Beijing, which will be held only three weeks later, as EU countries are under public pressure to confirm whether they intend to join the United States, Britain and others in a diplomatic boycott in the face of human rights problems in China.
“There will hardly be any common position as some countries like Belgium and Austria have already ruled out official representation, while France will have to send someone as it will host the next Olympics,” a diplomat said. “However, it will be helpful to coordinate positions.”
Two relatively new additions to the group of EU foreign ministers – Annalena Baerbock from Germany and her Czech counterpart Jan Lipavský – are likely to form a chorus of strong China-skeptical voices alongside Lithuania’s Gabrielius Landsbergis, an EU diplomat noted.
Baerbock recently called on the EU to ban forced labor, reflecting concern over products made in Xinjiang, where large-scale detention of Uighur Muslims was reported. Lipavský, who rose dramatically to the role a few weeks ago after an initial rejection by Beijing-friendly President Miloš Zeman, was a one-time member of the interparliamentary alliance on China, an international group of parliamentarians with a hawkish stance. Beijing.
Around the table, however, few have come as close to Taiwan – and its microchips – as Lithuania.
“Because Taiwan has such deep experience [in semiconductors]”I think our best way is to help our friend seriously and sincerely look at the comparative advantages,” Huang said.
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