Transcript: TSMC doubles down on Arizona

This is an audio transcript of the FT News Briefing podcast episode: ‘TSMC doubles down on Arizona’

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Kasia Broussalian
Good morning from the Financial Times. Today is Tuesday, April 9th and this is your FT News Briefing.

The UK is trying to throw money at the country’s sewage problem. And the security pact between the US, UK and Australia is opening the door to Japan. Plus, Taiwan’s most important chip manufacturer is expanding its operations in the US. I’m Kasia Broussalian, and here’s the news you need to start your day.

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The Environment Agency for England and Wales announced today that it’s allocating £11mn to local water projects. The money comes from fines collected against five water companies, including Thames Water. The regulator is hoping the move will calm public anger over sewage pollution. Water companies are facing their biggest protests since the industry was privatised 35 years ago. The EA recently said companies pumped raw sewage into British rivers and seas at a record pace last year. Green campaign groups, however, say that the money is way too little to make any meaningful difference to water quality across the UK.

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Defence ministers from the US, UK and Australia announced yesterday that they’re thinking about expanding their security partnership. Aukus was signed back in 2021 as a pact between the three countries to respond to China’s growing military capabilities. Now the US wants to involve Japan. Here to talk to me about it is the FT’s Demetri Sevastopulo. Hey, Demetri. 

Demetri Sevastopulo
Hey, Kasia. Hi. 

Kasia Broussalian
So tell me a little bit more about this announcement that we heard from these three countries yesterday. What are they looking to do here? 

Demetri Sevastopulo
What the US is trying to do here is build a whole series of mini-lateral agreements with allies in Asia and Europe, and have these kind of latticed network of security arrangements that, when you pull them all together, send a very strong message to China about not doing certain things in Asia, for example, attacking Taiwan. And what the defence ministers said on Monday in a joint statement was that they would consider whether they could bring Japan into part of the Aukus arrangement. 

Kasia Broussalian
And do we have any sort of understanding of what involvement from Japan would actually look like? 

Demetri Sevastopulo
Well, Aukus is split into two pillars, Pillar I and Pillar II. And Pillar I is trying to help Australia get nuclear-powered submarines. What we’re talking about here is Pillar II. We know that the general areas that Pillar II will focus on are things like artificial intelligence, quantum computing, subsea or undersea capabilities, and then also hypersonic weapons and counter-hypersonic weapons. Japan has done a lot on hypersonic weapons, so it would be logical to try and bring Japan in there somewhere. But there were no specifics in the announcement. And I think over the next few months, the three Aukus members are going to work out where they think Japan could best partner with them and what would make most sense. 

Kasia Broussalian
OK, so you mentioned a couple of the benefits that would be included if Japan were to be a little bit more involved. Are there any negatives or hesitations from including Japan? 

Demetri Sevastopulo
Well, in the long term there aren’t really hesitations, but in the short term there are. Australia and the UK are concerned for two reasons. The first reason is they think it’s already very tricky for the three countries — the US, Australia and the UK — to co-operate together. At the moment there’s a lot of security issues and issues around sharing of classified information that have to be dealt with. They want to focus on that first, smooth out their trilateral relationship before they add anyone else in. And then the second concern is Japan is widely believed not to have sufficiently secure information protection. The US has been encouraging them to implement certain measures to make it easier for the US and its allies to share classified information with Japan and make sure that it’s secure. But they haven’t taken enough steps so far. So there’s resistance in the UK and Australia and frankly, in parts of the American system, which is, Japan down the road, makes a lot of sense — it’s probably the most important US ally in the world right now — but they need to get their information security systems into better shape before it can be brought in to even part of Aukus. 

Kasia Broussalian
And now that we’re talking about expansion, I mean, just how productive has Aukus been up to this point? 

Demetri Sevastopulo
I think the thing people need to remember about Aukus is that the main part of Aukus, Pillar I, which is really the core of the agreement, is a multi-decade program to help Australia, jointly with the UK, build nuclear-powered submarines. And so that’s something that’s going to take two or three decades before you see those submarines come off the production lines in the shipyards and actually enter the water.

The idea behind Pillar II was to have something that you could accomplish more in the short term. So they’ve been pushing hard on Pillar II. The difficulty has been that a lot of the things they’re working on again are highly sensitive. And sharing information with, even with defence companies across the three countries is not easy. So there isn’t an awful lot that we can point to right now in terms of tangible progress, but we expect that by the end of this year, the three countries will have announced certain things where they’ve actually made progress on some of the advanced technologies that I was talking about earlier. 

Kasia Broussalian
Demetri Sevastopulo is the FT’s US-China correspondent. Thanks, Demetri. 

Demetri Sevastopulo
Thank you. 

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Kasia Broussalian
The world’s biggest chipmaker has agreed to produce its most advanced chips in Arizona. These are the ones that power artificial intelligence. The move by Taiwan Semiconductor Manufacturing Co, or TSMC, is a boost for President Joe Biden’s efforts to bring production to the US. Kathrin Hille has more on the deal, and she joins me now. Hey, Kathrin. 

Kathrin Hille
Hi. 

Kasia Broussalian
So walk me through some of the basics of TSMC’s plan to build more chips in the US. 

Kathrin Hille
Well, TSMC first agreed to invest in Arizona and build new fabrication plants four years ago. At the time, the company was pretty cautious because so far, most of their manufacturing, the lion’s share, has been in Taiwan. But they’ve had considerable pressure from both the US government and also their customers to make some production capacity available in the US. And so first, they committed to building some plants that are one technology generation behind what they are offering in Taiwan. But now they have agreed to have their second fabrication plant that they’re building in Arizona run on what will be the most advanced technology process when it opens. And that will be in 2028. 

Kasia Broussalian
So this sounds like a big investment from a pretty crucial company. What drew TSMC to the US in the first place? 

Kathrin Hille
Well, it’s mostly customer pressure. So the customers are: Apple, which is the largest customer, so making chips for mobile devices. They include Nvidia, the company that is the market leader in AI chips, and many, many, many other companies. So these companies have been telling TSMC that they would like to have at least some kind of back-up option to have some of their chips manufactured in the US in case there is, well, geopolitical trouble or maybe a disruption for other reasons, that it might be a good idea if chip capacity, production capacity would be more diversified geographically. 

Kasia Broussalian
Yeah. Remind me of the broader back story here. Why is the US so focused on onshoring chip production? 

Kathrin Hille
Well, there’s a host of factors. Most directly, of course, there is the perceived risk of a Chinese invasion of Taiwan, and China claims Taiwan as part of its territory. The US has realised that if one day there were open conflict over Taiwan, there’s a risk that concentrated chip capacity that is located in Taiwan might go offline or might be lost. So that would pose a risk to US national security. So what the US government is doing right now is, of course, the Chips and Science Act, which is a US law passed in 2022 and provides for a total of $39bn in direct subsidies or grants to chip companies. And then there is a host of other incentives, including, for example, tax credits and developing engineering talent and so on. 

Kasia Broussalian
OK, so the US is really trying to protect the production of this crucial technology, but that’s very much from the US perspective. What is Taiwan’s perspective here? Is moving this capability abroad in its own interest? 

Kathrin Hille
It is a politically sensitive issue, because there is a saying in Taiwan that TSMC is kind of the sacred mountain that protects the country. There’s long been this idea that having so much chip capacity here, of course, makes the country more important to its trading partners and also to its security partners. So in the beginning, when Washington’s push started, there was quite some concern in the government here that losing some of that capacity would actually make Taiwan less relevant. But I think that has somewhat passed. And the thinking is now that as long as Taiwan remains a vital supply chain partner, the same still applies. 

Kasia Broussalian
Kathrin Hille is the FT’s Greater China correspondent. Thanks, Kathrin. 

Kathrin Hille
Thank you. 

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Kasia Broussalian
One more thing: the US edition of our third annual FT Weekend Festival is happening on May 4th in Washington, DC. The event will include conversations with political leaders, artists and, of course, FT journalists. You can find out how to register by clicking the link in our show notes.

And hey, podcast listeners get 10 per cent off by using the code: WeekendPodcast.

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This has been your daily FT News Briefing. Make sure to check back tomorrow for the latest business news. 

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