Globalization Is Dead And No One Is Listening

Video of TSMC founder Morris Chang's remarks at the TSMC Tool-In in Arizona cannot be found anywhere online. Videos of oxygen-thieving Joe Biden and turd-burgling Tim Wise are ubiquitous, however. Who gives a flying f*ck what either of these pantloading dipshits had to say?!?!?!?

Consequently, old video of Dr. Chang at Brookings is all I've got.

interconnected  |  The most powerful, and somewhat uncomfortable, part of Chang’s speech is his declaration that:

“Globalization is almost dead. Free trade is almost dead. And a lot of people still wish they would come back, but I really don’t think they will be back for a while.”

TSMC is arguably the one company that most epitomizes all the forces of globalization – free trade, hyper specialization, cross-border supply chain, and the assumption of geopolitical stability that lets all these forces interact and interconnect. In this world, TSMC, and manufacturers like it, would build factories wherever it deems to make the most economic sense, without needing to worry about adverse political consequences.

Chang no doubt reflected on the core nature of globalization and free trade, of which he and TSMC are beneficiaries. Witnessing TSMC’s newest fab being built in Arizona, a location TSMC would have never chosen if globalization were alive and well (a point he has made many times in the past), it is only appropriate for Chang to somberly proclaim the death of globalization (though he still hedged a bit with “almost”).

The unfortunate second-order effect of the death of globalization that no one likes to talk about is the rising cost of all kinds of goods and products – a future that may make persistent inflation even worse. Tim Cook announced to much fanfare at the same event that Apple will use chips made from TSMC Arizona. What he did not say is whether that will make the pricey iPhones and MacBooks even pricier to buy.

In Morris Chang’s own estimation, the chips produced from TSMC Arizona may cost “at least 50% more” than the chips from TSMC Taiwan. Will TSMC pass on that cost to Apple or let it eat into its margins? Will Apple pass on that cost to consumers or let it eat into its margins? No one knows right now, but as TSMC Arizona starts churning out wafers, we will know soon enough.

To be clear, this is not a critique of TSMC’s decision to build fabs in America. Given the reality of the world, it is probably the right thing to do. Morris Chang, who may be reluctant but is ultimately a pragmatist, gave his blessing by being at the ceremony. But he did not let the bigger lesson go unspoken.

“Offshoring” is out of fashion, and “onshoring” and “friendshoring” is the new black. Any wishful thinking that globalization will continue in its previous form is naive.

Made in America (in Taiwan)

The other uncomfortable yet thought-provoking part of Chang’s speech is this:

“...We hired almost 600 engineers here a year and a half ago, we sent them to Taiwan, and they were under training in Taiwan for one year to a year and a half. In the meantime, about the same number of Taiwan engineers underwent training in Taiwan also.

So before we see a single wafer, we have about more than a thousand people being trained. This, I think, is a very good sign that we are prepared.”

If you read between the lines, what Chang is really saying is TSMC cannot find enough qualified American talent to do the jobs TSMC needs to operate. So it must spend extra money (more cost) to send every new hire in America to Taiwan to get trained. Furthermore, due to this talent shortage, additional engineers from Taiwan must be hired, trained, and deployed to America to make TSMC Arizona function (with doubled salaries and extra benefits to boot). These trainings are not some two-to-four week corporate offsites, but up to one and a half years long!

Yet, despite all this extra cost and personnel hassle, Chang believes this is a “very good sign” and the right thing to do. That’s because these are the “people problems” and “cultural problems” that he learned the hard way 25 years ago when trying to open TSMC’s first American fab, located in Camas, Washington – an experience he called “a dream fulfilled became a nightmare fulfilled”. TSMC Arizona is now investing up front to avoid the same mistakes.

Beyond the talent shortage problem, there is also an equipment shortage and supplier shortage problem, so much so that TSMC has been shipping as many tools and equipment as possible, directly from Taiwan to Arizona. TSMC has voiced these and other concerns in a letter last month, sent to the NIST bureau of the Commerce Department (an agency I happened to have served in during the Obama administration). Of course, you wouldn’t hear about any of this if you only listen to Gina Raimondo.

The wafers that TSMC Arizona will produce – and be proudly labeled “Made in America” – are looking very “Taiwanese”.