The Six Five team discusses Nancy Pelosi’s recent trip to Taiwan.
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Transcript:
Patrick Moorhead: Normally we’re talking about companies and things that are happening, but we really thought it was important this week to talk about a very important topic related to tech. And that is that Nancy Pelosi visits Taiwan. So why does this have anything to do with tech, Daniel, and why are we even talking about this?
Daniel Newman: Oh, boy. Well, I mean, you and I spent some time in Albany this week. We were meeting with semiconductor research leadership with IBM. But the state of New York is very invested. We’ve got a new 52 billion Chips Act that’s going to have another few hundred billion dollars dedicated to research. And all this stuff ties together. Why did the Chips Act becomes so interesting and popular? Well, turns out 99.9% of our leading edge chip capacity is in Asia now, and the vast majority of it is in Taiwan. I think Taiwan accounted for in 2021 50% of all semiconductor manufacturing revenue. We saw our output in the United States in 1990 drop from 37% to less than 10%. And so it’s become a bit of a political issue considering, Pat, nothing we do including this podcast could happen without chips.
So I know everyone wants to say software eats the world, but you and I like to say semiconductors eat the world because you can’t run software on air. So you’re right, we’re not a policy show, but this particular moment had people in a bit of an uproar. So we’ve got this sort of balancing issue going on right now. So there is the diplomacy challenge with Taiwan because China still considers Taiwan part of China. And the U.S. knows the importance of Taiwan and its role as an independent nation, a sovereign nation, and so we have to kind of balance this deal of deciding our own foreign policy, letting our relationship with China dictate our foreign policy, because obviously we have a lot of things going to and from China and we depend on China for a lot of different things.
But just this morning, Pat, up in my Twitter feed shows up a China announces sanctions against Nancy Pelosi following Taiwan visit. That’s in my Twitter feed this morning. Xi Jinping is doing military exercises around Taiwan right now because China considered Nancy’s visit to be a conflict of our diplomacy and our relationship with Taiwan, and it is raising the military profile right now. So I guess it comes down to, Pat, talking about something that’s very important, and that’s A, does the United States dictate its own foreign policy, or is this going to be dictated by China? Clearly the decision for Pelosi to visit showed that we’re going to dictate our own, which is something I feel a little bit positive about. But then I wonder who really is the right representative to be there? Because what I can’t figure out is what the value equation is of sending her, especially if the chips and the semiconductors are the most important negotiating point between our diplomatic relations that are going on with China and Taiwan at this point.
But Pat, long and short of it is all of the stuff that we like to use, the laptops, the cell phones, the data center and servers, I mean, of course we manufacture more lagging edge, more 14 plus outside of Taiwan, but we’ve become hyper dependent on Taiwan. And if China decides to have a moment with Taiwan, similar to the moment we saw Russia have with Ukraine, we have a bigger problem on our hands, because our dependency on China and Taiwan is exponentially higher than our dependency on Russia and Ukraine, and you saw the outpour of economic damage that that caused. So it’s a big deal. It’s a big moment. Are we sending the right person? Do we have the right strategy? How does the Chips Act get us off of this dependency on Taiwan? It won’t be immediate. But the long term, Pat, is that this is going to be a continued on challenge that people want to put their head in the sand and say doesn’t exist. But at any point it could be extremely damaging to our economy.
Patrick Moorhead: I don’t know where to start. I’m going to start right here. Third in succession after the president is Nancy Pelosi. So you have Biden, Harris and then Nancy Pelosi. Biden certainly wouldn’t make the trip because that would probably be too strong of a signal to send. I don’t think anybody wants Harris to go anywhere and represent the country, because quite frankly, I don’t think she even has a grasp on the Chips Act or economics that go into it. So that’s one of the things I think that’s important. But this does beg the question, what would the U.S. be willing to go to war over? Are we willing to go to war over a Chinese invasion or shooting missiles that actually hit land in Taiwan or not?
But getting back to the technology point of it. So there is still leading edge fabbing going on inside of the U.S. Intel has Intel 7 here in the US. and Micron has leading edge memory fabs. But the challenge is the future where it looks like TSMC and Samsung have the lead. And as technologists, we have to ask the question is, is it smart or is it just way too risky to have the longest poll in the tent to deliver an end product be something that is fab in countries that missiles are literally flying over the land? North Korea is popping off missiles over South Korea. And now you have China popping off missiles over Taiwan into the South China Sea. It’s just too much risk. And if anything, it just puts a big exclamation point on the Chips Act and why we have to bring more of this leading edge manufacturing and manufacturing for more analog devices that doesn’t require leading edge, but does require specialty type of processes and technologies.
And I’ll go even a step further and say stopping at chips doesn’t solve much. Stopping it at chips, because most of what we build in our critical infrastructure has a lot of its genesis in China. Final manufacturing, a lot of it is done in China. Now, the military is a little bit different. But I’m talking about banking, I’m talking about healthcare and I’m talking about telecommunications. Why do you think China basically banned U.S. companies from operating in Chinese critical infrastructure? But we still keep propping up China and doing business as U.S. companies with critical infrastructure with China. And I think now’s the time where I think the U.S. Government and states need to pass some sort of law or regulation, again, similar to China, not picking on China here, just doing exactly what China does to us, which is having all critical infrastructure all the way from chips to final assembly done outside of China or in a country that we feel safe around, like Mexico.
I think that would be a great place. We can’t afford to do that in the United States. We could very much protect Mexico if somebody tried to invade it. The other thing I’d like to see, Daniel, is China has a rule that you can’t own more than 49% of a company if you open up in China. So if you and I wanted to open up a place in China, 51% of that has to be owned by a China entity. Chinese companies can open up in the U.S. with reckless abandoned. They don’t need an investor. They can also buy land, which they have in Texas next to military sites without any oversight at all. Listen, I don’t like bureaucracy. I don’t like government overstepping. But let’s just get smart about this. How can we not view this as a threat?
Daniel Newman: Yeah. You hit it on the head, Pat. We’re not 100% aligned here, but I think we’ve got a lot of common vision here for what needs to be done. It’s a fascinating topic. There isn’t necessarily a right or wrong answer, but we’re going to see how this plays out over the next few years.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
