Planet Money - Forging Taiwan's Silicon Shield

Episode Date: October 7, 2022

Taiwan is at the center of a global feud. Its main defense may be what some call its "Silicon Shield" — its powerful semiconductor industry. On today's show, the story of how one economic hero helped to transform Taiwan's economy and create the "Taiwan Miracle."Subscribe to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoneyLearn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. I don't know what a semiconductor does. I don't understand it. I've never understood it. Well, semiconductor is a very simple way, right? Sure, very simple if you are Min Wu, who runs a multi-billion dollar semiconductor company in what is now the semiconductor capital of the world, Taiwan. Semi means it's a half. So this is not a conductor,

but under certain conditions, and they can conduct in the current. Semiconductors are these little electronic building blocks that can do all kinds of different things. Semiconductors are key to making microchips, and microchips are critical parts of everything. Phones and laptops and satellites and even nuclear weapons. But Min Wu fell in love with semiconductors way back in the 1960s when no one knew exactly what they would become. Min just knew that he was thrilled by the technology. Min, when this was a new technology, like this was, you were learning about it at school. How did you explain this to your parents or your grandma even? Well, fortunately, I don't have to explain to them because

they have no interest to find out what I'm doing, okay? They understood you were excited about it, trying to find out what I'm doing, okay? They understood you were excited about it, though. No. No? Even today, my mother already 96 years old. She still don't know what I'm doing, okay? She only know I'm busy.

Hello, and welcome to Planet Money. I'm Kenny Malone, and joining me today from NPR's Peabody Award-winning podcast, ThruLine, Ram, Ramteen Arablui. That's just, that's like way too generous and too nice. Facts. Just facts, Ramteen. So we're just swimming in your wake. Well, listen, we are joined by Ramteen and Throughline today because we want to talk about a big sweeping history that is also about economics. history that is also about economics. Because as tensions between the U.S. and China have increased,

there's been more and more attention on and concern for Taiwan. And we're collaborating with ThruLine to understand how an island about half the size of South Carolina wound up in the middle of perhaps the biggest geopolitical and economic feud in generations. Taiwan now makes almost all of the world's advanced semiconductors. And today on the show, we follow Min Bu and Taiwan's semiconductor love story. It's a story of revolution, cold war, and an economic expansion so incredible that it's now just called the Taiwan Miracle. All right, we're back with a special Planet Money collaboration with NPR's ThruLine, looking today at how Taiwan became the center of the world's semiconductor industry, and also wound up at the center of what may become the

most important geopolitical feud in generations. Taiwan is now a self-governed democracy of about 24 million people. However, China believes that Taiwan is, and always has been, part of China. China has vowed to reunify Taiwan with the mainland, which to some sounds like a threat. And just a touch of history about how we got to this point. Ramtin, would you sprinkle a little some of that magic through-line sound design on this for us? Absolutely. Here we go. In 1949, China underwent its communist revolution.

The party pushed out by the revolution, the nationalist government, fled to a nearby island about 100 miles southeast of mainland China, a place often known at that time as Formosa. Formosa, of course, more commonly known as Taiwan. It is a tropical slash subtropical island. And in the 1940s, it was relatively undeveloped when this wave of people came from mainland China. In total, around 2 million civilians and soldiers fled to Taiwan. And it wasn't supposed to be a permanent home, just a place to wait until the nationalists could retake China.

But years and years went by, and this theoretically temporary population had kids, raised kids in this theoretically temporary home, there weren't a ton of opportunities. And by the 1970s, thousands of young Taiwanese college graduates started going abroad for jobs or for grad school. At that time, I was studying grad school in Taiwan, and I planned to work in Taiwan. Min Wu had graduated from college in Taiwan. He wanted to get a master's in electrical engineering, but he had started to wonder, should he also leave Taiwan? Of course, he had big feelings about all of this.

Well, of course, you know, nervous. You know, first time go to a place where I have no idea. And also, I'm not speaking the language. But there were two big reasons to leave. Number one, his girlfriend was also leaving Taiwan to study in the U.S. So Min thought, you know, it probably would be good for this relationship to at least be on the same continent as his girlfriend. But reason number two, Min was a budding semiconductor nerd. And he knew that whatever techie future was coming,

he needed to leave Taiwan to be a part of it. Min applied to grad schools. He got into McGill University in Montreal, Canada, and landed a position there as a teaching assistant. When I arrived at McGill, the first day of the school, because I got teaching assistance, so I have a report to the professor. So I went to see him, you know, he said something to me.

I was stuck. I didn't know what he's saying. He repeat one more time. And I still don't get it, okay? So he complained to the professor who assigned me to him, his class, and he said, how come you send me someone don't know English to me? Min later found out what his professor was saying. Good morning.

He say good morning in heavy British accent. So I was totally out, okay? Did you do things actively to try and learn English quickly? Did you listen to NPR constantly? No. At that time, I had no idea about NPR. Although Mintz says he was using a different kind of radio to study English. ...to Hubie Brooks. He's got it. This game is over. It was never in doubt. The Expos have beaten the Pirates 6-5. I turn on the radio to hear the baseball game.

And then I hear the hockey game. You know, Montreal Canadiens was a very good team at the time, in the 70s. And the game is over. The Montreal Canadiens have won the Stanley Cup for a record 16th time. That's how I pick up the speed. Min's English improved. He finishes up at McGill, gets into Stanford for another graduate program. And when Min describes working his way through the North American tech world, this language thing comes up in ways that don't sound like they were just about language. Like Min remembers turning in a lab report to a big deal Stanford professor

and getting just these few words of feedback. This is not English. I have to redo it. Min studies more, gets that master's from Stanford, and then gets a job at a relatively new company using semiconductors to make memory chips. That company? Intel. In Intel, I did a very good job on the technical side, but I lost the battle into a program manager position because they tell me there's another guy and he's English better than me. I lost the battle.

So English was often part of the battle during your time in the U.S.? Yes, exactly. On one hand, there was no better place than Silicon Valley for Min Wu, that geeky 1960s kid in Taiwan had grown up and was now at the burning hot center of this obscure technology he loved. On the other hand, he was starting to feel like as long as he stayed in the United States, he would inevitably crash into some kind of ceiling. A lot of the people who graduated from engineering schools in Taiwan

felt that they were coming up against a glass ceiling. This is Tom Gold, a professor of sociology at UC Berkeley, author of a book called State and Society in the Taiwan Miracle. So that's where KT Lee came in. There was a man 7,000 miles away in Taiwan who had started to sense that there might be lots of people like Min Wu. So KT Lee was somebody who I think saw, if you want to call it the handwriting on the wall. Li Guoding, otherwise known as KT Lee.

Some people call him the father of Taiwan's economic miracle. Big deal. Important enough that there's apparently a marble bust of him, named an asteroid after him. He's a hero in modern Taiwan. KT Lee died in 2001, but Tom spent some time with him in the late 1970s. I met KT, and he told me that he was teaching a class

at National Taiwan University, which is the premier university. So every Saturday morning, I would go to this class, which was conducted in Chinese. He was slim, under six feet tall. As I recall, he had a prominent nose, pretty nice looking, handsome older man. He seemed very sober, very level-headed, the sort of guy you could trust right away. And he was somebody who understood what the potential of Taiwan was. The potential of Taiwan. Something that, frankly, the United States had also started to wonder about, beginning at least as early as the Cold War. Since the Korean War, the United States has extended both economic and military aid

to the free Chinese to keep the island from falling into communists' hands. After China had its communist revolution in 1949, the United States started to become more and more concerned about the rise of communism in the world. And in its fight against communism,

the U.S. realized that having a buddy near mainland China was going to be important. A buddy like Taiwan. We were providing grants, we were providing loans, we were providing subsidies across the board. All of this foreign aid happened to come at a pretty useful time for Taiwan. So the economy had mostly been built around agriculture. But Taiwan, along with KT Lee, had decided to try and shift that economy away from farming.

In 10 years, more than 6,600 new factories of all kinds have been built, and all are expanding and prospering. Taiwan, with foreign help, transformed its economy. This mushrooming of industrialization has raised the Formosan standard of living... Over just a few decades, Taiwan evolved from an agricultural economy into a manufacturing economy. You may remember this period of time in the 1980s when it seemed like every toy or shirt you picked up said made in Taiwan. The fact that this happened

so fast was such a big deal in development economics that people just started calling this the Taiwan miracle. However, notably handsome Taiwanese economic hero KT Lee, he thought that Taiwan could take yet another leap. He thought Taiwan could move past just making lower tech toys and textiles and become the Silicon Valley of Asia. Taiwan had to advance to the next stage, and that was going to be technologically intensive industries. KT Lee was an economics minister, and then finance minister, and then basically minister at large in Taiwan.

And in 1979, he oversaw the very funky and cool named task force of STAG, aka the Science and Technology Advisory Group. And so Taiwan, guided by KT Lee and his colleagues, poured money into building up the research and development at Taiwan's universities. They set up national laboratories that would share discoveries with the private tech sector Taiwan hoped to develop. And they identified a very specific location to try and transform into the Taiwanese version of Silicon Valley. They found a small, unremarkable piece of land in the city of Hsinchu. You know, it looks rolling hills and it's green and it's clean and it's going to look more like Palo Alto than it looks like, you know, just a barren cement desert. KT Lee and his

colleagues made this an industrial zone, offered tax breaks, other incentives. Hsinchu Science Park is sometimes called the Silicon Valley of Taiwan. But there was a huge obstacle for KT Lee's tech dream. To build the Taiwanese Silicon Valley, Taiwan needed engineers. And lots of engineers like Min Wu had left the island. A lot of the people who graduated from engineering schools in Taiwan felt that their future really didn't lie in Taiwan. So a lot of them came to the U.S. and they started working for companies like Texas Instruments and companies in Silicon Valley, which was just getting going. And this is when KT Lee rose up his sleeves.

He started crossing over the Pacific to try and convince Taiwan's tech talent to come back. crossing over the Pacific to try and convince Taiwan's tech talent to come back. Bringing these people from Taiwan together and saying, look, we realize that, you know, you're facing these glass ceilings in the United States. But if you come back to Taiwan, if you come back, you know, we will supply you with laboratories. We'll supply you with all of the infrastructure that you need. We'll supply you with engineers. We'll find loans. We'll supply you with laboratories. We'll supply you with all of the infrastructure that you need. We'll supply you with engineers. We'll find loans. We'll invest with you.

And we won't make political demands on you. In short, KT Lee was pulling out all the stops and trying to lure talent back home. At that time, I was about 40 years old. Talent like Min Woo. So we already in California for 12 years. You're married to your girlfriend at this point. Oh, yeah. Smart, smart man.

But he was tired of hitting that ceiling over and over. He quit his job at Intel to see if he could try to make his own path in the U.S. And he founded his own Silicon Valley company. But very small. At that time, we have four people, five people to get started. What is the name of that company and what are you doing? Called Macronix Inc. Macronix Inc. And the way Min describes it, he sounds like the Willy Wonka of semiconductors, like the company was playing with semiconductors and inventing all kinds of wild uses for this new technology. Everything from using them to store information to one product that I definitely remember hearing about as a kid.

One product we know we call the key finder. Do you know the key finder? Yeah. If your key lost, you know, you can whistle. And then that device responds with a beep. You know where they are. You invented the key finder? Yeah, well, we are part of it.

We are making lots of money on that. These inventions, it's not like Min's company was inventing them and then selling them directly to customers. Macronix would mostly do research and develop technology and then license their inventions to bigger companies with the real power. Places with access to huge scale and enormous factories. And that is what Min wanted. Min wanted Macronix to have its own factories to make its own semiconductor products.

And he was hearing that maybe the place to build that kind of company was back in Taiwan. You know, I'm from Taiwan, so I have many alumni and friends in this field. You have your little birdies whispering to you, saying, Min, there's some stuff going on back here. Some interesting things are happening back in Taiwan. There's some stuff going on back here. Some interesting things are happening back in Taiwan. Well, they don't have to tell me. I can read the newspaper.

I know what's going on. So I was one of the early members in the semiconductor field. So I think there's opportunity there. Min never personally met KT Lee. But Min was exactly the kind of person Lee was trying to lure back to Taiwan. But Min wasn't going to be able to do this alone. Eventually, he starts meeting with other Taiwanese engineers like himself who'd left Taiwan for the United States. And now he was going to try and convince them

to leave their jobs in the U.S. and come back to Taiwan with him. I told them in the U.S. and come back to Taiwan with him. I told them, in the U.S., they have no opportunity. Because all their life, they are just engineers. Eventually, they need to move up. But in the U.S., they have no opportunity. Min was making the case that in the U.S., they're never going to see you as a boss or a manager or a CEO. You know, I recruit several people I know.

But then from them, I look into more. And then this is the first time I bring these people back to Taiwan. So that was a reverse brain drain. Yeah, how many brains did you drain from the U.S. when you went back? Like how many people did you bring? In a couple of years, actually 40.

40? 40. Whoa. All these engineers moving home? The KT Lee plan was ramping up, and the stakes were much bigger than just economics. If Taiwan could transform into Asia's Silicon Valley, then it would become indispensable to the world,

which would give it a kind of geopolitical shield. This effort to bring Taiwanese talent home, it was maybe just about the economy in the moment, but it would ultimately be part of building a critical silicon shield for Taiwan. The government of Taiwan is actively wooing its sons and daughters home. This is from an LA Times article in 1989 about Silicon Valley's reverse brain drain to Taiwan. Its two offices in California maintain data

on nearly 3,000 engineers and computer scientists, information they make available to Taiwanese talent scouts. In addition, they place recruiting ads in Chinese-language newspapers, such as a recent ad portraying an elephant separated from its herd, and the plea, come home. Was there a part of you in the back of your head, though, that was worried? What if this doesn't work?

What if we go back to Taiwan, start this company, and it fails? No, we will make work. We will make work. After the break, Taiwan and Minwu build this so-called silicon shield, with a little help from some very famous plumbers. The Taiwan miracle is indeed what people now call the extraordinarily fast shift in Taiwan's economy, from growing things to making things to making high-tech things. But it's important to note that even that miracle didn't

include making semiconductors right away. In the 1980s, Min Wu was on a mission to come home and open one of the earliest semiconductor factories on the island. And sure, maybe Taiwan was more friendly to the kind of long-term, expensive business that Min wanted to build. But he was still going to need money. Lots of money. Well, at that time, only raised about $800 million. And that means it's only $30 million. And that means it's only 30 billion U.S. dollars. Only 30 million U.S. dollars. Min needed even more than that. And to get it, he would have to pull off a kind of like business trick shot.

One of the most joyous global trade schemes we have ever heard of. A little bit of background here. By the late 70s, early 80s, semiconductors, memory chips in particular, were becoming super important. And the world's leader was not in Taiwan. It wasn't in the U.S. It was Japan. Japan was, in fact, so good at certain kinds of semiconductors that the U.S. government had started complaining about Japanese semiconductors flooding the U.S. and world markets. It was a classic dumping dispute.

Dumping is the term for when one country heavily subsidizes a product and then floods a foreign market with this much cheaper product, which is quite bad for the local producers trying to compete. You may recall a recent example of this when the Trump administration accused China of dumping its steel in the U.S. market. Well, in the 1980s, the U.S. was mad at Japan for allegedly dumping cheap semiconductors and also for allegedly blocking the U.S. from selling semiconductors into the Japanese market. With the U.S. economy sinking, there is growing pressure in this country to get a better trade deal with the Japanese. And that's not going to be easy because of the different way each country views both the causes and the cures.

But after pressure from U.S. businesses and a tense negotiation, the Japanese eventually agreed to stop their alleged dumping. But more importantly for our story, to open up its local microchip market to U.S. companies. Specifically, Japan agreed that 20% of semiconductors they used would come from the U.S. Min Wu caught wind of this and thought, this might be the break he needed. So I caught that opportunity. Japanese have to open up 20% market to the U.S. company here. And specifically, Min knew exactly the right Japanese company to go after. This boy is doing more than just playing a video game.

He has entered another world. Ah, yeah. Nintendo. Nintendo is, well, almost the most fun a kid can have. entered another world. Ah, yeah. Nintendo. Nintendo is, well, almost the most fun a kid can have. Yeah, sure. Anyway, we're talking about the original 8-bit and 16-bit systems here. The ones where, you know, you have to blow on

the cartridge and then maybe that seemed to make them work. It may be the most addictive toy in history. In just three years, they've sold more than 11 million hardware units at about 100 bucks each. In the late 1980s and early 90s, Nintendo was exploding in popularity. And like any other computer system, it needed semiconductors. And what Min realized was that Nintendo was probably going to want a lot of American-made semiconductors because of that new 20% trade agreement. American-made semiconductors because of that new 20% trade agreement. If Min could somehow land that contract, maybe that would be enough money to fund his dream of building like a proper

semiconductor factory. But it was going to take an epic scheme to land that deal. Okay, problem number one. Min was in the process of leaving the U.S. and setting up shop in Taiwan. Min was in the process of leaving the U.S. and setting up shop in Taiwan. Nintendo did not need a Taiwanese company. But, Min thought, he did found a U.S. company, Macronix Inc., the place that made the key whistling stuff. And so maybe Min wasn't overseeing it anymore, but he still did found it and knew the people there. Plus, his Taiwanese company conveniently had the same name,

Macronix International. Close enough. And so he goes to Nintendo and says, look, we're Macronix. Sure, I'm in Taiwan now, but it's a U.S. company that I founded. So Nintendo need the memory market to sell that cartridge to the U.S. customer. So I'm the only one. So they have to buy from me. Has to. And Nintendo apparently says, like, oh, okay, we're interested. Let's get some of these semiconductors then.

Now, of course, this is problem number two. Min does not have a semiconductor factory yet. That is what he's been trying to get money to build. And they take a long time to build. So whose semiconductors actually ended up That is what he's been trying to get money to build. And they take a long time to build. So whose semiconductors actually ended up in the Nintendos that were then shipping to the United States? At that time, the biggest company called Samsung. Oh, they were Samsungs.

We are buying Samsung and then selling to them, okay? Min was buying South Korean Samsung semiconductors through a U.S.-based version of his company in order to sell them to a Japanese company. And the whole scheme was a way to fund his real dream of building his own semiconductor factory in Taiwan. So this loophole on the 20%, this deal they had cut with the U.S., that was your opportunity?

Yes, precisely. Min, that is genius. And if you think about what was really happening, like the global forces of it, you have these three global superpowers, China feuding with the U.S., who is feuding with Japan. Min realized that when these titans fight, there are ways to take advantage of that, almost like a video game. Min was this clever sprite running circles around these giant bosses.

And at that point, is Nintendo your biggest client? Yes. Still? Still. Wow. Even today, still number one. Min Wu's company grew up

alongside Taiwan's semiconductor industry. He built his factory in Taiwan. He was part of this wave of major companies developing in Hsinchu Science Park. In 1987, up pops silicon integrated systems in the Hsinchu Science Park. And then the Taiwan Semiconductor Manufacturing Company, Macronix International, Min's company, a couple years later. Within 15 years, there's PowerChip Semiconductor, MSTAR Semiconductor, Global Unichip Company. Yeah, all these companies that most of us have never heard of, they make semiconductors that we use every day in our cars and phones

and Nintendo Switches. I got one of these guys here. Do you recognize this here? Nintendo, yes. This is Switch. This is a Switch. Yes. How many of your semiconductors, roughly, are in this guy here? Well, every year, I'm shipping about 100 million units to them. This is Zelda Breath of the Wild. So this is the best video game ever made, and you're telling me one of your semiconductors is inside the best video game ever made? Or maybe two, and another one could be controller, both for me.

Amazing. It is the full realization of KT Lee's vision to rapidly evolve Taiwan's economy, and it's the reason why he is known as the godfather of tech in Taiwan. He planted these seeds, these policies, and then tended to this idea, and it's now grown up. We talked about how Japan used to be the world's semiconductor leader. I mean, they used to make half of the world's semiconductors. But now they're trying to catch up with Taiwan.

Frankly, the U.S. is too, because today almost all of the world's advanced semiconductors come from Taiwan. And all of this is why advanced semiconductors come from Taiwan. And all of this is why people have started to call Taiwan's semiconductor industry its silicon shield. The idea is if the world has become completely dependent on Taiwan for microchips and semiconductors, then the island itself has become indispensable to the world. then the island itself has become indispensable to the world. And as global tensions rise, as the world worries more and more about whether China will try to invade Taiwan, this is where the silicon shield will get tested. Is China less likely to invade because China also needs Taiwanese semiconductors? Are countries like the U.S. more likely to intervene because it relies on Taiwan?

As this ratchets up, the stakes get much higher for business owners like Min Wu. Min's company has now grown into a roughly $60 billion company by market cap. And you can tell, like, if you ask him about any of this bigger stuff, China, the U.S., Taiwan, ask him about any of this bigger stuff, China, the U.S., Taiwan, Min has gotten very good at not saying anything at all. Are you worried about what that success is going to do in terms of Taiwan's position and safety as it's stuck between, you know, China and the U.S., obviously both having interests there? What is good to me? What is good to me to worry about that? I'm a scientist. I'm the businessman.

All I want to do is to create the best solution for the world. We'll see you next time. to John Ruich and Nishant Ahia for helping us get this story right. And of course, extra special thanks to the ThruLine team. We couldn't have done this without them. Lawrence Wu, Casey Miner, Devin Katayama, and Julie Kane. ThruLine's episode was fact-checked by Kevin Volkel with help from James Lin,

Shelley Rigger, and Cao Chen Dong. And if you don't already subscribe to ThruLine, it is a superb podcast with fascinating sound-rich stories like the one you've heard today. Everything from the history of Sesame Street to reality TV to their Peabody Award-winning series on Afghanistan. I cannot recommend it highly enough. We're so honored that you worked with us, Ramtin. Thank you so much.

Absolutely. Such an honor to be here. Huge fan of the show. Thanks, Kenny. I'm Kenny Malone. And honor to be here. Huge fan of the show. Thanks, Kenny. I'm Kenny Malone. And I'm blushing. And I'm blushing. And I'm Ramtin Adablui.

This is NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.