Japan should leverage TSMC deal to reinforce industrial base
By: Asia Business Outlook Team | Wednesday, 20 October 2021
The decision by Taiwan Semiconductor Manufacturing Co. to set up a new plant in Japan offers the country's semiconductor industry an opportunity to strengthen its foundation. The hope is that the move will improve Japan's whole digital sector.
The world's leading chipmaker is set to break ground on the factory next year and bring it online in 2024.
It was the Ministry of Economy, Trade and Industry that encouraged TSMC to make the decision. For a ministry that has been obsessed with reviving the nation's semiconductor industry while exclusively focusing on Japanese players, the pragmatic decision to broaden its strategy and invite a foreign company should be commended.
Japan is far behind the leading pack when it comes to semiconductor development. Attracting investment from overseas is an expedient way to catch up. While the chips TSMC plans to make are under the "midrange" category, they are still far ahead of what Japanese companies can
presently produce. We hope this will be a catalyst for superior technology to gain a foothold in Japan.
Nevertheless, we are concerned about the massive subsidies that Tokyo intends to provide TSMC in return for its investment. Prime Minister Fumio Kishida has indicated that support for the chipmaker will be comprised in an upcoming economic stimulus package, saying it will be "a major contribution to our economic security."
Semiconductors are critically important in the digital era, and the world is in the grip of an acute shortage. The U.S. and Europe are pouring large sums of government funds into building up supply chains at home. The Japanese government is following suit, but it should not use "economic security" as an excuse to lavish subsidies on businesses with little strategic value.
The semiconductor industry has an established global division of labor, and attempting to create the entire production chain in Japan is all but impossible. Moving too far in the direction of industrial nationalism would not benefit Japan. Instead, the focus should be on complying with World Trade Organization rules.
Most important for Japan is whether the plant can compete internationally and succeed as a business. If it can, the benefits to the national economy will be significant -- through increased employment and tax revenue. If Japan is seen as a good location for semiconductor manufacturing, firms both foreign and domestic might be convinced to pledge fresh investment in the country.
Sony Group and Denso, which are also participating in the project, can take advantage of the partnership with TSMC to hone their own competitive edge. We hope that combining superior semiconductor technology with Japan's existing specialties of autos and industrial equipment will swift the digital transformation of the country's economy.