The Taiwan Semiconductor Dilemma — With Congressman Ro Khanna

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0:13Welcome to Big Technology Podcast, a show for cool headed, nuanced conversation of the tech world and beyond. Welcome back. China has declared its military ready to fight after completing three days of exercises around Taiwan after the Taiwanese president's meeting with Speaker McCarthy here in the U.S. China may not be ready to invade Taiwan, but it's certainly making no secret of its ability and perhaps its desire to do so. The country is fresh off a days-long exercise to practice blockading Taiwan. It's declared itself ready to fight, and it's even released animations of what hitting targets inside Taiwan would look like.

0:50Now, Taiwan is a nation of 23 million people, including many descendants of China's nationalist movement, who left the mainland as the communists took over. And it's also home to one of the most important companies in the world, Taiwan Semiconductor. The chips that Taiwan Semiconductor produces are differentiated and ubiquitous. They're found literally everywhere, and many are so technically sophisticated that no one else can produce them. Taiwan Semiconductor's chips are in iPhones and refrigerators. They're in watches and tea kettles. And should U.S. companies, for instance, lose access to Taiwan's chips, the country's GDP could take an instant hit, perhaps, into the double-digit percentage range.

1:29It would be a disaster, which is why everyone is watching this so closely. Congressman Ro Khanna is our guest today. He is fresh off a trip to Taiwan and is here to share his perspective on the state of the region, the importance of TSMC, as it's called, and the likeliness of a conflict. Congressman Khanna has been involved in legislation. He's met with leaders in the Taiwanese government and Taiwan Semiconductor, and he represents Silicon Valley. So he's keenly aware of the challenges and the opportunities here. And I think you're going to love hearing from him. My conversation with Congressman Ro Khanna, coming up right after this.

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2:43That's why Okta is taking the lead to secure these AI agents. The key to unlocking this new layer of protection? An identity security fabric. Organizations need a unified, comprehensive approach that protects every identity, human or machine, with consistent policies and oversight. Don't wait for a security incident to realize your AI agents are a massive blind spot. Learn how Okta's identity security fabric can help you secure the next generation of identities, including your AI agents. Visit Okta.com. That's O-K-T-A dot com. Congressman Ro Khanna, welcome to the show. Thank you. Thank you, Alex, for having me.

3:18Great to see you again. We've spent time hanging out in San Francisco in the past, and it's awesome to have you on the show. You're recently back from a trip to Taiwan, And I definitely wanted to speak with you about that. Obviously, this is going to be the core of one of the key messages that you have right now about America becoming more independent from a manufacturing standpoint. But I'd like to just really set the stage. So can you describe where Taiwan looks like geographically compared to China and where it sits strategically in terms of the importance of the manufacturing there to the United States economy?

3:53Well, Taiwan is very close to the coast of China. In fact, one of Taiwan's islands is a few hundred yards from China. And Taiwan has huge semiconductor manufacturing. manufacturing. The reality is that Morris Chang, who I met when I was in Taiwan, set up the entire semiconductor industry. He's an American expat. He was at Texas Instruments for 25 years, the number two person there. He was educated at MIT and Stanford. And he was passed over for CEO because of his Asian heritage and because he wanted to manufacture here. And Texas Instruments said, no, we don't want to manufacture. So he goes to Taiwan and sets up TSMC, the whole semiconductor industry.

4:39That was a big strategic mistake of ours. And now we're way too dependent on Taiwan in terms of chip manufacturing. And so something like what? So I think 75 % of US chips that we use come from East Asia. And I mean, a large chunk of those come from Taiwan. Is that sort of, we think about the scope of this, is that the right way to think about it? That is. And there are two challenges. One, TSMC in Taiwan is challenging us with the most advanced chips, because when you're manufacturing so much, you also learn to innovate. So they actually are neck and neck with Intel. But the other thing to think about is that for most of our chips in cars, in refrigerators, they don't require the five nanometer or the most advanced chips.

5:23They actually require chips that are 50, 60, 70 nanometers. And a lot of that production actually will be done in China. And so we have a double challenge. One is to maintain the lead in advanced manufacturing. The other is to make sure we don't just give the entire market for the non-advanced chips to China. Right. And I've heard that something like five to 10 percent of our GDP could go away overnight, effectively, if we lost access to the chips that come out of Taiwan semiconductor. Now, when you think about it in Congress, is that the type of numbers that you're thinking about? Yes. I mean, it would be devastating to the economy if we lost that chip TSMC makes so many of the chips for so many of our advanced companies.

6:13And that's why we want to have diversification. We've had TSMC come to Arizona to build facilities. We're helping Intel build facilities. And this is my Chips and Science Act that I helped draft initially as the Endless Frontiers, co-authored it then with Schumer. It passed. And that provides$52 billion to bring semiconductor manufacturing back to the U.S. Right. So I think we should talk quickly about the Chips and Science Act. In particular, there are big subsidies for chip makers. We have TSMC setting up its own plant in Arizona, but we're still very far behind. I mean, what's your most realistic, even if everything goes according to plan, what's your most realistic prediction for how long it will take the U.S.

6:55to get on par with Taiwan in terms of the ability to make chips? It's going to take a decade and we need to do more. This is just chips is just the start. We particularly need to focus on legacy industry chips, which is a lot of the chips that are going to power consumer goods. And we need to continue to focus on the supply of the most advanced chips and help more chip companies emerge that are doing the manufacturing like TSMC. So it's a good start. It's a down payment, but it's not the panacea. Yeah, it's incredible to hear the timelines on this. We think that, okay, we're going to put tens of billions of dollars.

7:37We should, in a couple of years, be basically independent in terms of our ability to make chips. But a decade is a long time. So I have a couple of questions about that timeframe. First, what happens afterwards? Then we can look at it if something happens beforehand. But there have been some people who say, okay, like, is the fact that we're going to have this capability going to then weaken Taiwan from a strategic defense standpoint? Because part of the reason why Taiwan is in, you know, might feel secure is because it has the U.S. support, knowing that, you know, that 5 % to 10 % of our GDP is dependent on that company being safe in Taiwan for the next 10 years.

8:16But when we start to build that capability in the U.S., do we then risk not having people in the U.S., for instance, not wanting to stand by Taiwan in the same way and potentially opening up the door for China to come in and try to take it over? No, because our commitment to Taiwan is one based on their freedom, their sense of the rule of law. It was made in 1979, the Taiwan Relations Act, long before they had any semiconductor industry. And it simply is not in the United States' interest for China to become a hegemon in Asia. So we're always going to push back there. Second, TSMC isn't going anywhere.

8:59I mean, there's a whole world that's going to need production of chips. They're going to always be important for the U.S. market. But even if they're not central to the U.S. market, there's the European market, there's the Chinese market, Indian market. And so I think TSMC is always going to have a significant role. OK, but don't you think so? One of the worries is that the world is sort of dividing, right, that we're having these two spheres of influence, U.S. and then China, Russia. So, you know, I mean, we never thought we could see a world where we completely disentangled from Russia economically.

9:30But here we are. And, you know, if China invades Taiwan, for instance, then potentially that could happen also. So I don't want that to happen, but I'm trying to think through the scenarios. I think it won't happen if we have the right policy. And the right policy is helping Taiwan have its own defense, making sure we are strong in the Indo-Pacific and have our submarines, have our bases, making sure that we're continuing to affirm the one China policy, which is the affirmation of the status quo, while recognizing that they have to have deterrence against China's ambitions. And that's what I learned when I was in Taiwan.

10:15That's what all the parties there want, DPP, KMT, and the TPP. They all are for stronger defense, but they all want to engage China because 40 % of their exports go to China. And so I believe it's possible to avoid conflict with the right policies and strategy. It always kind of struck me as strange that we have this like one China policy that views Taiwan as part of China. And correct me if I'm wrong here, but then we're also, on the other hand, worried that there's a chance that China might want to take Taiwan over. How do you view the contradiction in that policy and the reality? Well, the one China policy simply says that we acknowledge the status quo that while we can have relationships with Taiwan and we can have economic relationships that ultimately Taiwan and China need to work out their future through peaceful means.

11:03Now, in Taiwan, some of the people who want the one China policy want it under Taiwanese terms for freedom and democracy for everyone. They think Taiwan is the true China. And I guess the point is that even under the one China policy, what is not permitted is a military invasion or military force to change the status quo. And that is where you have China ratcheting up its rhetoric now, saying not just that they want to persuade Taiwan to unify with China, but that they want to use military force. And part of the reason they are no longer thinking of persuading is because of Hong Kong. It's made Taiwanese much more skeptical of any kind of unification.

11:45That said, the KMT candidate right now is leading in the polls for 2024. KMT has been much more sympathetic to reunification of or some kind of relation with China than the DPP. So a lot also depends on the presidential election in Taiwan. Right. And we certainly saw this in the TikTok hearing and we're starting to see it now. What do you think is behind this fraying of of the relationship between the U.S. and China? It seems like things are getting worse and worse, but I'm also like looking for a catalyst and I wonder what it is. You're sitting there as a lawmaker. What do you think is behind this distancing?

12:23Well, one, I think Xi Jinping has consolidated a lot of power and that is a material difference. He has moved away from any efforts at liberalization, privatization, and consolidated power. He's exerting much more China's nationalistic ambitions. and there is a growing sense in China that they want to be the hegemon in Asia, if not more dominant in the world. And I think that has led to conflict. Right. And so where's, I mean, I guess the U.S. is, it seems obvious the U.S. is not interested in seeing that future play out. Then again, I think about what's going to happen with Taiwan and like, if you have, if you think about the China that you just described, right and you think about an independent taiwan which is this linchpin to the global economy it almost feels like even before that 10 years where the u.s has taiwan semiconductor producing chips on par in the u.s if everything goes according to plan there's a good chance of of you know potential chinese aggression towards taiwan so i'm curious how i mean obviously you said like okay if we have the right policy it shouldn't happen how concerned are you about the possibility that that will happen?

13:40Because a lot of people weren't concerned about the fact that Russia was going to invade Ukraine, and then it did. So can we see a similar thing here? Again, I think if we talk to people in Taiwan, they will tell you that if they have the right defense, if they have the right defense capability, that they can deter it. I mean, they've deterred it for decades. Not to say that it's not something we should be prepared for, but But China has a lot to lose. I mean, China's economy and technology is dependent on the Taiwanese exports and things like Foxconn and other Taiwanese companies and TSMC supplying semiconductors.

14:20Taiwan is very dependent on the United States for two reasons. One, they're dependent on us to protect in the Strait of Hormuz, to allow them passage to the Middle East to get their own energy and oil. I mean, if we were to cut off that passage, it would be devastating for the Chinese economy. And they're dependent on us in a more mundane sense, as were their buyers. I mean, they unfortunately have a huge trade deficit. So China has a lot, lot more to lose than Putin ever had to lose. Putin, Russia was a has-been power, didn't have much economic connection. There wasn't much to lose. China is literally a peer competitor that would be devastated economically by taking that step.

15:03Not to say they couldn't be irrational. They could. But I don't think it's in their strategic self-interest. So then talk a little bit about your visit there, right? What was, I mean, when you're going to meet with someone like Morris Chang, who runs Taiwan Semiconductor, you're going to have these conversations like, okay, are we safe or are we not? So what was the mood there and what were these conversations like when you were out there? Well, Moor Shag was talking about how America really made a mistake for 40 years, the over-financialization of the economy and non-recognition of the importance of manufacturing.

15:35He was skeptical that we could now do it. He thought that the moment had passed, that Taiwan really had built the manufacturing culture. But what I took away from it is two things. One, a mistake to have an anti-immigrant sentiment. I mean, I wish Morris Chang became American and stayed American and invested here instead of in Taiwan. And secondly, the importance of manufacturing and building a manufacturing culture with government financing, which we're doing with the Chips and Science Act. But we also need to do with the legacy chip industry, with steel, with aluminum, with paper, with textiles, with drug manufacturing.

16:11There needs to be a massive effort to make America manufacturing superpower again. And Chiang was a reminder of what we lost in America. When you met with leaders in the Taiwanese government, were there questions of asking for defense assurances? There was in terms of getting the defense supplies that we have authorized to Congress. Unfortunately, because of our commitments to Ukraine, which I support, the production has been backlogged. And we haven't been able to produce all of the defense weapons that the Taiwanese want. And one of the bipartisan commitments in Congress should be to get those defense weapons to Taiwan to increase our manufacturing output for those weapons and also to make sure that the United States is actively involved in trading Taiwan, which are all legal under the Taiwan Relations Act that we passed in 1979.

17:02Yeah. And now when I think about the fact that we're even in this situation and you've brought it up so far, right, it does seem like a failure in some ways of U.S. policy to allow such a critical part of our infrastructure to be produced offshore. Who bears responsibility for that? And, you know, what lessons are there to learn on this front? I think both parties bear responsibility. There was a sense that manufacturing didn't matter, that we will be able to just invent our way and have Nobel laureates. and manufacturing is kind of the low-skilled work. And it turned out to be a terrible theory.

17:42Not only was it false that manufacturing leads to innovation, it also hollowed out our working and middle class. It created polarization in this country. And now that we've woken up to say, well, maybe we shouldn't have let all the production go to Asia. And we're bringing our production back. But it's like turning the Titanic. And it's a challenge. I mean, it's pretty short-sighted, you know, I guess on behalf of any policymaker who thought that manufacturing going elsewhere would, especially of like key technology. I mean, obviously you couldn't see where semiconductors were going, but where key technology was going to be to push that offshore or allow that offshore is just, I mean, everything's easier in hindsight, but my God, I mean, that's pretty bad.

18:26Yeah, and it was corporate greed to some extent. I mean, look, you had cheaper labor. You had deregulation there. less environmental labor standards. People said, well, we could just do the quote unquote higher end work here. We can make the manufacturing cheaper. That's going to make profits higher. It's going to make consumer goods cheaper. And we worshipped at the altar of high stock prices and low consumer goods and lost the balance in a productive economy that is necessary, both for innovation, for economic growth and to sustain a working and middle class. And I would argue for national security when it comes to something like semiconductors.

19:07Congressman Ro Khanna is here with us on Big Technology Podcast. We're talking about Taiwan Semiconductor. After the break, we're going to talk a little bit more about our geopolitical strategy in terms of where our economy lies, where manufacturing might figure into that. And then we'll cover some of the more of the fun stuff looking at TikTok and Silicon Valley Bank. All right, back right after this. These days, it feels like every dollar should be working a little harder, but figuring out where to put your cash can be confusing. That's where Wealthfront comes in. Wealthfront is a tech-driven financial platform built to help you grow your savings into long-term wealth.

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20:17It may not reflect the experience of others, and there's no guarantee of future performance or success. Wealthfront brokerage is not a bank. Rate is subject to change. Promo terms and conditions apply. For more information, see the episode description. Capital One's tech team isn't just talking about multi-agentic AI. They already deployed one. It's called Chat Concierge, and it's simplifying car shopping. Using self-reflection and layered reasoning with live API checks, it doesn't just help buyers find a car they love. It helps schedule a test drive, get pre-approved for financing and estimate trade in value.

20:52Advanced, intuitive, and deployed. That's how they stack. That's technology at Capital One.

21:04And we're back here on Big Technology Podcast with Congressman Ro Khanna. Congressman, thanks again for being here. Thank you. You're talking a lot about how we need to bring our manufacturing back to the U.S., talking about how this is going to be a national economic and security advantage. What do you make of the fact that our education system will also have to change, right? Why there was a quote in the Wall Street Journal recently talking about how like companies, if they need someone to drive a truck for$90 ,000, they can't find them. But if they need an MBA, they'll be able to hire them for$60 ,000 without a problem, right?

21:39So do we have to now change the way we think about work and education in this country if we're going to also try to bring some of the manufacturing back as well? But we need to have a better sense of the skilled trades and the certificates for the 60 % of people who don't go to college. And one of the reasons that that was devalued, that we stopped teaching shop in high school, that we stopped career technical education, was the sense that those jobs were going offshore. So if you were a parent, if you were a community leader, you would be hesitant to have your kids go into that work because you're reading all these headlines of how manufacturing is going offshore and all these headlines saying you have to go to college.

22:17That was a mistake. We need to be focused on making sure we have enough electricians and plumbers and folks to do all of the certificate skilled work that's going to be necessary to build the new factories. That doesn't mean we don't need MBAs or PhDs or college graduates. I mean, college graduation, unemployment was about 5%, even in the recession and the pandemic. So we don't have to be anti-intellectual or anti-college education to also be for developing the skilled trades workforce. Definitely. Okay, so I'm just going to wrap up our discussion about Taiwan and manufacturing in the U.S. You're actually the most optimistic person I've ever spoken with on this issue in terms of Taiwan's ability to maintain its relative independence.

23:05Does that I'm kind of curious what your reaction is to that. Like, is it surprising to hear? Because so many people that I've spoken with seem to believe that a conflict is inevitable. I would just ask, are they talking to people in Taiwan? Definitely. My view is that the people who know most are the Taiwanese leaders. And they when you talk to the Taiwanese president, who, by the way, is more of a hawk on China, to President Tai. I'll be seeing her later this week. she will say, look, we've lived with the Communist Party through ups and downs for 40 years, and we know how to tackle this. Now, I think it's important to be alert, and it's important to be prudent and to make sure that Taiwan has what it needs to have defense.

23:51But to say that there's going to be inevitable war is a failure of imagination and statesmanship. I mean, why why then be in politics? Why be a state? Why be a leader? If you're just going to think that there's a default to that, fortunately, chat GPT doesn't control foreign policy. I mean, that is not the people I've been speaking with, just letting you know. Yeah. Okay. That, that is interesting. Well, I hope you're right. Yeah, no, I mean, look, I mean, obviously, there's no guarantee. But I think it can be avoided. I think if you have an alliance with India, Japan, Australia, the main thing is to push back on China's aspiration to become a hedge-abomb in Asia.

24:33And I think they're getting that message. Yeah. Okay, let's run through a couple of big tech topics before we have to go. First, you brought up ChatGPT. What do you make of this wave of AI? And Congress's job is to regulate technology and regulate business, among other things that you guys do. can you can you let's say we get to a place where ai is as smart or as intelligent as a person like what do you do then what does our chat gpt has a long way to go the few prompts i've put in i don't think it does and so far i haven't seen anything that even make it up to like cliff notes level of analysis i had asked a question about uh thoreau and gandhi and how thoreau was influenced by the Gita that influenced Gandhi, and out came Chet GPT saying Thoreau read the Gita, Gandhi read the Gita.

25:19They both believed in civil disobedience. So it's something that finds the patterns of language, but it still doesn't, in my view, have the depth of analysis for people who actually know the topic. That said, it poses risks, and that is that if you can have patterns detected with some error, and you can do that at large scale, and you can do that quickly, it leads to the possibility of massive disinformation spewing in a society. I mean, for example, Google search or Yahoo search, you have a link, a source everywhere. Now, let's say you go to ChatGPT, you don't have a source, you come up with some explanation.

26:03And if there's falsity there, that's a problem. And then it could lead to decision making that could have wrong consequences or harmful consequences. So we need regulation on safety and quality and human judgment. And that's something Congress needs to do. Yeah, well, I think you should try the Bing chat or the chat GPT with the upgraded GPT-4. And it'll be more impressive than whatever you've played with. Because once these things connect to the Internet, they become much smarter. And it's kind of wild to watch them go. Yeah, although the model itself is it's taking all of the language on the Internet and finding patterns and trying to analyze that.