Taiwan’s TSMC chip technology leak is a bigger deal than you think.

Bloomberg (paywalled article):

Taiwan prosecutors arrested six people suspected of stealing trade secrets from Taiwan Semiconductor Manufacturing Co., opening an investigation into a potential breach of national security involving a global tech industry linchpin.

The chipmaker to Nvidia Corp. reported a number of former and current staff to authorities on suspicion they illegally obtained core technology. A total of six people were arrested, with two posting bail and one released afterwards, said Taiwan High Prosecutors Office spokesman John Nieh. Prosecutors searched the homes of some staff between July 25 and July 28, the agency said in a statement. It’s now trying to find out if data had been leaked to other parties.

TSMC is the world’s most advanced maker of semiconductors, from Nvidia AI accelerators to Apple Inc. iPhone processors. The case coincides with a quickening race by the likes of Meta Platforms Inc.and DeepSeek to develop artificial intelligence in the post-ChatGPT era, which requires billions of dollars in servers and datacenters.

On Tuesday, the Nikkei reported that TSMC fired several employees suspected of trying to obtain critical information on 2-nanometer chip development. That next-generation semiconductor process is entering mass production in the second half of this year.

TSMC is more than just a chip maker. They’re literally responsible for running the global economy. China believes Taiwan is part of China, and are very eager to seek “reunification” with the island, calling it sacred territory.

An excerpt from Apple in China by Patrick McGee:

When on October 1, 2024, the Communist Party celebrated seventy-five years of ruling China, Xi reiterated his desire to "reunify" with the island democracy, saying "Taiwan is China's sacred territory" and that the two are connected by blood. "It's an irreversible trend, a cause of righteousness and the common aspiration of the people," he told thousands of supporters. "No one can stop the march of history.”

Any military action would immediately threaten TSMC, which is responsible for making at least 80 percent of the world's most advanced chips. In war games involving an invasion of Taiwan by China, Taiwan's semiconductor industry doesn't survive. "It would go out of business on day one of the war," according to Chris Miller, author of Chip War. "The moment fighting starts, TSMC facilities would stop producing. It would never be reopened." Such a cessation in production would have disastrous effects on the world economy. Avril Haines, US director of national intel-ligence, estimates that if Taiwan were prevented from exporting chips, the global loss would be "somewhere between $600 billion to more than $1 trillion, on an annual basis, for the first several years." Indeed, the New York Times columnist Nicholas Kristof has credibly called TSMC "the only corporation... in history that could cause a global depression if it were forced to halt production." For Apple alone, the impact would be the equivalent of a meteor strike.

According to the article, China is still manufacturing 7-nanometer chips while TSMC is working on more efficient 2-nanometer chips.

The headline sounds like another routine stolen trade secrets scandal, but it’s more cutthroat than that (pun intended).

They don’t call it the Chip Wars for nothing.