Because countries don't run manufacturing, corporations do. And up until now, it's always been cheaper to buy from Taiwan than to pay the reasonable wages and obey the environmental regulations in the US/EU. And there's exactly one thing corporations care about, and it ain't workers, the environment, or the wellbeing of a country.

Taiwan has near-Absolute Advantage when it comes to microchips.

https://www.investopedia.com/terms/c/comparativeadvantage.asp

TLDR: Because companies don't play geo-politics, they only care about low manufacturing costs and profits. It's only now that the US and other Western governments are getting involved that chip manufacturing is finally getting spread to other countries. Because Governments are the ones that worry about geo-politics and supply chain problems caused by rampant outsourcing.

In 1976 the Taiwanese government convinced RCA to transfer semiconductor manufacturing to Taiwan. Since then the semi conductor business in Taiwan has only grown and now upwards of 50% of chip manufacturing on the planet happens on that one island.

Taiwan has the advantage that it has the expertise in-house (lots of people with experience and training to make chips) and can do so at a much lower cost of labor compared to the US and other Western countries.

Similarly 60-70% of the worlds hard drives are also manufactured in Taiwan in 3 factories that are side-by-side in a tsunami/typhoon zone.

The next largest chip foundry is Samsung's which is in South Korea.

Meanwhile Intel and Texas Instruments still manufacture chips on-shore in the US. But while Intel's chips are critical to the PC industry, smart phones, automotive and a lot of other industries are heavily reliant on South Korea and Taiwan for their components and assembly.

It's kindof of shocking to be honest that Western Governments didn't take notice of the weakness of manufacturing industries heavy reliance on potentially unstable countries until recently.

The US Government has also been forced to step-in and stop the sale of US based telecom and electronics companies to the likes of Broadcom because of their Chinese backing.

Decades of outsourcing has lead the US in particular to be heavily reliant on countries like China and Taiwan for things like electronics. Even the Japanese which were historically an electronic manufacturing powerhouse are now reliant on other countries for chips because manufacturing them onshore is too expensive.

Meanwhile Russia is reportedly scrambling to buy black market chips because they too are heavily reliant on the West for electronics, and due to sanctions can't buy enough parts to maintain their own infrastructure or build modern military hardware.

Due to geo-political issues between Taiwan and China, and problems caused by the pandemic, Samsung is now building a new chip foundry in Texas which should be operational in 2024.

Because its incredebly hard and incredebly expensive to do. Being extremly woried about suply chains for geopolitical reason is a thing that came back with Corona and even more so with the russian war against ukraine. Why invest billions into something with no or litle monetary benifit if in the last 30 years nothing has happend that interuped the existing supply chains. On another note its not just sensitive to geopolitcs in SEA and EA its just as depended on Western European and American geopolitics. So if you realy want to become indepened from the rest of the world for chips be ready to invest proably hundred of billions and if nothing happens in Taiwan you gain basicly nothing.

A podcast called Planet Money did a good show on this a couple of weeks ago.

Forging Taiwan's Silicon Shield

It costs billions, and takes years to bring up the sort of manufacturing plant and infrastructure needed to produce silicon. It is happening, but the investment and expertise needed to do it means it’s limited to a handful of countries that are realistically capable of doing it. There’s also a huge risk of he investment not paying off in doing this too, most of the worlds high tech manufacturing is based in the Far East too, plonking a silicon fab in somewhere like North America makes it more expensive due to labour rates and the cost of shipping chips to the point they’re assembled into pcbs

Everyone has brought up some great points, but I will also add in one other aspect that makes it harder to move industries and that is all the supporting business. There have been many cases where businesses try to move their production to new locations to only discover dependencies that make it nearly impossible. For example, when apple tried to move one of their production lines to the US they discovered that no one locally could manufacture some screws for them in their specific size. Companies were willing to start creating the screws, but it would take a few years to reconfigure their production lines.

That's not really the case here. Most of the suppliers for chip manufacturing are Japanese or American. However those suppliers will have field offices in Taiwan due to the large number of customers there.

Thanks for the detailed answer, I learned some new things!

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Originally my thinking was more along the lines of, why *Taiwan*? Why haven't similar countries in SEA done the same as Taiwan? Some have cheaper labour, some have world-class tech talent, all are geographically almost identical to Taiwan.

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What did Taiwan do that, e.g.: Mainland China couldn't? Or SG, Japan, Malaysia, etc.?

Thanks, will give this a listen!