3 May 2025, NIICE Commentary 10792
Palash Sharma
Technology has become a battlefield in the geopolitical pursuit of power. The world is advancing towards Industry 4.0, synonymous with smart and intelligent manufacturing, which embodies the digital transformation of the sector, facilitating real-time decision-making, increased productivity, flexibility, and agility to transform the manufacturing, enhancement, and distribution of products by companies. There is a worldwide acknowledgment of the phrase “Data is the new oil,” indicating that both geopolitical and economic dominance will be shaped by the ability to gather, manage, and analyze data. At the core of this digital landscape are Semiconductor Chips, regarded as the vital component of electronic systems. Future technologies like artificial intelligence (AI), quantum computing, blockchain, and big data analytics are feasible only thanks to sophisticated semiconductor chips. The current global semiconductor supply chain is a complex and interdependent network dominated by critical players like the USA, Netherlands, and East-Asian countries like Taiwan, South Korea, and Japan. China is also rapidly investing in domestic capabilities to reduce reliance on foreign suppliers, challenging the existing hierarchy. Developing economies like Vietnam and India are also trying to become a part of this complex supply chain by setting up assembly, testing, and packaging plants in their country with the help of foreign partners. Therefore, this contest for semiconductor chips is not merely limited to technological or economic aspects, rather, it has become a strategic battle that is going to shape the 21st century. For instance, following the COVID-19 pandemic, the semiconductor supply chain impacted a wide range of industries, including electronics and automotive, leading to a significant shortage of semiconductor chips. This situation underscored the vulnerability of those supply chains, which predominantly depend on Asia as the central location for semiconductor production. To avoid this situation in the future, several semiconductor companies are shifting their operations out of China and relocating to developing countries like Vietnam, India due to their cheap as well as large skilled workforce, and even expanding to countries like the USA for resilient supply chains. Foreseeing this scenario several countries are trying to capitalize on this lifetime opportunity, for example - U.S. is trying to boost its chip production through its Creating Helpful Incentives to Produce Semiconductor (CHIPS) and Science Act into law and using sanctions to stifle China's push for independence in this vital sector, and the two countries are increasingly vying for semiconductor manufacturing and intellectual property. The Indian government has also taken initiatives like the Indian Semiconductor Mission, the Production Linked Incentive (PLI) Scheme, and the Design Linked Incentive (DLI) Scheme to lure global semiconductor companies to start manufacturing semiconductor chips in their country.
The global semiconductor supply chain is deeply fragile due to its complexity and concentration of technology within a few countries. Taiwan is home to TSMC (Taiwan Semiconductor Manufacturing Company Limited), which is perhaps the largest semiconductor contract manufacturing and design company, and is vulnerable to geopolitical conflict, especially posed by China. Similarly, the Dutch company ASML (Advanced Semiconductor Materials Lithography) holds a near monopoly in critical extreme ultraviolet (EUV) lithography machines, which are used to print intricate patterns on silicon wafers. The United States has the leading chip companies in the world, who leads in chip designing, which are home to giants like Nvidia, AMD, and Intel. This extreme specialization and geographic clustering create strategic vulnerabilities that nations are increasingly seeking to mitigate.
The United States and China are pursuing their geopolitical rivalry in this sector as well. Since both are heavily investing in this sector. In August 2022, the President of the United States, Joe Biden, enacted the CHIPS and Science Act. This legislation seeks to allocate $52 billion to restore the United States' dominance in semiconductor production and research and development while decreasing dependency on chips manufactured overseas. Alongside these initiatives aimed at supporting domestic companies, the administration has implemented actions to hinder China's semiconductor industry by introducing extensive export control regulations in October 2022, which will complicate China's access to advanced chips and manufacturing equipment. On October 7, 2022, the US government established an export controls policy regarding artificial intelligence and semiconductor technologies directed at China. As the nation struggles with limited access to the most cutting-edge semiconductors and chip-making machinery in the world, China has responded by establishing a nearly $48 billion fund to assist its semiconductor industry in developing a domestic supply chain and bridging the technological divide with the United States. This chip war has led to the rise of concepts like techno-nationalism, especially within traditionally liberal, market-driven economies. Faced with growing dependence on foreign, often rival producers, countries like the United States, Japan, and members of the European Union are calibrating industrial policy to secure technological sovereignty. Massive state-led investments, subsidies, and strategic partnerships are now seen as necessary to compete in a world where semiconductors are central to both economic resilience and national security. This shift can also be attributed to the rise of artificial intelligence, which heavily depends upon the semiconductor devices like GPUs (graphic processing units) for training their large language models like OpenAI’s ChatGPT, Google’s Gemini, and China’s Deepseek. As GPUs become the engines of AI innovation and digital power, controlling their production and supply has become a strategic priority. Along with the use of semiconductors in GPUs, they are at the core of advanced military platforms and weapon systems, which makes their role even more significant.
Semiconductor chips have become an integral part of our digital world, and it has become a tool of current geopolitics, not essentially in the economic aspect but also in terms of national security and global influence. The ongoing chip war provides us a lens through which we can understand the transformation of the global system: The emergence of digital sovereignty and the transition towards a more fragmented, regionally orientated paradigm of globalisation. The question also arises whether this intensifying competition will go to what extent, leading to technology hoarding, or whether we can see global cooperation and mechanisms to manage the rivalry apart by doing selective cooperation. Meanwhile, the countries should cooperate to build strategic partnerships through which they can transfer technology to developing economies and ensure that the technology is used for peace purposes and a prosperous society.
Palash Sharma is a Research Intern at NIICE and is currently pursuing his M.A. in Defence and Strategic Studies from the Central University of Gujarat, India.
