Geopolitics Of Semiconductors

In semiconductor geopolitics, the U.S., China, Taiwan, and India navigate complex strategic dynamics, impacting manufacturing, supply chains, and alliances, shaping the global technological landscape, and driving economic competition.

Geopolitics Of Semiconductors 1

Politics primarily revolves around the acquisition and exercise of power. Over time, the concept of ‘geopolitics’ has evolved with each generation of scholars offering fresh perspectives. This century has witnessed a surge in geopolitical tensions, sparking rivalries among nations. The complexity of geopolitical dynamics necessitates consensus-building among states. Ensuring national security hinges on a state’s capacity to gather intelligence, engage in warfare, foster alliances, and navigate diplomatic channels. Strategic competition and interstate conflicts extend beyond geographical boundaries, permeating the realms of technology and economics.

Technological progress has reached unprecedented levels, often playing a decisive role in warfare. From the era of steel and aluminum to the current era dominated by silicon, advancements in technology have shaped the outcomes of most conflicts. The emergence of Artificial Intelligence (AI) and the rapid expansion of 5G communication networks have intensified the demand for computational power. Semiconductors find diverse applications across various industries, ranging from GPS and radar systems to sophisticated Unmanned Aerial Vehicles (UAVs) and microprocessors, which are indispensable in fields like drone technology and satellite communications. In an era marked by cyber and economic threats, power dynamics are influenced by vulnerabilities in critical choke points and supply chains.

Battle for Technological Supremacy

The Cold War was characterized by a clash of ideologies and military prowess. The Soviet Union’s perceived triumph, epitomized by the launch of ‘Sputnik’, prompted calls for revisions in U.S. defense strategy from the President’s Scientific Advisory Committee. This led to significant milestones in American history, including the establishment of The National Aeronautics and Space Administration (NASA) and The Defence Advanced Research Projects Agency (DARPA).

In the 1980s, a technological rivalry emerged between the United States and Japan. Japan’s innovative advancements, exemplified by companies like Fujitsu, Hitachi, and Mitsubishi Electric, resulted in significant patents and advancements in manufacturing and silicon chip technology. This posed a challenge to American companies, prompting President Reagan to impose tariffs on Japanese imports. Meanwhile, tech giants such as IBM and Intel benefited from these developments, while countries like Taiwan and South Korea also capitalized on the opportunity. Taiwan, for instance, now provides over 30 percent of the world’s annual computing power through its chips, while South Korean companies like SK Hynix and Samsung hold substantial market shares in the memory chip industry.

The onset of the COVID-19 pandemic highlighted vulnerabilities in global supply chains, particularly in the semiconductor industry. Leaders in Japan, the U.S., and Europe were caught off guard by chip shortages, underestimating the critical importance of semiconductors. The Silicon Valley ecosystem emerged as a cornerstone of American enterprise, leading to the Trump administration’s imposition of export controls on companies like ZTE and Huawei, extending to software, telecom equipment, and intellectual property rights. The Biden administration further tightened restrictions, now encompassing advanced computing chips and semiconductors. The competition for dominance in integrated circuits extends beyond traditional rivals like the U.S., China, Russia, and East Asian nations, impacting global markets and triggering economic reverberations.

The Strategic Cauldron–China, The U.S, and Taiwan

According to Moore’s Law, semiconductors are a part of practically every gadget that needs computational power. The semiconductor supply chain is made up of parts, necessary minerals, intricate designs, and assembly that must be coordinated amongst important companies, nations, and cities. The biggest obstacle in the process of producing chips and miniaturizing semiconductors is the need for perfect precision.

Throughout history, Silicon Valley has led innovation and left a lasting impact on the worldwide semiconductor industry. China has an advantage over the market in terms of the supply of vital materials, while Taiwan’s Taiwan Semiconductor Manufacturing Company Limited (TSMC) is the industry leader in carving microscopic tiny transistors (the iPhone, TSMC Fab 18). LEDs, defense systems, automobiles, and satellite communications all employ gallium. Germanium is utilized in optical devices (weapon systems), fiber-optic cables, and infrared imaging equipment. The Critical Raw Materials Alliance (CRMA) estimates that China produces around 80% of the world’s gallium. China expanded its output of rare earth minerals in 2024, a crucial component of the energy shift.

Taiwan has emerged as a hot spot in the US-China dispute, but governments are concerned about how it may affect existing supply networks and markets. Lai Ching-te, the incoming president of Taiwan, faces a difficult assignment. Taiwanese and international businesses will be impacted by Beijing’s economic restrictions and political isolation of Taiwan. Taiwan’s economy will be impacted by its dwindling technology exports and recent supply chain problems. Almost a million international businesses operate in China, conducting business with the United States, South Korea, Japan, Germany, Singapore, and other countries. China’s economic growth is facilitated by the interconnection of numerous industries.

Another strategic move is Taiwan’s reevaluation of the “New Southbound Policy” and outreach to its southern neighbors, including ASEAN nations, South Asia, Australia, and New Zealand, through diplomatic, economic, and cultural channels. The goal is to de-risk from potential conflicts and restructure supply chain structures. Beijing and Washington analysts have been tracking this pattern, and they believe it will have a significant impact on the United States’ willingness to intervene in other possible wars (like the conflict in Taiwan) notwithstanding the ongoing war in Russia and the situation in Gaza.

India’s challenges

The semiconductor industry in India gained prominence in 1984 following a relaxation of licensing requirements and a reduction in import duties on electronics, coupled with investments in the technology sector. Despite these advancements, the industry encountered notable challenges. By 2026, the Indian semiconductor market is projected to reach $55 billion, driving growth across various sectors like automotive, smartphones, wearables, data storage, and electrical appliances.

To stimulate demand and foster growth, the current government has introduced several initiatives in the semiconductor sector. These include Semiconductor Fabs, Sensors, Design-linked incentives (DLI scheme), Silicon Photonics, Outsourced Semiconductor Assembly and Test (OSAT units), Semiconductor Laboratories, and other initiatives under the Scheme for the Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS). Additionally, the government has proposed Production-linked incentives (PLI scheme) to attract investments and bolster manufacturing in critical sectors. Moreover, the government has strategically engaged with countries like Taiwan, South Korea, Japan, the U.S., and other key allies to promote collaborative growth in the sector.

However, despite its potential, New Delhi must carefully consider its policy options. Unlike China and South Korea, which received substantial support and subsidies, India faces challenges as a federal democracy. The expansion of the semiconductor industry will increase demand for water resources, posing challenges in a country prone to droughts and climatic fluctuations. New Delhi needs to recognize that incentives and infrastructure are vital for the semiconductor industry, but the availability of skilled labor remains the most crucial factor. Therefore, the government must strike a balance between industrial growth, infrastructure development, defense, technology, agriculture, environmental concerns, and welfare schemes when formulating policy measures.

India faces additional hurdles as a federal democracy. The surging demand for semiconductors will amplify the necessity for water resources. Semiconductor facilities require vast amounts of pure water daily. Given India’s susceptibility to droughts and climatic fluctuations, this will strain water usage. New Delhi must acknowledge that while incentives and infrastructure are vital for the semiconductor sector, skilled labor stands out as the most critical factor. Consequently, the government must carefully balance its policy measures across industrial growth, infrastructure, defense, technology, agriculture, environmental concerns, and welfare schemes.

The Way Forward

India’s geopolitical dynamics with the U.S., China, and Russia pose complex challenges. As New Delhi grapples with an escalating trade deficit with China, it must conduct thorough policy assessments and maintain its multi-alignment diplomatic strategy with trusted allies. While the “China +1” strategy offers a potential solution, the feasibility of de-risking and decoupling is limited due to the increasingly interdependent global economy. With a pool of highly skilled chip design professionals, India stands poised to capitalize on the shift of supply chain competition towards Southeast Asian nations and establish itself as a significant player in the semiconductor value chain.

The Ministry of Electronics and Information Technology (MIETY) predominantly steers India’s semiconductor policy, while the Centre for Development of Advanced Computing (C-DAC) oversees chip design policy implementation. Although this marks a positive development, fostering greater collaboration among academicians, universities, industry leaders, think tanks, regulatory bodies, and policymakers is essential for effective dialogue and the success of the India Semiconductor Mission (ISM). Analysts and industry experts advocate for a funding mechanism and institutional framework akin to the U.S. government’s CHIPS and Science Act of 2022 to fortify India’s industrial policy, particularly in the semiconductor sector.

Despite Beijing’s efforts to discourage strategies against Washington, the geopolitical landscape remains uncertain. The economic, technological, and military prowess of the United States, encompassing land, labor, and capital, continues to shape the international order. While the U.S. may have retreated strategically against China, its commitment to innovation, risk-taking, strategic planning, and military expenditure remains unmatched. Although Beijing wields control over critical minerals, ensuring the semiconductor industry’s prosperity necessitates robust supply chain mechanisms, industry collaborations, institutional networks, and technological advancements. Both Beijing and Washington recognize the risks associated with escalating a supply chain war, yet selective decoupling in strategic sectors is becoming increasingly common.

Amidst escalating cross-strait tensions, China risks isolation from crucial knowledge networks, spanning beyond Taiwan to encompass Europe, the U.S., and other democratic nations viewing Beijing as a significant threat. Against the backdrop of the U.S. elections in November, the implications of the Indo-Pacific alliance, particularly the AUKUS partnership comprising Australia, the United Kingdom, and the United States, on South Asian politics and the East Asian theater are noteworthy. For India, the government’s framing of the next phase of foreign policy will be influenced by the mandate secured in the Indian general elections.

Recently, GreatGameIndia reported that India’s semiconductor dream is under threat, as none of the major chipmaking companies, including Intel, TSMC, Samsung, Global Foundries, and Micron, have applied for the provided incentives.

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