India Joins the Chip Race: Competing for Control of the Global Semiconductor Technology

• Semiconductors have become the modern world’s most critical resource, essential to technology and military systems, with global power dynamics now shaped by control over chip production.
• Nearly all semiconductors are manufactured by Taiwan, Japan, South Korea, and the U.S., leaving other nations, particularly India, vulnerable in times of geopolitical conflict.
• China invests heavily in building its own semiconductor industry to reduce dependence on foreign suppliers, even employing industrial espionage to acquire cutting-edge technology.
• India, lagging in chip production, is now prioritizing semiconductor development to achieve technological sovereignty and meet its growing tech needs.
• The competition for semiconductor dominance parallels past energy conflicts, making control over chips central to future economic and military power.

The most critical and strategic element of 21st-century geopolitical competition is not oil, gold, land, or data. It’s a resource that powers everything from cars to container ships, missiles to microwaves, and smartphones to stock markets. It’s the inconspicuous semiconductor, or microchip, or simply chips. Once relegated to the realm of electronics, semiconductors have risen to become as crucial to the modern world as oil once was. Just as oil reserves have shaped geopolitics for decades, the location and control of semiconductor manufacturing now play a pivotal role in global power dynamics.

Semiconductors are at the heart of the technological revolution that defines the 21st century. This shift is transforming military, economic, and geopolitical strategies — especially with the advent of artificial intelligence (AI) and its reliance on advanced chips. Only four countries produce nearly all of the world’s semiconductor requirements — Taiwan, Japan, South Korea, and the United States. China and Russia are pouring hundreds of billions of dollars into the industry, desperately trying to catch up with those above four. Chinese efforts are proving somewhat successful as they have acquired a 15 percent market share in the lower end of the market.[1]

The world’s dependence on this vital commodity was evident during the COVID-19 lockdowns when the disruptions to the supply chain impacted a slew of industries, especially automobiles. At Ford plants in the US, tens of thousands of newly assembled SUVs became $100,000 paperweights because, without chips, they were immobile. It is estimated that in 2021, more than 9.5 million units of light vehicles were lost globally due to a lack of necessary semiconductors.[2]

The advent of high-speed chips may also have played an instrumental role in the collapse of the Soviet Union. Russian leaders such as Mikhail Gorbachev anticipated their supremacy in strategic weapons would be lost in the coming decades if they couldn’t catch up with the West in semiconductors. The Soviet bureaucracy, obsessed with keeping up with America’s progress, believed that the best approach was to copy the US as closely as possible. However, while this strategy proved effective in building nuclear arsenals, it failed in the chip industry.

Learning from the Soviet Union’s mistakes and spooked by the collapse of a fellow communist nation, China is pouring billions into R&D and production facilities. The wily Chinese also planted their scientist spies in Silicon Valley to purloin America’s ultra-secret technologies. Currently facing a technology blockade and anticipating further strengthening of sanctions, Beijing has been on a chip stockpiling spree. It is a measure of how vital semiconductors are to its economy that China now spends more money each year importing chips than it spends on oil. These semiconductors are plugged into all manner of devices, from smartphones to refrigerators, that China consumes at home or exports worldwide.[3]

India, which had a rudimentary chip-making industry in the 1980s, squandered its early advantage because the country’s political leadership lacked the insight to understand the importance of such a vital commodity. While Indian politicians were sparring over religion, caste, and reservations, the world raced ahead. Today, even Malaysia has more semiconductor production and testing facilities than India. In civilizational terms, India, which used to be an economic and scientific powerhouse just a few centuries back, is currently nowhere in the picture.

As the world’s fifth largest economy and the 10th largest exporting nation,[4] India’s requirements for semiconductors are huge. In the not unlikely scenario of Taiwan being invaded by communist China, the world could plunge into a major crisis as the island nation produces as much as 54 percent of the world’s high-end chips. While the US, Europe, Taiwan, Japan, and China will somehow cope due to indigenous manufacturing, India could be shut out of the global semiconductor supply chain.

But how did we get here, and why have semiconductor supply chains become so concentrated?

Harder than you can imagine

As oil dictated geopolitics for much of the 20th century, semiconductors are now a key determinant of global power. The supply chains are highly concentrated, and with chips’ strategic importance only growing—particularly with AI on the horizon. The nations that control semiconductor production will hold the keys to economic prosperity and military dominance.

According to international history professor Chris Miller, producing semiconductors is mind-bogglingly complex and horrendously expensive. He explains in Chip War: “Unlike oil, which can be bought from many countries, our production of computing power depends fundamentally on a series of choke points: tools, chemicals, and software that often are produced by a handful of companies — and sometimes only by one. No other facet of the economy is so dependent on so few firms. Chips from Taiwan provide 37 percent of the world’s new computing power each year. Two Korean companies produce 44 percent of the world’s memory chips. The Dutch company ASML builds 100 percent of the world’s extreme ultraviolet lithography machines, without which cutting-edge chips are simply impossible to make. OPEC’s 40 percent share of world oil production looks unimpressive by comparison.”[5]

Miller adds: “A typical chip might be designed with blueprints from the Japanese-owned, UK-based company called Arm by a team of engineers in California and Israel, using design software from the United States. When a design is complete, it’s sent to a facility in Taiwan, which buys ultra-pure silicon wafers and specialized gases from Japan. The design is carved into silicon using some of the world’s most precise machinery, which can etch, deposit, and measure layers of materials a few atoms thick. These tools are produced primarily by five companies, one Dutch, one Japanese, and three Californian, without which advanced chips are basically impossible to make. Then the chip is packaged and tested, often in Southeast Asia.”

Rise of Asia

American scientists and engineers pioneered the development and commercialization of semiconductors starting in the 1940s. Over the decades, US companies maintained their dominance in the semiconductor industry, particularly in chip design, the software tools that make designs possible, and the highly specialized machinery that etches chip patterns onto wafers.

However, a seismic shift occurred in the late 20th century. The actual manufacturing of chips began moving abroad, particularly to Asia. The US share of global chip production fell from 37 percent in 1990 to a mere 12 percent in 2020. At the same time, China’s share grew from virtually nothing to around 15%, and the dominant players in advanced chip fabrication became Taiwan’s Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung Electronics, each responsible for producing the most sophisticated microchips.[6]

While the US retained leadership in designing chips, Asia took the lead in manufacturing them. This shift has raised concerns, particularly in the US, where there’s anxiety about the concentration of chip production in geopolitical hotspots such as Taiwan and South Korea.

Geopolitics of semiconductors

The geopolitical significance of semiconductors cannot be overstated. As Intel Corp CEO Pat Gelsinger remarked, “Where the oil reserves are located has defined geopolitics for the last five decades. Where the chip factories are for the next five decades is more important.”[7] This statement highlights how the location and control of semiconductor production have become a defining factor in global power dynamics.

The strategic importance of semiconductors is especially clear in the context of military power. Modern warfare relies on advanced chips for everything from communications to missile guidance. For example, the US military heavily depends on semiconductors for its weapons systems. At the same time, nations are increasingly concerned about the ability of adversaries, particularly China, to control or disrupt the supply of critical chips.

Taiwan, in particular, has become the epicenter of this semiconductor struggle. TSMC, which manufactures more than 90 percent of the world’s most advanced chips, has given Taiwan a unique form of leverage on the international stage. The tiny island nation’s semiconductor industry has made it an indispensable player in the global economy, with Taiwan’s chip production tied to the economic security of nations far beyond its borders.

As Miller notes in ‘Chip War,’ Taiwan’s semiconductor industry could, in many ways, decide the global power balance. Taiwan’s political and business leaders, particularly TSMC founder Morris Chang, intentionally built the country’s chip industry as a source of strategic capital, making Taiwan a linchpin in international relations. Without Taiwan’s semiconductor industry, the global supply of advanced chips could come to a grinding halt — a scenario that would have profound economic and military consequences.[8]

Battle for semiconductor supremacy

The rivalry between the US and China has brought the issue of semiconductor control into sharper focus. China, as both the largest consumer and aspiring producer of chips, is investing heavily in reducing its dependence on foreign-made semiconductors. The Chinese government has also been accused of stealing US semiconductor technology in its efforts to catch up. This battle is not limited to the tech sector but extends into military and geopolitical strategies.

China’s rise in the semiconductor space has led to growing fears in the US and Europe that Beijing could one day dominate this crucial industry. If China were to achieve dominance in semiconductor production, particularly in advanced chips, it could use this leverage for economic and military advantage. For this reason, the US has launched initiatives like the Chips Act, designed to incentivize semiconductor manufacturing on American soil and reduce dependence on foreign production.[9]

Meanwhile, Taiwan and South Korea, too, are expanding their chip manufacturing capabilities. TSMC is building new plants in the US and Japan while also eyeing potential European investments. The US is not alone in its concern over semiconductor supply chains. European leaders are also pushing to increase their semiconductor production capabilities to reduce dependence on Asia and ensure the resilience of their tech industries.

Future of semiconductors

As the global demand for semiconductors continues to surge, the investment required to support this demand grows exponentially. The next generation of chips, particularly those that will power AI and other cutting-edge technologies, will require billions — if not trillions — of dollars in investment. Governments are stepping in to fund these advancements, driven by national security concerns and the need to secure technological sovereignty.

In particular, the development of High-NA Extreme Ultraviolet lithography machines, which are essential for producing the next generation of advanced chips, is one of the most expensive undertakings in the tech world. The next wave of semiconductor technology will require investments on a scale that rivals the oil industry’s capital expenditures — a stark reminder of how vital semiconductors have become.

India – better late than never

India must push to build its microprocessor industry in alignment with its broader economic and strategic goals. By developing its own microprocessor industry, India can achieve self-reliance in semiconductor technology, thereby reducing its reliance on foreign suppliers and enhancing national security concerning critical information infrastructure.

The global semiconductor market is projected to reach a trillion dollars by 2030, driven by advancements in electronics and technologies like AI and the Internet of Things (IoT). India’s semiconductor market, currently valued at approximately $23.2 billion, is expected to grow significantly, potentially reaching $80.3 billion by 2028.[10]

At SEMICON India 2024, India’s Prime Minister Narendra Modi presented a plan that indicates the country is putting a lot of emphasis on semiconductor infrastructure as it develops a workforce of 85,000 engineers, technicians, and R&D specialists. India is making a significant attempt to establish itself as a global center for semiconductor production, in line with global demand.[11]

But that may not be enough. India also needs to develop an entire semiconductor ecosystem that parallels the one built jointly by the US, Europe, Japan, South Korea, and Taiwan. This is critical, as any technological sanctions imposed on China and Russia could potentially target India as well. The wide-ranging sanctions that set back India’s nuclear, military, and space programs after the 1998 nuclear tests are fresh in many people’s memory. Therefore, the development stage must start at the college level, and for this, the country must invite the top academics in the world to come to India by giving them lucrative professorships.

Miller explains: “The spread of semiconductors was enabled as much by clever manufacturing techniques as academic physics. Universities like MIT and Stanford played a crucial role in developing knowledge about semiconductors, but the chip industry only took off because graduates of these institutions spent years tweaking production processes to make mass manufacturing possible.”

The good news is that the Indian government has initiated programs such as the Digital India RISC-V (DIR-V) and the Semicon India to foster partnerships between startups, academia, and multinational companies. These initiatives aim to create a cooperative ecosystem that encourages microprocessor design and manufacturing innovation. For instance, indigenous microprocessors like Shakti and Vega are being developed under these programs to cater to diverse applications, from mobile devices to automotive systems.[12]

Failure is not an option. China is leaving no stone unturned to achieve supremacy in the field. China spends more money buying chips each year than the entire global trade in aircraft.[13] It has earmarked more than $250 billion for subsidizing local chipmakers.

Says Miller: “China is pouring billions of dollars into its chip industry while pressuring foreign companies to turn over sensitive technology. For every major chip firm, the Chinese consumer market is far more important to a customer than the US government. Its leaders have identified their reliance on foreign chipmakers as a critical vulnerability. They’ve set out a plan to rework the world’s chip industry by buying foreign chipmakers, stealing their technology, and providing billions of dollars of subsidies to Chinese chip firms.”[14]

Conclusion: A new era

World War II was decided by steel and aluminum, and the Cold War that followed was defined by atomic weapons. The rivalries of the 21st century may well be determined by computing power. As the world invests in the next generation of semiconductors, the battle for supremacy will only intensify, making the future of global geopolitics ever more intertwined with the fate of these tiny yet mighty microchips.

Citations

[1] Semiconductor Manufacturing by Country 2024; https://worldpopulationreview.com/country-rankings/semiconductor-manufacturing-by-country

[2] The semiconductor shortage is – mostly – over for the auto industry | S&P Global; https://www.spglobal.com/mobility/en/research-analysis/the-semiconductor-shortage-is-mostly-over-for-the-auto-industry.html

[3] Who’s Winning the US-China Chip War?; https://www.citigroup.com/global/insights/who-s-winning-the-us-china-chip-war-

[4] Exports Comparison – The World Factbook; https://www.cia.gov/the-world-factbook/field/exports/country-comparison/

[5] Chris Miller, Chip War, Introduction, page XXV

[6] Chips are new oil and America is spending billions to safeguard its supply | Mint; https://www.livemint.com/technology/tech-news/chips-are-new-oil-and-america-is-spending-billions-to-safeguard-its-supply-11673675741411.html

[7] Chips are new oil and America is spending billions to safeguard its supply | Mint; https://www.livemint.com/technology/tech-news/chips-are-new-oil-and-america-is-spending-billions-to-safeguard-its-supply-11673675741411.html

[8] Chris Miller, Chip War, Introduction, page XXVI

[9] Trump likely to uphold CHIPS Act despite his campaign rhetoric, policy experts say; https://www.cnbc.com/2024/11/07/trump-likely-to-uphold-chips-act-despite-his-campaign-rhetoric-experts-say.html#:~:text=The%20Biden%20administration%20signed%20the,boosting%20U.S.%20competitiveness%20with%20China.

[10] India Launches Digital India RISC-V Microprocessor (DIR-V) Program for Next Generation Microprocessors – India Briefing News; https://www.india-briefing.com/news/india-launches-digital-india-risc-v-microprocessor-dir-v-program-for-next-generation-microprocessors-24917.html/

[11] India’s Semiconductor Revolution: Seizing A Trillion-Dollar Opportunity By 2030; https://inc42.com/resources/indias-semiconductor-revolution-seizing-a-trillion-dollar-opportunity-by-2030/

[12] India Launches Digital India RISC-V Microprocessor (DIR-V) Program for Next Generation Microprocessors – India Briefing News; https://www.india-briefing.com/news/india-launches-digital-india-risc-v-microprocessor-dir-v-program-for-next-generation-microprocessors-24917.html/

[13] Chris Miller, Chip War, page 339

[14] Chris Miller, Chip War, page 398