In an era when economic power increasingly derives from technological capability, no technology matters more than semiconductors. These tiny chips—etched with billions of transistors smaller than a virus—power everything from smartphones to supercomputers, from electric vehicles to precision-guided weapons. Yet the capacity to manufacture the most advanced semiconductors has become extraordinarily concentrated, creating a strategic chokepoint as consequential as any geographic strait. At the center of this vulnerability sits Taiwan, an island of 24 million people that produces the vast majority of the world’s most sophisticated chips, located barely one hundred miles from a rising power that claims it as sovereign territory. The geopolitics of semiconductors has thus become inseparable from the question of Taiwan’s future and, more broadly, from the technological competition between China and the United States that will define the coming decades.
Definition and Core Concept¶
Semiconductor geopolitics refers to the strategic competition for control over the design, manufacturing, and supply of advanced integrated circuits—the foundational technology of the modern economy. This competition encompasses multiple dimensions: the concentration of manufacturing capability in a small number of facilities, the control of specialized equipment and materials necessary for chip production, the race for technological leadership in next-generation designs, and the use of semiconductor access as an instrument of statecraft.
The strategic significance of semiconductors derives from their dual-use nature and their irreplaceable role in both economic and military systems. Advanced chips power artificial intelligence systems, data centers, telecommunications networks, and consumer electronics—the commanding heights of the digital economy. They also enable the precision guidance, sensing, and computing capabilities that define modern military power. A nation without access to advanced semiconductors cannot compete at the technological frontier.
What makes semiconductor geopolitics distinctive is the extraordinary concentration of manufacturing capability. Unlike other strategic goods, where production tends to be distributed across many countries, the most advanced semiconductor fabrication occurs in just a handful of facilities worldwide, with one company—Taiwan Semiconductor Manufacturing Company (TSMC)—dominating production of the leading-edge chips. This concentration creates systemic vulnerability that nations are now scrambling to address.
Historical Development¶
The semiconductor industry emerged from American innovation in the mid-twentieth century. The transistor, invented at Bell Labs in 1947, and the integrated circuit, developed independently by Jack Kilby and Robert Noyce in 1958-59, launched an industry that would become central to American technological and military supremacy. For decades, the United States dominated semiconductor production, with companies like Intel, Texas Instruments, and Motorola leading in both design and manufacturing.
The industry’s geographic center began shifting in the 1980s and 1990s. Japanese firms challenged American dominance in memory chips before being overtaken by South Korean companies like Samsung. Taiwan emerged as a manufacturing powerhouse through a different model: TSMC, founded in 1987, pioneered the “foundry” concept—manufacturing chips designed by other companies rather than producing its own designs. This model allowed TSMC to invest massively in manufacturing technology without the research and development burden of creating new chip designs.
The foundry model transformed the industry structure. American firms increasingly focused on chip design while outsourcing manufacturing to Asian foundries. This specialization drove efficiency and innovation but created dependencies that few recognized as strategic vulnerabilities. By the 2010s, TSMC had emerged as the world’s most important chipmaker, producing over 90 percent of the most advanced semiconductors while building manufacturing expertise that rivals could not easily replicate.
China’s technological ambitions brought semiconductor dependence into strategic focus. Beijing identified chips as a critical weakness in its economic and military modernization, launching successive initiatives—from the “Made in China 2025” plan to massive state investments in domestic chip production—aimed at achieving semiconductor self-sufficiency. These efforts triggered alarm in Washington, where policymakers recognized that Chinese control over advanced semiconductor manufacturing would fundamentally shift the technological balance of power.
The Trump administration’s restrictions on Huawei, China’s leading telecommunications equipment maker, demonstrated semiconductor leverage in action. By cutting off Huawei’s access to chips made with American technology—which included virtually all advanced semiconductors—Washington crippled a Chinese national champion. The Biden administration expanded these restrictions dramatically, imposing sweeping controls on semiconductor exports to China that aimed to freeze Chinese advancement in artificial intelligence and advanced computing.
How It Works¶
The semiconductor supply chain represents one of the most complex and concentrated production systems ever created:
Design takes place primarily in the United States, where companies like Apple, Nvidia, Qualcomm, and AMD create the architectures for advanced chips. American firms dominate chip design, accounting for roughly 65 percent of global design revenue. This strength derives from decades of research investment, a deep talent pool, and network effects that concentrate expertise in Silicon Valley and other technology clusters.
Manufacturing equipment is even more concentrated than design. A single Dutch company, ASML, holds a monopoly on the extreme ultraviolet (EUV) lithography machines necessary to produce the most advanced chips. These machines—costing $150 million or more each and requiring multiple cargo planes to transport—represent the pinnacle of precision manufacturing. Without EUV machines, producing chips with features smaller than 7 nanometers is effectively impossible. American and Japanese companies dominate other critical equipment categories.
Fabrication—the actual manufacturing of chips—shows the most extreme concentration. TSMC produces approximately 90 percent of the world’s most advanced semiconductors (5 nanometers and below). Samsung of South Korea produces most of the remainder. Intel, once the manufacturing leader, fell behind in the technology race and is now struggling to regain competitiveness. Chinese foundries remain several generations behind the leading edge, capable of producing chips suitable for many applications but not the most advanced processors.
Materials and chemicals required for chip production come from specialized suppliers worldwide, creating additional potential chokepoints. Neon gas, essential for chip lithography, was heavily sourced from Ukraine before Russia’s 2022 invasion disrupted supplies. High-purity chemicals and specialized wafers come from concentrated sources in Japan, Germany, and elsewhere.
This supply chain structure creates multiple leverage points. The United States, despite having lost manufacturing leadership, retains significant control through its dominance in design, software tools for chip design, and manufacturing equipment. Washington has exploited this leverage through export controls that prevent China from accessing American technology and equipment—or any chips made using American technology, even if manufactured abroad.
Key Examples and Case Studies¶
TSMC and Taiwan’s strategic position illustrates how semiconductor concentration creates geopolitical vulnerability. Taiwan’s position in the global chip supply chain has been described as a “silicon shield”—the theory that its indispensability to the world economy, including China’s, deters military action against the island. Yet this same concentration means that any disruption to Taiwanese chip production—whether from natural disaster, pandemic, or military conflict—would cascade through the global economy. A Chinese blockade or invasion of Taiwan would not only determine the island’s political fate but would trigger an economic crisis exceeding anything in modern history.
The Huawei restrictions demonstrated semiconductor leverage as a coercive instrument. Beginning in 2019, the United States progressively tightened restrictions on Huawei, culminating in rules that barred any company using American technology from supplying chips to the Chinese firm. The impact was devastating: Huawei’s smartphone business collapsed, and its ambitions to lead in 5G telecommunications equipment were significantly set back. The Huawei case established a template for technology denial that has since been expanded.
The CHIPS and Science Act represents America’s most significant industrial policy intervention in decades. Passed in 2022, the legislation provides $52 billion in subsidies for semiconductor manufacturing in the United States, plus additional funding for research and development. The goal is to reduce dependence on Taiwan by building advanced fabrication capacity on American soil. TSMC, Samsung, and Intel have announced major new facilities in Arizona, Texas, and Ohio, though construction challenges and skilled workforce shortages have slowed progress.
China’s semiconductor drive continues despite American restrictions. Beijing has poured over $150 billion into its chip industry, achieving some successes while falling short of self-sufficiency goals. Chinese firms have made progress in mature chip technologies adequate for many applications, but the gap in leading-edge manufacturing has actually widened as TSMC, Samsung, and Intel advance while Chinese foundries remain stuck. The American technology blockade has become increasingly comprehensive, targeting not just equipment but also design software, cloud computing services, and even talent flows.
The Netherlands and ASML became an unlikely geopolitical battleground. American pressure on the Dutch government to restrict ASML’s sales to China created diplomatic tensions and highlighted how semiconductor supply chain control extends beyond bilateral US-China relations. The Netherlands eventually agreed to tighter export controls, demonstrating how Washington can leverage alliance relationships to extend its technology restrictions.
Geopolitical Implications¶
Semiconductor geopolitics carries far-reaching implications for international order:
Great power competition now centers significantly on technology, with semiconductors as the critical capability. The US-China relationship has been transformed by technology restrictions that Beijing views as an attempt to strangle its development. China’s response has included accelerated domestic investment, talent recruitment, and the weaponization of its own supply chain advantages in areas like rare earth processing and battery manufacturing. Technology decoupling, once unthinkable, has become policy.
Alliance relationships are being reshaped by semiconductor concerns. The United States has pressured allies including the Netherlands, Japan, and South Korea to align with its China restrictions, with varying success. Japan has imposed its own export controls on semiconductor equipment. These coordinated restrictions strengthen the technology blockade but strain relationships as allies balance American security concerns against Chinese economic ties.
Taiwan’s status has become even more fraught as its semiconductor importance grows. The Taiwan Strait represents the world’s most dangerous flashpoint in part because of what sits on Taiwan’s western coast: TSMC’s fabrication facilities. Any military scenario involving Taiwan must account for the economic catastrophe that would result from disrupting chip production—though whether this realization deters conflict or simply adds another dimension to an already complex situation remains debated.
Industrial policy revival has become universal. The era of assuming markets would efficiently allocate semiconductor production has ended. The United States, European Union, Japan, South Korea, India, and others have all launched major subsidy programs to attract chip manufacturing. This competition for fabrication plants has driven up costs and created coordination challenges, but the strategic imperative appears to outweigh economic efficiency concerns.
Supply chain resilience has become a strategic priority extending beyond semiconductors. The recognition that critical technologies could become concentrated in vulnerable locations or under potential adversary control has prompted broader reconsideration of global supply chains. “Friendshoring”—concentrating production among allies—and “nearshoring”—bringing production closer to home—have become strategic concepts guiding investment decisions.
Criticisms and Debates¶
Semiconductor geopolitics generates significant debate:
Decoupling costs are substantial and fall unevenly. American technology restrictions hurt Chinese firms but also impose costs on American and allied companies that lose access to Chinese markets. The chip industry’s business model depended on global sales; restricting access to China’s enormous market reduces the revenue available for research and development. Critics argue that overly aggressive restrictions could undermine the innovation they seek to protect.
Escalation risks concern analysts who see technology competition spiraling into broader conflict. China has responded to American restrictions with its own export controls on critical minerals and other retaliatory measures. The action-reaction cycle could intensify, potentially contributing to the deterioration of US-China relations beyond the technology domain. Some argue for a more calibrated approach that maintains American advantages while avoiding provocation.
Industrial policy skepticism persists despite the bipartisan consensus for semiconductor subsidies. Critics note that government efforts to direct technological development have a mixed historical record, and question whether bureaucrats can effectively allocate billions in chip subsidies. The scramble for subsidies has created lobbying frenzies and raised concerns about corporate welfare disguised as national security.
Allies’ interests do not always align with American preferences. South Korean firms depend heavily on China sales; Dutch and Japanese equipment makers lost significant revenue from China restrictions. The pressure to follow American policy has created tensions even with close allies, who question whether their interests receive adequate consideration.
Self-sufficiency illusions may be driving unrealistic expectations. True semiconductor independence is nearly impossible given the global dispersion of expertise, materials, and equipment. Even massive investment cannot quickly replicate capabilities that took decades to develop. The goal of reduced vulnerability may be achievable; complete self-sufficiency is not.
Future Outlook¶
Several factors will shape the evolution of semiconductor geopolitics:
Manufacturing buildout in the United States and allied nations will take years to complete and may face persistent challenges. Building a fab is extraordinarily difficult, requiring not just equipment but specialized workforces, supply chain infrastructure, and operational expertise. TSMC’s Arizona project has faced delays and cost overruns that illustrate these challenges. Whether the subsidized buildout achieves meaningful diversification by the end of the decade remains uncertain.
Chinese technological progress is the critical variable. If American restrictions successfully freeze China at current capability levels, the technology gap will widen as TSMC and others advance. But Chinese firms have surprised observers before, and massive state investment may eventually produce breakthroughs. Any Chinese success in advancing domestic chip production would alter the strategic calculus significantly.
Next-generation technologies could disrupt current arrangements. Advances in chip architecture, novel materials, or alternative computing paradigms (like quantum computing) might shift advantages in unpredictable ways. The nation or company that achieves the next major breakthrough could leapfrog current leaders.
Taiwan Strait dynamics will remain central to semiconductor geopolitics. Any movement toward military confrontation would trigger supply chain disruptions long before actual conflict, as companies seek to reduce Taiwan exposure. Conversely, successful deterrence that maintains the status quo would preserve Taiwan’s central position—and the vulnerability it represents.
Technology governance frameworks may emerge as nations recognize shared interests in preventing catastrophic supply disruptions. Multilateral approaches to semiconductor security, technology transfer, and supply chain transparency could develop, though great power competition makes such cooperation difficult.
Conclusion¶
Semiconductors have become the essential resource of the digital age, and control over their production has emerged as a central arena of geopolitical competition. The extraordinary concentration of advanced manufacturing in Taiwan creates a vulnerability that major powers are scrambling to address through industrial policy, export controls, and supply chain restructuring. Yet the complexity of the semiconductor ecosystem defies easy solutions—capabilities developed over decades cannot be replicated quickly, and the interdependencies that make chips so strategically significant also mean that severing supply chains carries enormous costs.
The coming years will determine whether the semiconductor competition remains primarily economic and technological or becomes intertwined with military confrontation over Taiwan. Nations must balance the imperative of supply chain resilience against the costs of decoupling and the risks of escalation. The outcome will shape not only who controls the commanding heights of the digital economy but whether the extraordinary technological progress that semiconductors enable continues—or fractures along geopolitical fault lines.
Sources and Further Reading¶
- Chris Miller, “Chip War: The Fight for the World’s Most Critical Technology” (2022) - Comprehensive history of the semiconductor industry and its geopolitical significance
- CSIS “Chokepoints” project - Analysis of semiconductor supply chain vulnerabilities
- Semiconductor Industry Association reports on industry structure, supply chains, and policy
- Brookings Institution, “Securing Semiconductor Supply Chains” (2024) - Policy analysis of American efforts to reduce Taiwan dependence
- Council on Foreign Relations, “The Geopolitics of Semiconductors” - Background materials on chip competition