Interesting things in the world of electronics served as easy to digest articles with a touch of wit.

When we speak of semiconductor industry, we refer to companies involved in one or more of the following stages of chips production:

1. Design and development of semiconductor chips;
2. Fabrication of chips;
3. Testing and assembling the chips into products;
4. Distribution around the world to factories that manufacture other products.

At present, each stage happens to be dominated by a separate set of companies located in different countries or geographies making the whole semiconductor ecosystem very complex and globally interdependent. Most fabless companies that design advanced chips are based in the United States, the famous examples being Nvidia, AMD, Apple, and Qualcomm. The fabrication, however, is done mainly in Southeast and East Asia, more specifically in Taiwan and South Korea. By end of 2025, Taiwan’s TSMC controlled 72% share of the pure-play foundry market with South Korean Samsung coming second with 7% market share followed by Chinese SMIC reaching 5.3% market share.

Apart from Samsung, other South Korean companies such as SK Hynix and DB HiTek also operate massive chips fabrication facilities while companies such as HANA Micron and Nepes Corp specialise in outsourced advanced packaging solutions and testing services. European companies particularly the Netherlands based ASML (for lithography) and, in the III-V compound semiconductor market (GaN, GaAs devices), the German Aixtron MOCVD tools monopolise the production of fabrication tools while the market for essential raw materials and wafers is dominated by Japan. Most of the rare earth elements processed by Japan into specialised materials for use in producing chips are, however, mined by China.

In the last decade, beginning with China, policy makers in many of these countries have been trying to lower dependencies and develop complete self-sufficiency across all stages despite massive costs involved. Why is it so? To understand this, one needs to understand the concept of ‘critical’ materials and technology.

What is ‘critical technology’?

In the 1920s, the US began identifying certain materials as ‘critical’ for which its dependence on foreign imports was considered as a vulnerability for the US army. Consequently, the US government was required to maintain a strategic reserve of such materials to overcome this vulnerability and to ensure readiness in case of any military engagement. In the 1990s, this idea was extended to certain technologies considered at the time to be ‘critical’ for both military preparedness and economic prosperity of the US. These ‘critical technologies’ were deemed so fundamental to the US national security and economic well-being that the capabilities to produce these technologies had to be retained and developed in the US itself. One of these technologies identified as ‘critical’ was semiconductor manufacturing.

Nevertheless, over the years most US companies adopted a fabless model and shifted their foundries overseas especially to East Asia. It enabled them to cut costs and concentrate on chip design which yields the highest margins. From manufacturing forty percent of the world’s chips at one time, the US thus came to be heavily reliant on Taiwan raising fears of supply chain disruptions due to any number of reasons from natural disasters and pandemics to Chinese military intervention. Not only is supply of chips threatened by Taiwan’s susceptibility to earthquakes and typhoons but droughts such as the one in 2021 and water stress also pose a serious risk to its semiconductor manufacturing as it requires huge volumes of water. Heatwaves and rising temperatures can add to these difficulties even as extreme rainfall and flooding as happened in July 2025 can also disrupt production and supply chains. These days the blocking of the Strait of Hormuz has caused industrial operations to slow down due to LNG scarcity in Taiwan. A much more catastrophic supply chain disruption could occur if China either militarily seizes Taiwan or imposes a naval blockade to halt or restrict Taiwanese imports and exports.

China-US competition in advanced semiconductors

China itself depends on Taiwan’s advanced chips and a disruption in Taiwan’s semiconductor manufacturing would cripple its own economy along with the world economy. Taiwan’s dominance in semiconductors thus armours it with a ‘silicon shield’ that has so far protected it from any Chinese military intervention. However, since 2014, China has been engaged in intensive efforts to develop its own domestic semiconductor industry and to reduce dependence on Taiwan. In 2014 the Chinese government announced Guidelines to Promote National Integrated Circuit Industry (National IC Plan) aimed at raising Chinese semiconductor capabilities across the entire supply chain to catch up with industry leaders. It set up a National IC Fund worth $150 billion to establish new production facilities as well as to acquire/partner companies abroad. It was followed in 2015 by ‘Made in China 2025’ plan to accelerate manufacturing in ten high tech sectors such as next generation information technology, advanced robotics, aerospace, new materials, medical devices, etc.

A major actor in the Chinese semiconductor campaign has been the state-owned Tsinghua Unigroup that acquired a number of US companies although it failed in its bid to take over Micron for $23 billion. According to one report, there were thirty-four announced mergers/acquisitions of US companies by Chinese corporations in the time period 2014-2016 with the total value of completed transactions reaching above $8 billion. These were essentially state-backed efforts to obtain cutting-edge technologies and IP in a field identified as critical by state policy makers. There were also allegations of IP theft through illegal cyber intrusions into foreign tech servers as well as instances of employees absconding with sensitive data and blueprints. Also, foreign companies trying to access the Chinese market were pressured to agree to tech transfers in order to get necessary approvals.

China’s attempts to build a strong technology base were not new but by 2017 the US policy makers began to openly recognise China as a strategic competitor whose growth could threaten US security and economic dominance. As James Lewis puts it, China could have chosen to become a part of an interdependent semiconductor ecosystem in the Pacific Rim but its political goal is to end China’s ‘foreign dependency’ for semiconductors by displacing foreign producers and ultimately to overtake the US technologically and economically.

In response to China’s aggressive efforts to build its semiconductor industry through licit and illicit means and rising concerns about the US lacking critical semiconductor production capabilities and being vulnerable to supply chain shocks, the US came up with its own incentive program to boost domestic semiconductor production named Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act in 2022. In all, it earmarked $52.7 billion to subsidise semiconductor production, R&D, and workforce training over the period 2022-2027 along with generous tax credits. The financial incentives are meant for manufacturing advanced chips as well as equipment and raw materials needed for their fabrication in the USA. In other words, it aims at self-reliance in the entire process from initial design to the chip’s final integration into a product. The law also prohibits beneficiary companies from expanding semiconductor production in China and such other countries that the US identifies as posing threat to its national security.

In October 2022, the US also announced export controls on certain advanced semiconductor chips and semiconductor manufacturing equipment based on its assessment that their use in artificial intelligence could directly facilitate modernisation of Chinese military and surveillance systems. It also prohibited US citizens, green card holders and companies from providing support to Chinese advanced chips fabrication facilities without a license. China retaliated with export restrictions of its own on critical raw materials needed for semiconductors such as gallium and germanium products as well as lodging a complaint with the WTO. Above all, it doubled down on its efforts to develop self-sufficiency in semiconductor design and fabrication that included exploiting loopholes in the US export regime through the use of third-party intermediaries and shell companies to purchase the banned components and even smuggling them. In October 2023 the US government tried to fix these loopholes by adding new license requirements, covering additional technologies and items and increasing the number of restricted countries and companies. These restrictions were further tightened in December 2024 and March 2025. It also persuaded its allies to implement similar controls to deny China access to critical materials and technology.

The US sees its push to onshore semiconductor production as so critical to its national security and economic competitiveness that many of these federally funded projects were also exempted from review under the National Environment Policy Act (NEPA) and the National Historic Preservation Act (NHPA) by a law passed in 2023. Even for those not exempted, the Department of Commerce has been made the lead agency for environmental review. These measures aim to accelerate the build-out of these projects by bypassing environmental reviews that often cause delays of months or even years if these go into litigation.

The Outcome

Following the enactment of the CHIPS Act 2022, a number of semiconductor companies including TSMC and Samsung have set up production units in USA bringing in billions of dollars in private sector investment. Yet, according to a 9^th January 2026 presidential proclamation, the US ‘currently fully manufactures only 10 percent of the chips it requires’ and its heavy reliance on foreign supply chains continued to pose ‘a significant economic and national security risk’. Given President Trump’s preference for tariffs over direct government subsidies to accelerate domestic semiconductor production, the proclamation imposed 25 percent tariff on certain categories of advanced semiconductors ‘to address the threatened impairment of national security’. He has called the CHIPS Act ‘a horrible thing’ and asked the Congress to dismantle it, putting all his faith in tariffs and threats of higher tariffs. In August 2025, he had even threatened to impose up to 300 percent tariffs on foreign-made chips severely rattling the semiconductor industry and tanking its stock.

How effective these tariffs turn out to be, only time will tell. Meanwhile, there are already fears that China is not only on-course to monopolise the lower-end chips market but its researchers are also undertaking innovative approaches to make breakthroughs in materials and design that ‘could surprise and potentially destabilise’ the US and allied chip industries.

Frequently Asked Questions (FAQ)

Ques: What is the 2022 CHIPS Act?

The CHIPS and Science Act, commonly called the CHIPS Act, is a United States law passed in 2022 to strengthen domestic semiconductor manufacturing and research. It provides billions of dollars in subsidies, tax credits, and funding for semiconductor fabrication plants, supply chain security, and advanced technology development. The goal of the act is to reduce dependence on foreign chip production and improve national economic and technological security.

Ques: How did East Asia become a semiconductor powerhouse?

East Asia became a semiconductor powerhouse through strong government support, industrial planning, investment in education, and the growth of advanced manufacturing ecosystems. Countries such as Japan, South Korea, Taiwan, and later China invested heavily in electronics industries, skilled labor, and research infrastructure. Companies like TSMC, Samsung Electronics, and Sony helped establish the region as a global leader in semiconductor manufacturing and innovation.

Ques: What is the National Environment Policy Act (NEPA)?

The National Environmental Policy Act (NEPA) is a U.S. environmental law enacted in 1969 that requires federal agencies to evaluate the environmental impacts of major projects before approval. Under NEPA, projects such as factories, highways, and energy facilities may need environmental assessments or environmental impact statements. The law helps ensure that environmental consequences are considered during decision-making.

Ques: What is the National Historic Preservation Act (NHPA)?

The National Historic Preservation Act (NHPA) is a U.S. law passed in 1966 to protect historic buildings, archaeological sites, and culturally significant locations. It created the National Register of Historic Places and requires federal agencies to consider how projects may affect historic resources. The law plays an important role in preserving cultural heritage while allowing development and infrastructure projects to proceed responsibly.

European Union Series