Great Power Competition for the Semiconductor/Chip and India’s Way Ahead

Semiconductors, or chips, the tiny yet powerful components that power everything from smartphones to supercomputers, have emerged as the central battleground of the global great power competition. These emerging critical technological domains are now focal points of geopolitical tensions, particularly among great powers like the United States and China. For countries like India, the stakes are high as they strive to establish their role in the increasingly fragmented and competitive semiconductor market.

Why do Semiconductors Matter?

Semiconductors are the backbone of the digital economy, and they ‘power’ technological advancements from AI to 5G/6G connectivity. They process vast data, enabling cloud computing and autonomous vehicles. The COVID-19 pandemic exposed supply chain vulnerabilities due to global chip production disruptions. The current warfare in the European and West Asian regions forces us to think about the chip industry from a national security and strategic perspective.

The semiconductor industry comprises memory and logic chips [3]. Advanced logic chips in AI and machine learning require cutting-edge manufacturing techniques and sophisticated materials. They’re increasingly valuable for commercial and national security applications, transforming the industry into a strategic asset with countries seeking advanced chip access and production capacity.

Semiconductor industry

According to a paper written by Stephen Ezell [4], modern semiconductors, packed with billions of transistors on a chip the size of a square centimeter, operate at the nanoscale, measuring circuits in units of nanometers (nm), equivalent to one billionth of a meter. The most advanced semiconductor fabrication facilities, which can cost over $30 billion to build, produce semiconductors at scales ranging from 3 to 2 nm and even sub-2 nm.

American companies dominate the global chip market, accounting for half compared to China’s 7 per cent, according to the Semiconductor Industry Association Report 2024 [5]. The $527 billion semiconductor industry is projected to surpass the trillion-dollar mark by 2030, prompting the construction of over 70 new fabrication facilities worldwide.

The U.S.-China Chip War

The U.S. is a semiconductor design and technology leader, but Taiwan and South Korea dominate manufacturing. Taiwan’s TSMC and South Korea’s Samsung are giants in chip fabrication, producing the world’s most advanced chips. TSMC, in particular, supplies chips to nearly all major tech companies globally.

Chinese President Xi Jinping [6] has prioritised boosting its semiconductor industry, investing billions in chipmakers to reduce reliance on imports. However, China still needs to catch up in advanced semiconductor manufacturing due to limited access to critical technologies, especially for producing advanced chips at smaller nodes (e.g., 5nm and 3nm). Currently, tech giants like Huawei have 7 nm chips such as HiSilicon, which the company uses to power its Mate 60 pro mobile.

The U.S. has recently responded [7] to China’s ambitions with export controls and sanctions, primarily targeting China’s semiconductor manufacturing tools. These sanctions hinder China’s chip development, which the U.S. fears for military use. Notably, the U.S. has restricted China’s access to extreme ultraviolet (EUV) [8] lithography equipment, a crucial tool for advanced semiconductors. U.S. firms like ASML have been pressured not to sell to Chinese companies, widening the technological gap.

In addition to these export controls, the U.S. has implemented policies such as the 2022 CHIPS Act [9] (full name, Creating Helpful Incentives to Produce Semiconductors Act) and Science Act [9], which allocates billions of dollars (USD 53 billion and 280 billion USD, respectively) to revive American semiconductor manufacturing and reduce reliance on East Asia. This has led to a flurry of domestic investment in chip production, with companies like Intel and TSMC building new factories in the U.S. to safeguard supply chains and bolster national security.

China’s Countermeasures and Domestic Development

China has made strides in its semiconductor industry but still needs to catch up to the global innovation frontier in key areas like semiconductor design and fabrication. Dependencies on foreign technologies, such as EDA software and cutting-edge lithography equipment, hinder progress. However, Chinese companies like Huawei’s HiSilicon [10] (7nm chip-powered Mate 60 Pro) and Biren have emerged as competitive players in logic chip design, especially for mobile devices and AI applications.

China has also made progress in manufacturing less technologically complex, mature-node chips cost-effectively. Despite these strides, its advancement in more advanced semiconductor nodes has been slower. Memory chip manufacturers like Yangtze Memory Technologies Co. (YMTC) and ChangXin Memory Technologies (CXMT) initially appeared poised for success but have struggled to keep pace with global leaders. Since 2013, the Chinese government has prioritised semiconductors as a core element of its industrial strategy, aiming for 70% self-sufficiency by 2025 [11].

China’s Made in China 2025 [12] initiative set ambitious self-sufficiency targets, but experts argue that achieving true semiconductor independence may require up to $1 trillion more in investment. Despite U.S. sanctions, China has invested in domestic chipmakers like SMIC, hoping to develop advanced chips. However, Chinese semiconductor firms remain reliant on foreign technologies and struggle to produce advanced chips at high nodes. Huawei, a leading Chinese tech company, has also been severely impacted by U.S. sanctions.

Once a global leader in telecommunications and smartphone technologies, Huawei has faced enormous setbacks as it has been cut off from its primary semiconductor suppliers, including TSMC. To mitigate this, Huawei has started developing its chipsets and constructing a shadow semiconductor supply chain within China, including efforts to build domestic fabrication facilities. Currently, the company is developing a highly advanced 3 nm Kirin chip [13].

However, these efforts must achieve the same technological capabilities as global leaders like TSMC and Samsung. As the U.S. and China continue their technological decoupling, the semiconductor industry has become the ultimate prize in the broader struggle for global dominance. Control over chip production, particularly in advanced sectors like AI, quantum computing, and autonomous systems, has become a proxy for control over future economic and military power.

Where India Stands and Road Ahead?

In September, PM Modi, at the India Expo Mart held [14] in Greater Noida, stated that India aims to have 100% of electronic manufacturing within its borders. To achieve Vikshit Bharat by 2047, Modi seeks to transform India’s tech prowess by attracting global fabs to Indian soil.

Amidst fierce competition, India is a critical player in the semiconductor industry. Recognising the strategic importance of semiconductors, India has made significant strides toward domestic manufacturing. In early 2024, it approved an ambitious $15.2 billion semiconductor investment programme [15], including plans for fabrication plants. This long-term strategy aims to develop India’s semiconductor capabilities and reduce reliance on imports, especially from China.

India’s semiconductor ambitions are supported by its large consumer electronics market, highly digital footprint, a significant base of engineers and technicians, and a burgeoning tech industry.

However, India faces several challenges. Unlike the U.S., China, or Taiwan, India still needs a strong domestic ecosystem for semiconductor manufacturing, and establishing such an ecosystem will require massive investments in infrastructure, technology, and skilled labour.

Additionally, India must build its supply chains for the raw materials and specialised equipment required for semiconductor production, currently dominated by countries like the U.S., Japan, and the Netherlands. Despite these challenges, India’s entry into the semiconductor race is strategically essential.

As the world seeks to diversify its supply chains away from China, India stands to benefit from its growing geopolitical significance. The U.S. has already expressed interest in collaborating with India [16] on semiconductor production, and India’s location offers a natural alternative to Taiwan as a key manufacturing hub in Asia. By attracting foreign investment and fostering public-private partnerships, India can develop the infrastructure needed to support its ambitions.

India’s semiconductor programme is closely tied to its tech industry. Companies like Tata, which manufactures semiconductors [17], could help India become a crucial supplier, mainly for consumer electronics, automotive, and telecommunications. India’s path to semiconductor prominence is challenging as the global industry becomes fragmented. The U.S., Europe, and Japan are establishing secure supply chains, while China is doubling its investments for self-sufficiency. India must build partnerships, invest in R&D, and strengthen domestic capabilities. By taking a proactive approach, India can become a key player in this high-stakes global competition.

The semiconductor race, driven by technology, economic security, national security, geopolitical influence, and national power, pits the US and China for global great power competition. With the right proactive approach to investments, policies, and partnerships, India can secure its place in the worldwide supply chain and emerge as a key player in the evolving technological competition. India’s role in shaping the future of regional and global geopolitics is still bound to happen as India moves towards its 2047 target of Vikshit Bharat.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>