The milestone passed almost without notice in the West. But in executive suites from San Jose to Seoul, it registered as a warning: China’s semiconductor industry, once dependent on American and Dutch technology, is pulling free.

Meanwhile, in California, the US government’s CHIPS Act has invested over USD 50 billion in reshoring production, whilst Intel and TSMC race to expand American foundries. Neither side is investing in interoperability. Both are building for a world where they do not need each other.

This is not the decoupling America spent decades avoiding. It is something far more durable: The construction of two parallel economic systems, each with its own technology standards, financial infrastructure, supply chains and strategic minerals. The bifurcation extends well beyond chips.

Across semiconductors, artificial intelligence, cloud computing, payment systems, currencies, critical minerals, electric vehicles, telecommunications, satellite communications, shipping networks and financial infrastructure itself, the world is quietly dividing.

The Iron Curtain, reimagined
The parallels to Cold War-era bifurcation are instructive but incomplete. When the CoCom regime restricted western technology to the Soviet bloc, the division was ideological and military.

The post Chips, AI and critical minerals: The world is building two economies appeared first on International Finance.

He told the nominee directors of the Sir Dorabji Tata Trust on August 12 2026 that he would step away when his current term ends on February 20 2027.

In his letter, he noted that the proposal to extend his term had been pending for six months and was not carried through because one board member did not support it.

The timing was pointed. The announcement landed less than a week before the holding company’s annual general meeting on August 18. Group stocks fell as much as 4%, with TCS, the company Chandra himself once ran, the heaviest loser.

The Sir Dorabji Tata Trust said it respected his decision, then moved to constitute a selection committee under Article 118 of the Tata Sons articles of association.

The six-month stalemate
The dissenting board member has not been officially named, but the reporting points one way. Noel Tata, chairman of Tata Trusts, which controls roughly 66% of Tata Sons, wanted three things before signing off.

A credible turnaround plan for the loss-making new businesses. Clarity on how much more capital those businesses would swallow. And a written assurance that Tata Sons would not be taken public.

ALSO READ | Business Leader of the Week: Air India bets on Tewolde Gebremariam to engineer a turnaround

There was a second, quieter argument about the term itself. Chandra is 63 and the group’s retirement age for executive roles is 65, so the Trusts were reportedly comfortable with two more years rather than five.

What began as a scheduling question hardened into a referendum on nearly a decade of capital allocation.

The numbers behind the row
Tata Sons’ latest annual report gave Noel Tata his ammunition. For the year to March 2026, consolidated net profit fell 35% to about 266 billion rupees, roughly USD 2.78 billion, even as consolidated revenue rose 17% to 6.61 trillion rupees.

The standalone picture was healthier, with net profit up nearly 22%, but dividend income from TCS fell 12.7%, a reminder of how much of the empire still rests on one company.

Nearly all the damage came from unlisted arms. Air India and Air India Express together lost 22,238 crore rupees, more than double the 10,859 crore they lost a year earlier, on combined revenue that fell nearly 9%.

Tata Digital lost 4,974 crore rupees and battery venture Agratas 1,101 crore. Tata Projects, Tata Play and Tata Realty and Infrastructure added several hundred crore each.

The listed side offered no cover. Market capitalisation across the group’s quoted companies fell about 12% over the year, driven by a sharp derating of TCS.

What actually went wrong
None of the big losses were mysteries, and few were purely self-inflicted. Air India was rebuilding a state carrier from a standing start, then absorbed the crash of AI171 in June 2025, airspace closures, fuel price spikes from the West Asia conflict and adverse currency moves.

Chandrasekaran has told its shareholders the turnaround is a five to ten year job, not a quarterly one.

Jaguar Land Rover, historically the profit engine at Tata Motors, lost five weeks of production to a cyberattack that shut its plants from early September 2025, and finished the year with revenue down 20.9% to GBP 22.9 billion, compounded by US tariffs, weak Chinese demand and the phase-out of legacy Jaguar models ahead of an all-electric relaunch.

Tata Digital’s losses were the cost of buying market share against better funded rivals. Tata Electronics is a different sort of loss. Its revenue roughly doubled to 1.31 trillion rupees, making it the group’s fourth-largest company by turnover, and it broke even at the operating line. What sits below that line is the cost of building a semiconductor industry from scratch.

The Chandra record
He took charge on 21 February 2017, the first non-Parsi and the first career executive to lead Tata Sons, inheriting a group in open civil war. What followed was a decade of consolidation and expansion.

He reorganised around 30 group companies into ten verticals under a One Tata banner of simplification, synergy and scale, bought Bhushan Steel out of insolvency in 2018 and Neelachal Ispat in 2022, took Air India back from the government, acquired BigBasket and 1mg, listed Tata Technologies in 2023 and Tata Capital in October 2025 in the group’s largest ever IPO, and split Tata Motors in two.

The scoreboard is good and mixed at the same time. Group revenue nearly doubled and profit rose several times over.

Combined market value of listed companies climbed from about 8.2 lakh crore rupees to well over 23 lakh crore.

Yet compounded at roughly 12.4% a year, that trails the Nifty 50 over the same stretch. The best performer was Trent, a business Noel Tata built. The worst was TCS.

The chip and iPhone question
Chandra’s boldest wager was electronics. Tata bought Wistron’s iPhone plant in Karnataka in 2023, expanded at Hosur, and made itself central to Apple’s shift away from China at a moment when India assembles most of the iPhones sold in the United States.

On top of that he committed roughly USD 14 billion to semiconductors, a 91,000 crore rupee fabrication plant at Dholera with Taiwan’s PSMC, targeting 50,000 wafers a month at 28 to 110 nanometres, and a 27,000 crore rupee assembly and test facility in Assam.

Construction at Dholera passed the halfway mark in April 2026, with trial production targeted for the end of this year.

These projects are the reason his exit matters beyond Bombay House. A fab loses money for its first several years by design, and India’s semiconductor mission has no comparable private anchor.

A successor under pressure to restore profitability could slow the ramp, seek partners to share the burden, or push harder for state support.

Outright abandonment is unlikely given the sunk cost and the political weight behind the projects, but the pace and the appetite for the next tranche of capital are now uncertain.

TCS in the age of AI
The crown jewel has been the most disrupted asset in the portfolio. TCS closed March 2026 with 584,519 employees, down 23,460 in a year, after announcing cuts of about 2% of its workforce concentrated in middle and senior management.

Rupee revenue still grew 4.6% and operating margin reached a four-year high of 25 per cent, but in constant currency the top line shrank 2.4%.

Fewer people, flat dollars and fatter margins break the equation Indian IT was built on, that revenue equals people multiplied by hours multiplied by rate.

Chief executive K Krithivasan has been unusually candid, telling staff to pass AI productivity gains on to clients even where that cannibalises billing. Annualised AI revenue crossed USD 2.3 billion by the March quarter, real but small against a USD 30 billion base.

Whether a new chairman accelerates a shift to products, outcome-based pricing and genuine AI-first delivery, or simply defends margins, is the largest question hanging over the group’s valuation.

The succession shadow
Tata has done this badly before. Cyrus Mistry was removed in October 2016, reinstated by an appellate tribunal in 2019, and the matter was settled only when the Supreme Court found for Tata Sons in 2021, costing the group four years of distraction.

This time the process is orderly, the runway is seven months, and names such as T V Narendran, Saurabh Agrawal and Shailesh Chandra are already circulating.

What has not changed is the tension between a philanthropic majority owner and a management team that wants to spend.

The listing question
That tension has a name, and it is the IPO. The Reserve Bank classified Tata Sons as an upper layer non-banking financial company in 2022, which ordinarily forces a listing.

Tata Sons repaid more than 21,000 crore rupees of debt and applied to be deregistered as a core investment company. In August 2026 the RBI kept it on the list, saying the application remains under examination.

The case for listing is transparency and access to capital for exactly the sort of long-gestation bets that just cost Chandra his job.

The case against is control, since the Trusts fear dilution of a structure that funnels dividends into philanthropy, and market pressure on projects that need a decade.

Shapoorji Pallonji, holding about 18% and under debt strain, wants the exit that only a listing provides.

Chandra leaves in February with the group larger, more diversified and more exposed than he found it. The argument he lost was never really about whether the bets were right. It was about who gets to keep paying for them.

Image Courtesy: Tata Consumer Products

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Even the world’s most valuable consumer electronics company, with supply chain relationships that rivals have spent decades envying, could no longer absorb a memory cost surge that is reshaping the global technology industry from the ground up.

The same day Apple moved, Microsoft confirmed it was raising the price of its Xbox gaming console by USD 100 to USD 150 depending on the model and discontinuing its highest-end 2TB configuration altogether.

In its statement, Microsoft said console storage and memory prices have more than doubled and that it expects prices to double again by fall 2027.

The message from both companies was the same. The consumer electronics industry has entered a new and disorienting era. Welcome to RAMageddon.

Another depressing news have emerged from the smartphone market. Global smartphone shipments fell 11% year-on-year in the Q2 2026, marking their weakest April–June performance since 2013. The reason? Again, the chip shortage, that has raised handset prices and curbed consumer demand worldwide.

The structural shift that nobody saw coming
The rapid expansion of AI infrastructure and workloads is exerting significant pressure on the memory ecosystem. The shortage is driven, in part, by a reallocation of manufacturing capacity away from consumer electronics toward high-margin memory solutions to support AI.

Instead of expanding conventional DRAM and NAND used in smartphones, PCs, and other consumer electronics, major memory makers have shifted production toward memory used in AI data centers, such as high-bandwidth memory and high-capacity DDR5.

This is not a cyclical blip of the kind the semiconductor industry has weathered before. This is not just a cyclical shortage driven by a mismatch in supply and demand, but a potentially permanent, strategic reallocation of the world’s silicon wafer capacity.

For decades, the production of DRAM and NAND Flash for smartphones and PCs was the primary driver for production. Today, that dynamic has inverted.

The three companies that control more than 95% of global DRAM production, Samsung, SK Hynix, and Micron, have pivoted their limited cleanroom space and capital expenditure toward higher-margin enterprise-grade components.

This is a zero-sum game. Every wafer allocated to an HBM stack for an AI server is a wafer denied to the LPDDR5X module of a mid-range smartphone or the SSD of a consumer laptop.

The consequences for supply are stark. Data centers are forecast to consume 70% of all memory chips produced worldwide in 2026, a dramatic shift from historical norms. As recently as 2022, data centers accounted for approximately 20% to 30% of global DRAM consumption.

The reversal has been swift. Goldman Sachs expects US data center capacity additions to climb from 6.4 gigawatts in 2024 to 13.6 gigawatts in 2026 and 36.3 gigawatts in 2027. Every one of those gigawatts is hungry for memory.

Prices that have no historical parallel
Prices of DRAM, used in virtually all modern tech gadgets, rose as much as 98% in the first quarter of 2026 and are set to jump by a further 58% to 63% in the current quarter, according to industry tracker TrendForce. In spot markets, the situation has been even more extreme. In some cases, spot prices have jumped nearly 700% in the past year.

The hyperscale cloud operators driving this demand have locked in their supply through long-term contracts, insulating themselves from the worst volatility at the expense of everyone else. Meta, Google, Microsoft, and Amazon are negotiating long-term DRAM agreements that effectively guarantee supply at premium but stable prices, leaving the consumer electronics supply chain to absorb the volatility.

Micron, for its part, recently disclosed it has locked in USD 22 billion in such long-term commitments. The company simultaneously indicated that it can meet only about two-thirds of medium-term memory requirements for some customers. SK Hynix had already announced by October 2025 that it had sold out its entire 2026 production capacity for HBM, DRAM, and NAND.

The supply partners left servicing the consumer market are adjusting their quoting practices accordingly. Memory quotes are now typically limited to one to 30 days, with pricing often finalised at shipment rather than at order. In some cases, pricing is not locked until the product leaves the factory.

One industry supply partner recently advised customers to plan for potential DRAM price increases of 10% to 20% per month through the end of 2026.

Industry under siege
HP revealed in its Q1 2026 earnings call that memory costs now account for 35% of PC build materials, up from 15% to 18% the previous quarter. For device makers with thinner margins and less purchasing muscle than Apple or Microsoft, the situation ranges from painful to existential.

The base model MacBook Air now retails in the United States for USD 1,299, up from USD 1,099, while the lowest-spec MacBook Pro rose from USD 1,699 to USD 1,999. The base price of the iPad Air increased from USD 599 to USD 749.

GoPro, the struggling maker of action cameras, warned this month that it might go out of business after memory costs shot up between 80% and 115% at the end of the first quarter. Shares of speaker maker Sonos are down 23% this year as memory prices pressure margins.

Nabila Popal, an analyst at IDC, described the current situation as an “absolute existential crisis” for smaller Android phone manufacturers and local device makers producing handsets below USD 100.

Lenovo, Dell, HP, Acer, and ASUS have all warned clients of tougher conditions ahead, confirming price hikes and contract resets as an industry-wide response.

To cope with cost pressures, some handset makers are quietly reducing the amount of memory in certain models and reconsidering the economics of low-margin entry-level devices altogether.

The downstream ripple
The crisis extends well beyond the obvious consumer electronics categories. The automotive industry, where DRAM is widely used in advanced driver assistance and infotainment systems, as well as in the electronic architecture of vehicles, faces a growing risk of business disruptions in 2026.

Gaming console makers Sony and Nintendo have both warned that tighter component supply and higher input costs could influence product pricing and even delay future launches.

The price of NAND storage, the flash memory that stores photos, games, and files on everyday devices, is rising quickly as well.

Samsung and SK Hynix plan to cut NAND production in efforts to increase capacity for the manufacture of more profitable lines like DRAM, meaning non-volatile memory technology prices could face similar price hikes soon.

The market impact is already visible in device shipment projections. IDC estimates that the smartphone market would see its biggest-ever annual decline of nearly 14% this year, while the PC market will fall 11.3%.

Deutsche Bank analysts, in a recent note on the memory crisis, described the production of memory chips as “a zero-sum game” and concluded that memory chips have transitioned from a pure commodity to “a distinctly macroeconomic variable.”

When does it end?
The honest answer, drawing on the current consensus across analysts and manufacturers, is not soon. Micron expects the memory and storage shortage to last at least through 2027.

“Even as we expect industry supply to improve gradually in 2028, we currently do not have line of sight as to when memory supply will be able to catch up with increasing demand,” said Sanjay Mehrotra, Micron’s chair, president and CEO.

New fab construction is underway, including Micron’s multi-site expansion across Idaho, New York, and Virginia totalling well over USD 150 billion in investment. Meaningful incremental DRAM output from these efforts is not expected until 2027 or later, reinforcing the lack of near-term supply relief.

AI architectures that require less memory represent one possible source of relief on the demand side, though this has been less discussed than supply-side solutions.

Google’s March 2026 announcement of TurboQuant, a memory compression technology claiming significant reductions in LLM memory consumption, offered a brief moment of optimism, though manufacturers’ stock prices quickly stabilised after an initial dip.

For the consumer sitting in front of a new laptop price tag that reads USD 200 more than it did a year ago, the underlying cause is the same infrastructure gold rush that is reshaping every corner of the global economy.

The AI buildout that hyperscalers are racing to complete is not merely an industry story. Through the silicon it consumes, it has become everyone’s story.

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The plan, detailed in documents released after a policy advisory panel meeting, earmarks 101.6 trillion yen for AI and chip-related spending alone. Unveiling the strategy, Takaichi said she intended to build a “strong and prosperous investment framework”, with the government expected to fund a little under half the total if inflation tracks current forecasts.

In introducing the plan, Takaichi said she aims to create a “strong and prosperous investment framework”, while mentioning that the blueprint calls for a combination of public and private investment to reach the target amounts. The government may contribute a little less than half if inflation stays in line with expectations.

“The investment roadmap marks a key step in Takaichi’s effort to put her stamp on Japan’s growth strategy as technological change and geopolitical tensions reshape economic priorities. The prime minister is seeking to channel investment into sectors that can strengthen economic security — from supply-chain resilience to critical technologies — while boosting the country’s long-term growth potential through support for emerging industries,” reported The Japan Times.

The blueprint forms a central part of Takaichi’s bid to reshape Japan’s growth strategy amid rising geopolitical tension and rapid technological change. It channels funds towards sectors seen as critical to economic security, including supply-chain resilience, while attempting to offset the structural labour shortages caused by Japan’s ageing population.

Within the AI and chips allocation, the largest share will go to semiconductors, alongside “vertical AI” tools built for specific industries. The government projects semiconductor investment will generate 443 trillion yen in economic spillovers by fiscal 2040, with physical AI and vertical AI adding a further 144 trillion yen and 222 trillion yen, respectively.

The initiative builds on Japan’s existing chip revival efforts. Since 2021, the government has committed roughly 7.2 trillion yen to semiconductors and AI, including about 2.6 trillion yen in support for state-backed venture Rapidus, according to the industry ministry.

Separately released long-term fiscal projections modelled three scenarios for the strategy’s impact. Under the most optimistic case, Japan’s debt-to-GDP ratio would decline steadily even with annual government spending of 10 trillion yen. In the other two scenarios, assuming weaker uptake or a continuation of current trends, the ratio would resume climbing during the 2030s. All three assume inflation settles near 2%.

The figures exclude potential rises in defence spending or consumption-tax cuts, suggesting fiscal strain could exceed current estimates. Takaichi’s agenda has already moved markets: The Nikkei 225 briefly breached 70,000 in June 2026, even as superlong government bond yields hit multi-decade highs on fiscal sustainability concerns.

The Japanese government has also released long-term economic and fiscal projections incorporating Takaichi’s growth strategy under three scenarios.

“In the most optimistic case, in which the strategy delivers as intended, the debt-to-GDP ratio is expected to decline steadily even as the government contributes 10 trillion yen in real spending toward the plan each year,” The Japan Times reported.

In the other two, where technological and market uncertainties curb the strategy’s impact, or where current trends persist, the ratio is projected to begin rising again during the 2030s. All three scenarios, as per the government, assume inflation stabilises at around 2%.

The blueprint’s debut also coincides with Takaichi’s government shifting its fiscal focus toward reducing the debt-to-GDP ratio, moving away from using a primary balance target that had guided government policy for more than two decades. The debt-to-GDP metric is generally considered easier to improve during periods of inflation.

The post AI, semiconductors and defence: Japan eyes supercharged economy by 2041 appeared first on International Finance.

International Finance unpacks how Taiwan emerged as a chipmaking powerhouse, the US bid to reclaim manufacturing, and how Washington’s export bans and China’s countermoves are reshaping the global economy. Along the way, we bring insights from industry leaders and policy experts on the economic fallout and the future of the silicon struggle.

Global semiconductor supply

Just 100 miles from China’s coast, Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Co.) produces roughly 90% of the world’s most advanced semiconductors. These chips power everything from Apple iPhones and Nvidia AI accelerators to critical infrastructure and defence systems.

Taiwan’s dominance, especially at the smallest transistor sizes, makes it the linchpin of the global tech supply chain: a phenomenon sometimes called the “silicon shield.” The logic is simple. Taiwan’s role in chip supply makes military conflict an economic catastrophe for everyone involved, acting as a deterrent to aggression.

TSMC’s ascent was decades in the making. Founded in 1987 with state support, TSMC pioneered the “pure-play” foundry model, producing chips designed by others and steadily outpacing global rivals.

Today, its technical know-how lets it pack billions of transistors onto fingernail-sized chips, years ahead of competitors. Until recently, nearly all these leading-edge chips were made in Taiwan, a concentration that inspires both awe and anxiety.

On one hand, TSMC is an economic and strategic bulwark for Taiwan, seen as a “sacred mountain protecting the country.” On the other hand, it creates a single point of failure: a natural disaster or geopolitical event could disrupt the world’s chip supply, with devastating consequences.

Policymakers worry about what will happen to TSMC’s “fabs” if China ever attacks or blocks Taiwan. The stakes are enormous: advanced chips are critical for civilian technology and national defence.

Even within Taiwan, there’s anxiety over how much chip technology should be shared abroad. Morris Chang, TSMC’s 91-year-old founder, has called out the dilemma, “The US Commerce Secretary said repeatedly that Taiwan is a very dangerous place [and] America cannot rely on Taiwan for chips… that, of course, is Taiwan’s dilemma.”

While TSMC is expanding overseas, Chang notes that “in the chip sector, globalisation is dead. Free trade is not quite that dead, but it’s in danger.” His warning is that higher costs and less ubiquity for advanced chips will result if the world splits into competing tech blocs.

Taiwan’s role as a global chip linchpin brings leverage and vulnerability, a reality now pushing others to develop their own advanced chipmaking muscle.

‘Make it in America’ chip push

The United States once led the world in chip design and manufacturing. As production shifted to Asia, America’s share of global chip fabrication capacity fell from 37% in 1990 to just 12% by 2020.

Former Commerce Secretary Gina Raimondo summed up the American predicament by saying that America had “dropped the ball,” allowing Asian rivals to surge ahead. Now, after pandemic-driven supply chain shocks, Washington is determined to “onshore” and “reshore” semiconductor production. But is it working?

A flurry of policies followed, from tariffs and trade pressure to hefty investment incentives. President Donald Trump threatened tariffs to push TSMC and others into building US plants. As a result, TSMC agreed to a $12 billion fab in Arizona, later expanding to a $40 billion project, which marked their first advanced facilities outside Taiwan. These fabs, when fully operational, will produce 4nm and 3nm chips, still trailing Taiwan’s 2nm technology but among the world’s most advanced.

President Joe Biden followed with the CHIPS and Science Act, a $52 billion package of subsidies, grants, and tax credits designed to “supercharge” US semiconductor manufacturing. This resulted in big investments from both American and foreign firms.

TSMC secured $6.6 billion in US grants for its Arizona plants, Samsung got $6 billion for a new Texas plant, and Micron announced a $100 billion New York megafab. The irony? Onshoring incentives are also benefiting foreign giants, whose rise was built on decades of government support in Asia.

Building a robust domestic chip industry is proving complex. Chip fabs are among the world’s most sophisticated factories, requiring immense precision and years to build. TSMC and Samsung have faced delays, cost overruns, and skilled labour shortages in the US.

Arizona’s TSMC site even had to “import” technicians from Taiwan, causing friction with US labour unions. Making advanced chips takes armies of PhD-level engineers, yet US immigration policies restrict high-skilled talent.

Analyst Marc Einstein notes, “You can’t just magic PhDs out of nowhere.”

Many experts argue that expanding high-skilled visa programmes is essential for the US chip renaissance.

Chip manufacturing is a global ecosystem. An advanced chip may be designed in California and fabricated in Taiwan using equipment from the Netherlands and materials from Japan and Germany.

“No single country can do everything,” says TSMC Arizona president Rosemary Castanares.

Even US fabs rely on $150 million ASML lithography machines from Europe. For now, US-based fabs remain smaller and a technological step behind Asia’s mega-fabs.

Historian Chris Miller calls TSMC’s Arizona plants “a generation behind the cutting edge in Taiwan,” and much lower in output.

TSMC itself is clear: its most advanced chips, and bleeding-edge R&D, will stay in Taiwan. Arizona’s fabs get slightly older, though still advanced tech.

The US officials might tout reshoring wins, but the centre of gravity remains in Asia. Restoring US chip leadership is a long-term effort, needing not just money and factories but also investment in education, workforce training, and immigration reform.

US-China crossfire in semiconductors

As Washington tried to onshore chipmaking, it also wielded trade weapons to slow China’s technological rise. The US-China trade war, which started with tariffs in 2018, has increasingly focused on semiconductors as a strategic chokepoint. The Trump and Biden administrations have sought to deny China advanced chips and manufacturing equipment to “protect national security.”

A pivotal moment occurred in October 2022 when Washington enacted stringent export controls. These regulations prevent global companies from selling high-performance chips or chip equipment that utilises US technology to China without obtaining a difficult-to-secure license.

If a chip was made with US software or machinery, as almost all advanced chips are, exporting it to China is restricted. The rules even bar US citizens from working for certain Chinese firms, choking off a “key pipeline of American talent.”

American officials argue this is essential to prevent “sensitive technologies” from fuelling China’s military modernisation, since advanced chips are dual-use, meaning they power both civilian and military AI.

Beijing calls this “technology terrorism” and has filed complaints at the World Trade Organisation, accusing Washington of abusing export controls. Chinese officials warn that these moves destabilise global supply chains. The impact is very much real. Huawei’s handset business collapsed after US sanctions cut it off from advanced chips.

Other Chinese firms, like memory giant YMTC, have been blacklisted. Even the United Kingdom-based ARM won’t license its latest designs to Chinese customers. Washington’s allies in the Netherlands and Japan have joined in, restricting exports of crucial lithography and chip equipment to China.

China’s initial response was cautious, but it has since weaponised its own dominance in key minerals. In 2023, Beijing restricted exports of gallium and germanium, both vital for chipmaking, and later banned exports of more minerals to the US.

These tit-for-tat moves signal China’s willingness to hit back with strategic materials. China also imposed its own limited bans, such as restricting US firm Micron’s chips from critical Chinese infrastructure.

At home, China has doubled down on self-reliance, pouring tens of billions into its chip sector through national funds and the “Made in China 2025” campaign.

President Xi Jinping calls on China to excel in key core technologies to ensure domestic innovation, thus preventing the country from being hindered by foreign sanctions.

The trade war has forced Chinese firms to seek new markets and supply chain arrangements, but often with slimmer profits.

Meanwhile, allied equipment makers like ASML now face the loss of lucrative Chinese customers, which raises concerns about lost innovation and revenue.

Nvidia CEO Jensen Huang recently blasted US export controls as “backfiring.”

He notes that Nvidia’s share of China’s AI chip market fell from 95% to 50%, with Chinese firms ramping up in-house alternatives. The bans, he says, “have pushed Chinese companies toward home-grown alternatives, spurring Chinese investment.”

Bill Gates similarly says US pressure has forced China to “go full speed ahead” on its own chips.

While some US officials argue these bans buy the West a crucial lead time in military AI, critics warn the strategy may accelerate China’s self-sufficiency and ultimately weaken the American industry.

The Chinese playbook

China has responded to the chip war with a multipronged strategy. At the core: building a self-sufficient semiconductor ecosystem. State-backed funds and national strategies aim to reduce dependence on foreign tech, especially in critical areas like manufacturing equipment and chip design.

Chinese firms have aggressively recruited global talent, including Taiwanese and American engineers, and have sometimes resorted to industrial espionage. The urgency to innovate has only intensified after US sanctions nearly crippled companies like ZTE and Huawei.

One breakthrough occurred in 2023 when Chinese chipmaker SMIC produced a 7nm chip, used in Huawei’s Mate 60 Pro, despite lacking access to the world’s most advanced lithography equipment.

US experts suspect SMIC adapted older machines with multiple patterning to achieve the feat. The phone’s teardown revealed memory chips from South Korea’s SK Hynix, showing that China can still source key components through unofficial channels or stockpiles.

While 7nm lags behind Apple’s 3nm chips, the achievement signals that China can adapt around sanctions, even though it comes at a high cost. Chinese companies are also developing workarounds, like using open-source chip architectures (RISC-V) and clustering less advanced chips to achieve AI tasks. Diplomatic efforts target partnerships with countries like Russia and some in Southeast Asia.

In parallel, China is building its own software and tooling ecosystem to reduce reliance on US and allied IP.

Still, China faces several pitfalls, including corruption in its state funds, persistent dependence on imported materials, and the technological gap in ultra-advanced manufacturing.

Globally, the chip war is creating a bifurcated tech order. There is a US-led bloc with strict controls and the most advanced chips, while a China-centric sphere relies on indigenous innovation and sometimes older technology.

Countries such as those in Europe, India, and Japan are now pursuing domestic manufacturing as a strategic objective. The aim is to avoid dependency on a single foreign supplier.

The global economy

The US-China semiconductor standoff has global ramifications. Allies, from Europe to Japan and India, are launching their own chip initiatives to bolster supply chain resilience. The European Union’s Chips Act aims to double Europe’s production share by 2030.

Japan is subsidising TSMC’s new Kumamoto plant; India, pitching its low-cost labour and market scale, is working to attract chipmakers despite obstacles like land acquisition and water supply. All these moves indicate a shift since countries want to reduce overreliance on any one supplier.

The balancing act is delicate for Asia’s chip powerhouses such as Taiwan, South Korea, and Japan. While they are US security partners, they rely heavily on China for a significant portion of their chip exports. With extensive operations in China, Korean giants Samsung and SK Hynix have even required waivers from US regulations.

TSMC, while benefiting from the US “friendshoring,” is careful not to sever links with Chinese customers. Diversification, by building plants in the United States and Japan, hedges bets against both geopolitics and American pressure.

A major unintended consequence is tech ecosystem fragmentation. If the world splits into separate tech stacks, innovation could slow (due to duplication and lost scale), but could also spark alternative breakthroughs. If denied access to leading-edge chips, the Chinese firms might focus on alternative architectures or software innovations.

The US and its allies, wary of supply chain risk, are building redundancy at a higher cost. A Boston Consulting Group study estimates that a full US-China semiconductor split could cost US companies $80 billion in lost revenues and $20 billion less R&D annually. Despite these costs, there is hope that competition will spur next-generation innovation, including quantum chips, new materials, and more resilient supply chains.

Governments everywhere are pouring money into chip R&D, education, and mature-node production for critical industries like autos and defence. Recent chip shortages made clear that even older chips are vital.

AI is front and centre in this fight. US restrictions aim to hold back China’s AI progress by limiting access to the most powerful GPUs. In the short term, it’s working, as Chinese companies are scrambling to adapt.

But software-side innovation and hardware workarounds are likely. If anything, scarcity may force efficiency and new approaches to AI development. In the long run, stifling hardware access may backfire by spurring domestic breakthroughs in China and elsewhere.

The chip war also raises fundamental questions about economic sovereignty. Governments now ask whether they can count on secure chip supplies in a crisis.

For many, the answer is “not yet,” driving a rush to build national capacity and regional redundancy, even if it means higher costs. Taiwan’s “silicon shield” still matters, but if TSMC globalises, no one country will wield absolute leverage for long.

Looking ahead, an “armed détente” is possible: both superpowers invest in reducing their vulnerabilities, and a new equilibrium emerges. North America might reach 20% of global chip output by 2030; China could attain partial self-sufficiency in 7nm or 5nm nodes. The world could then operate dual tech systems, trade some chips while restricting others for security reasons.

A total rupture, such as war over Taiwan, remains a nightmare. Disruption to Taiwan’s fabs would cripple the global electronics industry.

So far, fear of mutual destruction has preserved the status quo. As the US and others reduce reliance on Taiwan, that deterrence may weaken over time.

The world is realising, sometimes painfully, how critical and fragile the semiconductor supply chain is. Chips have become the new oil, with control over them reshaping the global balance of power in the 21st century.

Silicon geopolitics is here to stay, and every country will feel its impact.

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