For most of the 20th century, oil was power. It moved armies, built economies, and shaped geopolitics. The countries that controlled it controlled almost everything else. Today, a new resource has taken its place, one that fits on a fingertip yet drives entire economies and armies. It is the semiconductor chip.

Most of us carry dozens at all times, inside devices that could not work without them. Phones, laptops, and cars run on semiconductors, and so do the networks that connect them. These chips process information, store data, and transmit signals. The same kind of component that ranks a social media feed also guides a missile.


The most valuable of these are advanced microchips, or integrated circuits (ICs), which power today's most complex technologies. AI models such as ChatGPT and DeepSeek were trained on thousands of Nvidia processors, including the A100, H100, and H800. Each is cut from a 300 mm silicon wafer, and together they form the hardware on which artificial intelligence runs.


Chips are therefore much more than a technology story. As AI, supercomputing, and automation spread, control over their design and production has become central to national security and to the balance of power between states. Military defence systems and cybersecurity infrastructure now depend on chips as much as the civilian economy does.


Just as oil-rich nations once held sway over global affairs, the countries that dominate chip production today hold a similar advantage, both economic and geopolitical. No country shows this more clearly than Taiwan.


The island lies just off China's south-eastern coast and is home to the Taiwan Semiconductor Manufacturing Company (TSMC), arguably the most important technology company in the world. Founded by Morris Chang in 1987, the company pioneered a new model: other firms would design chips, and TSMC would manufacture them. The model took off. Nearly four decades later, TSMC produces around 90% of the world's most advanced chips, for clients such as Apple, Nvidia, and AMD.


Concentrating so much chipmaking on one small island has heightened geopolitical tensions. As AI and military technologies come to depend on chips, the question of who controls Taiwan, and with it much of the world's semiconductor supply, matters far beyond the region. The US, China, and Europe are each now trying to build capacity of their own.


Political tension is not the only risk. The COVID-19 pandemic showed how exposed the world had become through its dependence on Asia, and on Taiwan in particular. Car factories shut down, smartphone deliveries were delayed, and technology firms lost billions. Apple, Ford, Renault, and many others were caught unprepared by a chip shortage that halted production lines across several industries.


The microchip supply chain and the race for self-sufficiency


To see why the supply chain is so fragile, it helps to look at how it works. Each stage of production is concentrated in a different part of the world, and each depends on the others.

The chain begins with raw materials: China dominates the supply of rare earth elements, while Japan leads in producing high-quality silicon wafers. On the design side, US firms such as Nvidia, AMD, and Qualcomm develop high-performance processors, especially for AI.


Manufacturing, however, takes place mainly in Asia. TSMC in Taiwan and Samsung in South Korea produce the most advanced semiconductors, particularly for AI, smartphones, and high-performance computing. Both depend on equipment from the Dutch firm ASML, currently the only company in the world able to make extreme ultraviolet (EUV) lithography machines, which are needed to produce chips at 5nm and below.


Once made, chips are assembled and tested, largely in Taiwan, China, and South-East Asia. From there, they go into products made by technology companies such as Apple, Google, and Tesla, as well as by major carmakers. This division of labour keeps costs down, but a problem at any one point can spread through the whole system.


Taiwan's position is especially sensitive. Its lead in chip manufacturing makes it a strategic player as well as an economic one, at a time of rising tension between China and the United States. Taiwan's semiconductor industry is often described as a "silicon shield", since any disruption to it would hurt economies everywhere. Yet China has made its claim on Taiwan clear, and the island's chip industry makes an already delicate political question harder still.


In response to these risks, the United States has moved to bring chip production back home. In 2022, Congress passed the CHIPS and Science Act, allocating $52 billion to domestic semiconductor manufacturing and research. The same year, Washington restricted exports of high-end AI chips to China on national security grounds, and in 2023 it pressed the Netherlands to limit ASML's sales of advanced machines to Chinese companies. TSMC, in turn, began building factories in Arizona, expanding its production beyond Taiwan.


China, meanwhile, is building its own chipmaking capacity. Reports in late 2022 pointed to a $143 billion support package for domestic semiconductors. In 2023, Beijing restricted exports of gallium and germanium, two minerals used in chipmaking, and SMIC, China's leading chipmaker, produced Huawei's 7nm Kirin 9000S processor despite international sanctions.

Europe, too, wants to reduce its dependence on outside suppliers. The European Chips Act aims to raise the EU's share of global chip production from 10% to 20% by 2030 and to mobilise more than €43 billion in public and private investment. Intel planned a €17 billion facility in Germany, while STMicroelectronics and GlobalFoundries are expanding in France and Italy. The EU can also build on established strengths, with ASML in equipment and imec, the Belgian institute, in research.


In all three cases, the priority has moved from efficiency towards self-reliance and resilient supply chains.


The future will be written in chips


Computing power is becoming a measure of national influence. As AI spreads through the economy, access to advanced chips increasingly separates leaders from laggards: countries and companies that can train large models will pull ahead of those still relying on older infrastructure.


Supercomputers are already used in drug discovery, climate forecasting, clean-technology design, and cybersecurity. Countries with the most computing power will have an edge in all of these. Governments have noticed, and now treat secure access to high-end chips as a strategic priority.


For decades, the industry has made chips smaller, faster, and more energy-efficient. Moore's Law, the observation that the number of transistors on a chip doubles roughly every two years, has set the pace. IBM, Samsung, and TSMC are now racing to reach 2nm and beyond, and each new generation will make AI systems and cloud computing more powerful.


Beyond conventional silicon, the industry is also exploring quantum computing and neuromorphic chips, which are modelled on the human brain. Quantum processors may one day solve problems that are out of reach for classical computers, such as simulating protein folding for medical research or optimising logistics and energy systems in real time.


Progress in AI, climate science, space exploration, and personalised healthcare will depend on these chips, and so will the standing of the countries that design and produce them.


What's in it for India


As one of the world's fastest-growing digital economies, India cannot remain on the margins of the semiconductor and AI race. It has built real strength in software, IT services, and digital platforms, but it still relies heavily on imports for advanced chips. That dependence leaves both its security and its growth exposed. If India wants to lead in AI, space exploration, green technology, and 5G/6G, it needs a self-reliant semiconductor ecosystem.


India has already taken steps. The Semicon India Programme offers incentives for chip design and fabrication, and it has attracted projects such as Micron's assembly and test plant at Sanand and the Tata Electronics fab at Dholera, built with Taiwan's PSMC. Much more, however, is needed. The country must persuade more global chipmakers to manufacture in India, invest steadily in STEM education and R&D, and use public-private partnerships to share the cost and risk of new capacity. It should also link its chip strategy to its national AI mission, so that Indian start-ups, researchers, and industries have access to the computing power they need.


As global powers redraw the map of chip alliances, India has a real opportunity. Its democracy, large market, and skilled workforce could make it a trusted alternative in the global semiconductor supply chain, provided it acts quickly.


Much of India's future competitiveness and strategic autonomy will depend on how seriously it takes semiconductors. Chips have become national assets, and India should treat them as such.



About the Author: Reetuparna Vishwanath 

An economist with a Masters in International Economics from the Geneva Graduate Institute, Switzerland. Currently pursuing her PhD at HEC Lausanne, Reetuparna is a member of IFPP's Global Advisory Council.