Most forms of politics are about power. ‘Geopolitics’ has incarnated itself with scholars providing a new perspective in every generation. This century has seen a rise in geopolitical conflicts creating competition between nations. Geopolitical ramifications are all the more complex as these deliberations require consensus among states. A state’s ability to gather intelligence, fight wars, forge collaboration, and wield diplomacy is a national security imperative. International strategic rivalry and interstate conflicts are not limited to a geographic worldview but permeate the technological and economic environment.
Technology has advanced like never before. Most wars have been fought and won by advancements in technology – from steel, aluminium, to silicon. The rise of Artificial Intelligence (AI) and 5G communication advancements has heightened the demand for computing. Semiconductors have their applications across industries, from GPS, radar systems, and advanced Unmanned Aerial Vehicles (UAVs) to Microprocessors which aren’t limited to drones or satellite communications. When cyber and economic threats loom, power is ciphered across choke points and supply chains.
Battle for Technological Supremacy
The Cold War was deemed as a clash of ideologies and military bean count. The triumph of the Soviet Union was viewed through the prism of – ‘Sputnik’. Observing Soviet advancements then, the U.S., President’s Scientific Advisory Committee urged changes in defence policy. The establishment of The National Aeronautics and Space Administration (NASA) and The Defence Advanced Research Projects Agency (DARPA), were milestones initiated by the American government.
In the 1980’s, the tech war confronted the U.S. and Japan. In Japan, the innovation that propelled companies, such as– Fujitsu, Hitachi, and Mitsubishi Electric helped create Japanese patents impacting manufacturing and silicon chips. Posing a threat to American firms, President Reagan imposed tariffs on Japan. Behemoths such as IBM and Intel had reaped benefits while countries like Taiwan and South Korea also took advantage. Chips (in 2022) from Taiwan provide over 30 percent of the world’s new computing power (annually), while South Korean companies (SK Hynix at 28.8% and Samsung with a market share of 40.7%) contribute significantly to the world’s memorychip race.
When COVID struck the world, a series of incidents prompted governments to worry about supply chain disruptions. At the heart of this geopolitical discord was chip shortages. Leaders in Japan, the U.S., and Europe hadn’t thought about semiconductors critically. Silicon Valley mattered to the American enterprise. As the Trump administration had largely imposed export controls (on ZTE (Zhongxing) / Huawei) over–Software, telecom equipment, and Intellectual Property rights, the Biden administration extended these restrictions to advanced computing chips and semiconductors. The contestation over Integrated circuits is not just limited to the U.S., China, Russia, or East Asian countries but its impact is felt across global markets, creating economic repercussions.
The Strategic Cauldron–China, The U.S, and Taiwan
By Moore’s Law, semiconductors are embedded in almost every device that demands the power of computing. The semiconductor supply chain consists of components, critical minerals, complex design, and assembling that are mustered across key organizations, cities, and countries. The greatest challenge to miniaturizing semiconductors and fabricating chips necessitates absolute precision.
Silicon Valley has always steered innovation, having a deep imprint on the global chip industry. Taiwan’s – Taiwan Semiconductor Manufacturing Company Limited (TSMC), leads in carving microscopic tiny transistors (the iPhone, TSMC Fab 18) while China has an edge over the market’s supply of critical materials. Gallium is used in satellite communications, LEDs, the automotive industry, and defence systems. Germanium is used in infrared imaging devices, fibre-optic cables, and optical devices (weapon systems). According to the Critical Raw Materials Alliance (CRMA), about 80 percent of gallium production takes place in China. In 2024, China increased its production of rare earth minerals, which is critical to energy transition.
Taiwan has become a flashpoint in the U.S.-China confrontation but its impact on the markets and traditional supply chains has governments worried. Taiwan’s president-elect Lai Ching-te has an uphill taskahead. Beijing’s diplomatic isolation of Taiwan and trade restrictions on Taipei will impact Taiwanese and global companies. Taiwan’s declining exports in the technology segment with new supply chain disruptions will impact Taiwan’s economy. China has over a million foreign companies (doing business with Japan, South Korea, the U.S., Germany, and Singapore, etc.) and the economic interdependence of many sectors enables China’s rise.
Taiwan’s recalibration of the ‘New Southbound Policy’, and outreach via diplomatic, economic, and cultural means to its southern neighbours, encompassing ASEAN countries, South Asia, Australia, and New Zealand (to strategize supply chain structures and de-risking from potential conflicts) is another strategic element. Analysts from Beijing and Washington have been observing this trend and it will factor hard with the U.S.’s appetite for intervention (notwithstanding, the Russia-Ukraine War, and the Israel-Gaza conflict) in other potential conflicts (keeping in mind, Taiwan).
India’s challenges
The semiconductor industry gained prominence in India in 1984 after the relaxation of licensing requirements, by lowering import duties on electronics, and investments in the technology sector. After this phase, there were various initiatives announced but there were also formidable challenges. In this decade, by 2026, the Indian semiconductor market is expected to reach $ 55 billion driving market growth in various sectors – The automotive industry, smartphones, wearables, data storage, electrical appliances, etc.
The present government has taken various initiatives to generate demand and growth – Semiconductor Fabs, Sensors, Design-linked incentives (DLI scheme), Silicon Photonics, Outsourced Semiconductor Assembly and Test (OSAT units), Semiconductor Laboratories, areas of initiatives in the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (the SPECS), etc. The government had also proposed the Production-linked incentives (PLI scheme), to attract investments and boost manufacturing in key sectors. The current government has rightly forged its diplomacy with Taiwan, South Korea, Japan, the U.S., and key allies to foster collaborative growth in this sector.
As much as there is potential, New Delhi must weigh its policy options. China and South Korea had huge support and subsidies that helped their economies scale, reaping gains over decades. In the 1970s, San Francisco led this revolution where the U.S. had opportunities to innovate by creating technological advantage and absorbing the world’s best engineers, scientists, and entrepreneurs. In the U.S., Research and Development (R&D) are never compromised, and failing companies have been fiercely forced out.
India has other challenges being a federal democracy. A huge demand for semiconductors will increase the need for water resources. Semiconductor plants need millions of gallons of pure water every day. India being prone to droughts and climatic episodes will put a burden on water consumption. New Delhi must reckon that incentives and infrastructure are key to the semiconductor industry but the most crucial aspect is skilled labour.The government must weigh its policy measures,between– Industrial growth, infrastructure, defence, technology, agriculture, environment, and welfare schemes.
The Way Forward
India’s equations with the U.S., China, and Russia remain a vexed geopolitical reality. As India’s trade deficit with China increases, New Delhi must rely on robust policy assessments and vouchsafe its multi-alignment diplomatic strategy with trusted allies. The China +1 strategy is a point, but de-risking and decoupling can be leveraged only across a few industries, as the global economy is increasingly interdependent. India has highly skilled chip design professionals. As supply chain competition moves towards Southeast Asian countries, India must take advantage by being a formidable force in the semiconductor value chain.
India’s semiconductor policy is predominantly being led by the Ministry of Electronics and Information Technology (MIETY), and the administration of chip design policy, by the Centre for Development of Advanced Computing (C-DAC). This is a positive step but greater collaboration between academicians, universities, industry thought-leaders, think tanks, regulatory bodies, and policymakers can lead to effective dialogue, enabling the India Semiconductor Mission (ISM). Analysts and industry leaders agree that a funding mechanism and institutional framework along the lines of the U.S., government (CHIPS and Science Act of 2022), can help bolster India’s industrial policy (especially, in semiconductors).
As much as Beijing tries to dissuade strategies against Washington, it is still early and foreboding. In terms of – land, labour, and capital, the American economic, technological, and military capability stands pivotal to the international order. Despite retreating in ‘Strategic depth’ against China, America’s appetite for innovation, risk, strategy, and military spending remains unparalleled. Beijing might control critical minerals but for the semiconductor industry to thrive, reliance on robust supply chain mechanisms, industry partnerships, institutional networks, and technological innovation plays a key role. From a strategic baseline, Beijing and Washington fully understand the risks of escalating a supply chain war however with select countries decoupling in industry sectors along strategic maneuvers will be the norm.
If cross-strait relations worsen, China risks being cut off from critical knowledge networks, not limited to Taiwan, but Europe,the U.S., and other democratic countries that perceive Beijing as a serious threat. With the U.S. elections in November, it’s interesting to observe how the Indo-Pacific alliance; (the AUKUS partnership) Australia, the United Kingdom and the United States, factor into South Asian politics, or the East Asian theatre. As for India, the government with the mandate of winning the Indian general elections will frame the next phase of foreign policy.