Chips of Power: The Role of Semiconductors in the Battle for Global Dominance

(Analysis) In the global race for technological supremacy, semiconductors have emerged as the most critical asset. These tiny chips power everything from smartphones to artificial intelligence (AI) systems and advanced military equipment.

But behind China’s rise as a manufacturing powerhouse lies a glaring vulnerability: its deep reliance on the West and its allies—Taiwan, Japan, South Korea, and Europe—for cutting-edge semiconductor technology.

This dependency is so profound that if the West were to limit China’s access to the semiconductor supply chain, it could significantly hinder China’s technological ambitions, potentially shifting the global balance of power.

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The Semiconductor Supply Chain: A Global Web

Semiconductors are not just another commodity; they are the backbone of modern technology. However, producing them is one of the most complex processes in human history. No single country can manufacture advanced chips independently. The supply chain spans across the globe, with each country specializing in different stages of production.

Taiwan, led by companies like TSMC, dominates global chip fabrication, producing the most advanced semiconductors. South Korea and Japan supply crucial materials and components, while the United States excels in chip design and electronic design automation (EDA) software. Meanwhile, Europe, especially the Netherlands, hosts ASML, the sole producer of extreme ultraviolet (EUV) lithography machines essential for crafting cutting-edge chips.

China, despite being a manufacturing giant, plays a surprisingly small role in this supply chain. It spends more on importing semiconductors than it does on oil, with chips flowing into China from Taiwan, South Korea, Japan, and the U.S. In 2023 alone, the country imported 479.5 billion integrated circuits (ICs) worth $349.4 billion, while spending $337.5 billion on crude oil imports. This makes semiconductors China’s largest import item.

These chips are essential for China’s manufacturing base, which assembles products like smartphones, computers, and electric vehicles (EVs). Without access to these imports, China’s high-end manufacturing would face severe disruptions.

The Achilles’ Heel: Advanced Semiconductor Manufacturing

China’s leaders are acutely aware of this vulnerability. Despite its efforts to become self-sufficient in semiconductor production—pouring tens of billions of dollars annually into its “Made in China 2025” initiative—China remains far behind in producing high-end chips.

The most advanced chips require EUV lithography machines produced exclusively by ASML. These machines are so complex that it took ASML three decades to develop them, and they cost over $300 million each.

Since 2018, U.S. export controls have prohibited the sale of these machines to China. Even Chinese companies like SMIC and Huawei struggle to move up the value chain because they lack access to this critical technology.

China has made strides in less advanced semiconductor production, but replicating decades of Western expertise remains a monumental challenge. Without access to critical tools and technologies, China’s ambitions for technological independence are unlikely to be realized in the near term.

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AI and Military Power: High Stakes for Geopolitics

The geopolitical stakes rise further in the realm of artificial intelligence. AI systems demand immense computational power, which is provided by high-performance GPUs (graphics processing units). Nvidia, a U.S. company, dominates this market, controlling 90% of advanced AI GPUs.

In 2022, the U.S. restricted Nvidia from selling its most advanced GPUs to China. This move has significantly impeded China’s ability to develop large-scale AI systems, which are vital for applications ranging from autonomous vehicles to military drones.

The impact on military capabilities is particularly concerning. AI-driven technologies, such as autonomous drones and intelligence-gathering systems, are expected to play a pivotal role in next-generation warfare. Without access to high-end semiconductors and GPUs, China faces challenges in keeping pace with Western advancements in AI-enabled military technology.

The Economic Impact: A Frozen Manufacturing Base

China’s reliance on imported semiconductors extends far beyond AI and military applications. Chips power nearly every sector of its economy, from electric vehicles to medical devices. A sudden halt in semiconductor imports would disrupt China’s manufacturing base, undermining its economy and political stability.

The Chinese Communist Party’s legitimacy heavily depends on economic growth and technological advancement. Any major disruption in chip imports could derail China’s ambitions to dominate industries like EV production, where it currently leads globally but relies heavily on foreign semiconductors.

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Potential Risks for the West

While the West holds significant leverage over China through its control of semiconductor technology, this strategy is not without risks. Cutting off China from the global semiconductor supply chain could exacerbate the already fragile system, leading to price hikes and production delays in other markets.

In response, China might retaliate by leveraging its dominance in rare earth elements, which are critical for manufacturing electronics and renewable energy technologies. Additionally, China could strengthen partnerships with non-aligned nations, such as Russia or countries in the Global South, to counterbalance Western restrictions and reduce its dependence on Western technology.

Conclusion: A New Kind of Power Play

Semiconductors have become the battleground of modern geopolitics. The West’s ability to control access to critical technologies like EUV lithography machines and high-performance GPUs gives it significant leverage over China.

However, this is not a zero-sum game. China’s continued investments in domestic semiconductor production, along with its efforts to build alliances outside the Western bloc, mean the balance of power could shift in the long run. Replicating decades of expertise will take time, but China’s ambitions remain strong.

For now, the West’s dominance in semiconductor technology serves as a potent tool for maintaining its leadership while curbing China’s rise as a global superpower—all without direct conflict. Yet, this strategy requires careful management to avoid unintended consequences that could disrupt global markets and exacerbate geopolitical tensions.

In this new era, technological control rivals territorial dominance as the key to global power. The semiconductor race will shape not just economic futures but also the geopolitical order for decades to come.

Chips of Power: The Role of Semiconductors in the Battle for Global Dominance

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