Semiconductor Supply Chains: Why Chips Became Geopolitics
Almost every modern product, from a phone to a fighter jet, depends on chips that pass through several countries before they are finished. The semiconductor supply chain is highly specialised, and a few of its steps are controlled by one company or one region. That concentration is why chips have moved from trade pages to national security strategy, and why the United States, the European Union, Japan, China and India are all spending heavily to change who makes what.
Global chip sales reached $791.7 billion in 2025, up 25.6% on 2024, according to the Semiconductor Industry Association (SIA), which later revised the figure to $795.6 billion. Demand for AI hardware has raised the stakes further. The question governments now ask is not only who sells the most chips but who controls the steps nobody else can replace.
How the chip supply chain is split
A chip passes through five broad stages. Each needs different skills and capital, which is why companies and countries have specialised.
| Stage | What happens | Who is strong (as described in the sources) |
|---|---|---|
| Design | Engineers define the chip's architecture and circuits. "Fabless" firms design but do not manufacture. | US-headquartered chip firms earned 53.4% of global chip sales in 2025 (SIA) |
| EDA software and core IP | Electronic design automation tools to design, simulate and verify chips, plus licensed building blocks such as processor cores | Not quantified in the sources used here; the EU and India both name design and IP as dependencies to reduce |
| Equipment and materials | Lithography, deposition, etching and inspection tools; wafers, chemicals and gases | ASML (Netherlands) is the sole maker of EUV lithography machines |
| Wafer fabrication | Circuits are built layer by layer on silicon wafers in a "fab" | Taiwan and South Korea for the most advanced logic; Korea for memory; China for mature nodes |
| Assembly, test and packaging (ATP) | Wafers are cut, packaged and tested | China (30%) and Taiwan (27%) of global ATP capacity in 2022 (BCG/SIA) |
The 2021 BCG and SIA study argued that this specialisation made chips cheaper and faster to improve, but also created more than 50 "chokepoints" where one region holds over 65% of global share. The 2024 follow-up, Emerging Resilience in the Semiconductor Supply Chain, estimated that global integration had cut semiconductor prices by 25 to 40% compared with a self-sufficient chain in each region. Both reports were produced for an industry body, so readers should treat their policy conclusions as an industry view.
Where the concentration sits
Taiwan and advanced logic
The most advanced processors, used in smartphones, data centres and AI accelerators, are made at nodes below 10 nanometres. The 2021 BCG and SIA study put Taiwan at 92% and South Korea at 8% of that capacity (2019 data). The 2024 BCG and SIA analysis gives Taiwan 69% and South Korea 31% in 2022, and projects Taiwan at 47% and the US at 28% by 2032 if announced investments go ahead. India's Press Information Bureau, in a February 2026 backgrounder, states that Taiwan produces over 60% of the world's semiconductors and nearly 90% of the most advanced chips.
The figures differ because they measure different things (capacity versus output, and different years), but they point the same way: leading-edge logic depends heavily on one island.
Global integration made chips cheaper, but it also left the newest processors dependent on a very small number of places and machines.
ASML and EUV lithography
Printing the finest circuit patterns requires extreme ultraviolet (EUV) lithography. In its 2025 annual report, ASML states that it is "currently the world's only manufacturer of EUV lithography systems". The company reported 2025 sales of €32.7 billion. Its report also notes that from November 2025 the EU requires an export licence for advanced systems such as DUV immersion lithography when exported outside the EU, which ASML says did not change its position because those products already needed a Dutch licence. In June 2026, ASML told Reuters it had never shipped an EUV machine to China, as reported by Igor's Lab.
Korea and memory
Memory chips store data and are now essential for AI systems. The BCG and SIA 2024 data put South Korea at 52% of global DRAM capacity and 30% of NAND flash capacity in 2022, with Japan also at 30% of NAND. By 2032, the same analysis projects Korea at 57% of DRAM and 42% of NAND. Memory was the second-largest product category in 2025, with sales of $223.1 billion according to SIA.
China and mature chips and packaging
China's strength lies in older, "mature" process nodes (28 nm and above), used in cars, appliances and industrial equipment, and in packaging. BCG and SIA put mainland China at 33% of 28 nm-and-above logic capacity in 2022, projected to rise to 37% by 2032, and at 30% of global ATP capacity in 2022.
The United States: subsidies plus controls
The CHIPS and Science Act
The CHIPS and Science Act of 2022 gave the US Department of Commerce $50 billion for a suite of programmes, run by the National Institute of Standards and Technology (NIST). According to NIST, $39 billion was appropriated for manufacturing incentives and $11 billion for semiconductor research and development through four programmes.
The way the money is used has changed. In August 2025, the US government agreed to take a 9.9% stake in Intel, buying $8.9 billion of shares funded partly by $5.7 billion in CHIPS grants that had been awarded but not yet paid. NIST's CHIPS page lists further award changes in 2026, including an October 2026 amendment that reallocates up to $955 million of GlobalFoundries' award towards silicon photonics, silicon-germanium and advanced packaging. SIA's 2026 State of the Industry report counts more than $770 billion in announced private investment across 160 US projects since 2020.
Export controls on China
The second US tool is export control, administered by the Bureau of Industry and Security (BIS). A summary by law firm Covington traces the main steps:
- October 2022: first controls on advanced computing chips and chipmaking equipment for China.
- October 2023 and March 2024: the rules were expanded and revised.
- 2 December 2024: 140 entities were added to the Entity List; new controls covered more chipmaking equipment, related software, and high-bandwidth memory (HBM); and "foreign direct product" rules extended US jurisdiction to some equipment made outside the US.
Policy has since shifted on AI chips. On 13 January 2026, BIS announced a rule moving licence applications for the Nvidia H200, AMD MI325X and similar chips for China to case-by-case review. Applicants must show that exports will not reduce production capacity available to US customers, that the Chinese buyer has compliance procedures, and that the product has passed independent testing in the US.
The European Union
The European Chips Act entered into force on 21 September 2023. The Commission's stated goal is to double the EU's share of global production of cutting-edge semiconductors to 20% by 2030. It expects more than €43 billion in public investment and, with private funds, over €100 billion of policy-driven investment through 2030. The Act has three pillars: a Chips for Europe research initiative, security of supply, and monitoring and crisis response.
On 3 June 2026, the Commission published a proposal for a Chips Act 2.0. The Commission says the EU still depends on third countries for advanced manufacturing and chip design, and that the proposal aims to build cutting-edge capacity and reduce strategic dependencies. As of October 2026 it is a proposal, not law.
Japan and South Korea
The BCG and SIA 2024 briefing lists about $17.5 billion in Japanese government grants and about $55 billion in South Korean tax incentives (the latter under the K-Chips Act) as their main programmes. Japan's most visible bet is Rapidus, which aims to make 2 nm chips. According to Argus Media in June 2026, the government invested a further ¥150 billion in the company, bringing total government equity to ¥250 billion, and plans subsidies of ¥631.5 billion in fiscal 2026-27. Rapidus targets mass production of 2 nm chips in fiscal 2027-28.
China's response
China has answered on two fronts: money and materials.
- State investment. The third phase of China's national chip fund, known as Big Fund III, was registered on 24 May 2024 with 344 billion yuan (about $47.5 billion) in capital, larger than the first two phases, according to Yicai.
- Critical materials. From 1 August 2023, China required export licences for gallium, germanium and related compounds, metals with uses in electronics. A European Commission study cited by Covington's Global Policy Watch put China's share of global supply at 94% for gallium and 83% for germanium. In December 2024 China banned exports of these metals and antimony to the US; in November 2025 it suspended that ban until 27 November 2026, while keeping licensing in place.
For more on how mineral supply has become a lever in trade disputes, see our explainer on critical minerals: lithium, cobalt and rare earths.
India Semiconductor Mission: the facts as of 2026
The Union Cabinet approved the India Semiconductor Mission (ISM) in December 2021 with an incentive framework of ₹76,000 crore, offering fiscal support of up to 50% for silicon fabs, display fabs, compound semiconductor and packaging units, plus a Design Linked Incentive (DLI) scheme for chip design.
Approved projects
PIB's February 2026 backgrounder lists 10 projects approved as of December 2025. Two more were approved on 5 May 2026: a GaN-based Mini/Micro-LED display and compound semiconductor facility by Crystal Matrix Limited in Dholera and an OSAT (packaging) unit by Suchi Semicon in Surat, together worth about ₹3,936 crore. That took the total to 12 projects with cumulative investment of about ₹1.64 lakh crore.
| Company | State | Type | Investment (₹ crore) |
|---|---|---|---|
| Tata Electronics (with PSMC, Taiwan) | Gujarat | Silicon fab, about 50,000 wafer starts a month | 91,526 |
| Tata Electronics | Assam | Packaging | 27,120 |
| Micron Technology | Gujarat | DRAM and NAND assembly and test | 22,516 |
| CG Power (with Renesas and STARS) | Gujarat | Packaging | 7,584 |
| Vama Sundari Investments | Uttar Pradesh | Packaging | 3,706 |
| Kaynes Technology | Gujarat | Packaging | 3,307 |
| SiCSem | Odisha | Silicon carbide fab and packaging | 2,066 |
| 3D Glass Solutions | Odisha | Glass substrates and advanced packaging | 1,943 |
| Advanced System in Package Technologies | Andhra Pradesh | Packaging | 480 |
| Continental Device India | Punjab | Discrete power devices | 117 |
| Crystal Matrix | Gujarat | GaN Micro-LED display fab and packaging | 3,936 combined |
| Suchi Semicon | Gujarat | OSAT for discrete chips |
Figures are from PIB releases of February and May 2026. Capacities are the government's stated targets, not current output.
Status and the next phase
On 15 July 2026 the Cabinet approved Semicon 2.0 with an outlay of ₹1,27,500 crore, built on six pillars: design, machines and materials, more fabs, packaging, research and talent. The same release states that, of the 12 approved proposals, Micron, Kaynes and CG Semi had started commercial production, one more was expected to start in 2026, and the first fab was scheduled to be commissioned in 2028. A PIB release of 13 August 2026 repeats that three facilities had begun commercial production and reports that 211 chips had been taped out by 75 institutions by April 2026.
On design, the July 2026 release says 24 design projects from start-ups and MSMEs had been approved for DLI support, and 105 start-ups and MSMEs had access to industry-standard EDA tools. The Semicon 2.0 release also notes that India's journey started at the 28 to 110 nm range of process nodes, while PIB's February backgrounder cites industry estimates of a domestic chip market of $100 to 110 billion by 2030.
Analysis: what remains uncertain
The facts above describe policies and announcements. The points below are interpretation, and reasonable analysts disagree on them.
- Diversification is real but slow. The BCG and SIA projections show Taiwan's share of advanced logic falling and the US share rising by 2032, but those are forecasts based on announced projects. Fabs take years to build and can be delayed or cancelled.
- Controls and sales pull in different directions. The US tightened controls on equipment and memory in 2024, then eased licensing for some AI chips in January 2026. How this balance between security and commercial interest settles is not yet clear.
- Retaliation through materials. China's gallium and germanium measures show that the supply chain has chokepoints on both sides. Whether the current suspension of the US ban is extended after November 2026 is uncertain.
- India's position. Most approved Indian projects are in packaging and testing, where India can enter faster. The single silicon fab is the test of whether India moves up the chain. Its 2028 timeline, and the success of Semicon 2.0's equipment and materials pillar, will be the indicators to watch.
Chips are only one part of the technology competition. For the regulatory side, see our guide to new digital privacy acts.
The bottom line
Chips became geopolitics because the supply chain is both global and concentrated: design and software in the US, EUV machines from one Dutch company, advanced logic in Taiwan, memory in Korea, and mature chips and packaging in China. Governments are now paying to spread that risk and, in the US case, using export controls to slow a rival. India has moved from policy to its first production lines, mainly in packaging, with a fab due in 2028 and a larger Semicon 2.0 budget approved in 2026. The figures change quickly, so check the linked official sources for the current position.
Frequently asked questions
Why can't countries simply build their own chip factories?
They can, but it is slow and costly, and a fab still needs imported equipment, materials and design tools. BCG and SIA estimate that global integration has cut chip prices by 25 to 40% compared with fully self-sufficient regional chains.
What is EUV lithography and why does it matter?
It is the machine that prints the finest circuit patterns on the most advanced chips. ASML states it is the world's only maker of EUV systems, which makes access to these machines a central issue in export controls.
Does India make chips yet?
As of July 2026, PIB reported that three companies (Micron, Kaynes and CG Semi) had started commercial production, mostly in assembly, testing and packaging. India's first silicon fab, by Tata Electronics in Gujarat, is scheduled for 2028.
What is the difference between ISM and Semicon 2.0?
ISM (Semicon 1.0) was approved in 2021 with a ₹76,000 crore incentive framework. Semicon 2.0, approved in July 2026 with ₹1,27,500 crore, extends support to equipment, materials, research and talent as well as more fabs and packaging units.
Sources
- Emerging Resilience in the Semiconductor Supply Chain: Briefing deck, Boston Consulting Group and Semiconductor Industry Association, 2024.
- Strengthening the Global Semiconductor Supply Chain in an Uncertain Era, Semiconductor Industry Association and BCG, 2021.
- Global Annual Semiconductor Sales Increase 25.6% to $791.7 Billion in 2025, Semiconductor Industry Association, 2026.
- 2026 State of the Industry Report: Historic Growth Amid Intensifying Global Competition, Semiconductor Industry Association, 2026.
- CHIPS for America, National Institute of Standards and Technology, accessed 2026.
- Next phase for over $5 billion in CHIPS R&D investments, National Institute of Standards and Technology, 2024.
- Intel will give the U.S. government a 10% stake, Trump says, Michigan Public (NPR), 2025.
- US Department of Commerce strengthens export controls on advanced computing and semiconductor manufacturing items, Covington & Burling, 2024.
- Department of Commerce Revises License Review Policy for Semiconductors Exported to China, Bureau of Industry and Security, 2026.
- ASML 2025 Annual Report, ASML Holding NV (via SEC), 2026.
- ASML rejects EUV allegation: no lithography system or special components delivered to China, Igor's Lab, 2026.
- Chips Act, European Commission, accessed 2026.
- Proposal for the Chips Act 2.0, European Commission, 2026.
- Japan adds funding for Rapidus semiconductor project, Argus Media, 2026.
- China sets up largest of three chip-focused Big Funds with USD47.5 billion, Yicai Global, 2024.
- China slaps export restrictions on two critical metals, Global Policy Watch (Covington), 2023.
- China suspends ban on gallium and germanium exports to the US, Evertiq, 2025.
- India Semiconductor Mission 2.0: A Major Push in Budget 2026 towards Semiconductor Self-Reliance, Press Information Bureau, 2026.
- Cabinet approves two more semiconductor manufacturing units with cumulative investment of more than Rs. 3,900 crore, Press Information Bureau, 2026.
- Cabinet approves Semicon 2.0, Press Information Bureau, 2026.
- Powering the Future From Chips to AI: Building India's Technology Leadership, Press Information Bureau, 2026.
