The Semi-Conductor War:
The U.S. and China are locked in a battle, but this isn’t a conventional war. There are no soldiers, no battlefields—this war is over semiconductors, the tiny silicon chips that power our modern world. Recently, China targeted an American company, 美光科技 , a major player in memory chips, claiming its products pose a national security threat. This marks a significant escalation in what’s being dubbed the "Chip War."
But why are the U.S. and China clashing over these silicon fragments? And where does India fit into this equation? ?
In the 20th century, oil was the critical resource, with wars fought over control of it. In the 21st century, chips are the new oil. These semiconductors are embedded in nearly every device we use—from the phone in your hand to cars, computers, TVs, and even household appliances like microwaves and dishwashers. Anything with an on/off switch likely contains a chip, making the semiconductor industry a $500 billion enterprise, projected to reach trillions by 2030.
The origins of the semiconductor industry trace back to the United States in the 1950s, where the first chip—a silicon wafer with four transistors—was invented. Transistors are tiny electrical switches that control the flow of current, and their number on a chip has multiplied exponentially over the years. Today, a single chip can contain billions of transistors.
The chip industry’s complexity lies in its global supply chain, which consists of three key stages:
Initially, the U.S. handled all three stages, but by the late 20th century, manufacturing had shifted to East Asia, with Taiwan now controlling over 65% of the market and South Korea holding another 15%. Assembly is dominated by China, which packages and finalizes these chips into products. Meanwhile, Europe plays a vital role in supplying the necessary machinery, particularly from the Netherlands.
No single facility can produce chips independently, making the industry highly interconnected and vulnerable. The COVID-19 pandemic highlighted this fragility when a virus outbreak in Taiwan disrupted chip production, leading to a global shortage of electronics and vehicles.
Today, controlling the chip industry equates to holding immense power. The more transistors a chip has, the more powerful it is, leading to faster phones, smarter devices, and overall technological superiority. However, not all chips are created equal—advanced chips with greater computing power are what countries are racing to develop, as they often correlate with military might. For instance, British computers cracked enemy codes during World War II, and U.S. supercomputers played a crucial role during the Cold War.
Currently, the U.S. leads in chip design and is determined to maintain its edge. To this end, the CHIPS and Science Act was passed, allocating $280 billion to boost domestic chip production while limiting the sale of advanced chips to China. This move is intended to stifle China’s progress in the semiconductor race by cutting off access to both technology and talent.?
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China, whose chip industry is still relatively young, sees this as a significant challenge. To catch up with the U.S., China needs access to both advanced technology and skilled talent, which the new American laws are designed to block. In response, China has retaliated by banning products from 美光科技 , marking a new phase in the Chip War.
Amidst this geopolitical struggle, India sees an opportunity. Although India lacks native semiconductor firms, it aims to position itself as an alternative to China by attracting foreign investment. The Indian government has introduced a $10 billion incentive plan to boost semiconductor manufacturing, covering up to 50% of project costs. Already, this strategy is showing results, with India’s first semiconductor plant being built in Gujarat by Taiwan's 富士康 and India's Vedanta Group . Additionally, the ISMC Digital consortium is setting up a $3 billion fabrication plant in Karnataka, with Israel’s Tower Semiconductor as the technology partner.
The U.S. is also eager to collaborate with India, particularly in emerging technologies like supercomputing and semiconductors. While India is currently focused on manufacturing, it has the potential to become a chip design hub. The country is home to 20% of the world’s semiconductor design engineers, a talent pool that India is keen to capitalize on. To support this, the Indian government is launching a Chip Design Center to foster a robust semiconductor design ecosystem.
India’s plan seems to be on the right track, leveraging its strengths to reduce reliance on China and positioning itself as a viable alternative in both manufacturing and design. In a world where chips are the new oil, controlling them is key to global influence, and India is determined to secure its place in this crucial industry.
Recently, Zoho , a (SAAS) company based in Chennai, announced plans to launch a commercial semiconductor manufacturing unit in Tamil Nadu.
Let’s look at how semiconductor chips are made. First, we have to settle on a design, we need skilled engineers, extensive R&D and access to intellectual property. We can’t mass produce these chips unless we have access to a Fabrication unit (Fab).
Plain silicon, not very different from common sand, is transformed through precise techniques of photolithography, etching, deposition, and doping, to create chip. Chip manufacturing is expensive. Setting up a fabrication unit can cost you anywhere between $10 billion?—?$20 billion. Semiconductor manufacturing processes are highly intricate. We need machines manufactured by a select few companies. We need advanced quality control processes. We need clean rooms?—?highly controlled environments with extremely low levels of environmental pollutants. We need ultra-pure water, chemicals and gases. And we need highly skilled engineers.
If the state can bear some of these costs or incentivize private players to set up a fab, we could realize this dream sooner than later. In March 2024, India took a significant stride towards its semiconductor manufacturing goal. It laid the foundation for three semiconductor plants: a chip fabrication plant in Dholera, Gujarat, and two ATMP facilities in Sanand, Gujarat, and Morigaon, Assam. The first chip from the Dholera facility will roll off the factory line by December 2026, marking a milestone in India’s manufacturing history.
India will likely spend upwards of $10 billion dollars on the fab alone. And it will be a joint venture between Tata Electronics and PSMC. PSMC or the Power chip Semiconductor Manufacturing Corporation is a Taiwanese semiconductor company, primarily known for its expertise in manufacturing memory chips and they will likely provide the know-how when it comes to setting up and operating a fab that is expected to churn out 28 nm chips.