Strategic Silicon: How Semiconductors are the New Oil in Global Geopolitics?

Introduction

Semiconductors are more than just technological components; they are the foundation of the digital age and a core element in global geopolitical strategies. These tiny chips power nearly every aspect of modern life—smartphones, automobiles, consumer electronics, cloud computing, advanced defense systems, artificial intelligence (AI), 5G networks, and beyond. Their growing importance has led to what many call a "chip war," where nations compete for dominance in this sector to secure their technological future.

In this global semiconductor race, India and China have emerged as critical players with differing strategies. China has adopted a state-driven approach, focusing on achieving self-reliance and dominance in chip manufacturing, while India is positioning itself as a reliable alternative in the global supply chain, backed by strategic partnerships with global technology leaders. Several parameters—technological, economic, geopolitical, security, environmental, and supply chain resilience—are involved in shaping this complex and high-stakes competition.

This article explores the role of semiconductors in modern geopolitics, focusing on India and China, and discusses the various parameters that influence their strategic importance.

1. The Technological Parameter: The Core of Global Innovation

Semiconductors are at the heart of technological innovation. The rapid advancements in AI, machine learning, quantum computing, and 5G networks are heavily dependent on semiconductor technology. Whoever controls access to cutting-edge semiconductor technology controls the future of these critical fields.

• Advanced Chip Manufacturing: Leading-edge chips, such as 5nm and 3nm nodes, are vital for advanced computing and AI applications. Taiwan and South Korea dominate this space, but China and India aim to catch up.
• R&D and Design Capabilities: While China is building a manufacturing base, India has traditionally excelled in semiconductor design and embedded software. Companies like Intel, Qualcomm, and Texas Instruments have significant R&D operations in India.
• AI and IoT: The demand for specialized chips for AI and IoT devices is creating new opportunities for both India and China to innovate.

2. The Economic Parameter: The Global Semiconductor Market

The semiconductor industry is a multi-trillion-dollar market with significant economic implications. For China and India, investing in this sector is not just about technology but also about boosting economic growth and creating jobs.

• China’s Heavy Investments: China has invested over $100 billion in its semiconductor sector over the last decade, aiming to reduce its dependence on foreign technology.
• India’s PLI Scheme: The Indian government’s Production-Linked Incentive (PLI) scheme offers financial incentives to semiconductor companies to establish manufacturing units in India. This initiative is expected to create thousands of high-skilled jobs and reduce India’s import dependence.
• Supply Chain Diversification: The global semiconductor shortage has highlighted the need for supply chain diversification. Both India and China are vying to become key hubs in this restructured supply chain.

3. The Geopolitical Parameter: Power and Influence

Semiconductors have become a geopolitical tool, with nations using them to exert influence and secure strategic advantages. The U.S.-China tech war and the Quad alliance’s focus on technology partnerships have added a new dimension to this race.

• U.S.-China Tech War: The U.S. has imposed export controls on advanced semiconductor technologies to China, significantly affecting Chinese companies like Huawei and SMIC. This has created opportunities for India to attract investments from global semiconductor giants.
• Quad’s Role: India’s participation in the Quad (with the U.S., Japan, and Australia) positions it as a key partner in strengthening supply chain resilience and reducing dependence on China.
• Taiwan’s Strategic Importance: Taiwan’s dominance in semiconductor manufacturing makes it a focal point of geopolitical tensions, especially with China’s territorial claims over the island.

4. The Security Parameter: National Security and Defense

Semiconductors are not just economic assets; they are crucial for national security. Modern defense systems—such as drones, guided missiles, radar systems, and cybersecurity infrastructure—rely heavily on advanced chips.

• Military Applications: The next generation of warfare will be driven by AI, autonomous systems, and cyber capabilities, all of which depend on semiconductors.
• Cybersecurity Risks: Semiconductor supply chain vulnerabilities can pose serious cybersecurity risks. A single compromised chip can lead to catastrophic consequences in critical systems.
• India’s Defense Modernization: India is focusing on indigenizing its defense production and incorporating advanced semiconductor-based systems in its military hardware. Partnerships with Israel and the U.S. are helping India in this domain.

5. The Environmental and Resource Parameter

Semiconductor manufacturing is resource-intensive, requiring large amounts of water, electricity, and rare earth materials. This creates additional challenges for countries aiming to establish a strong semiconductor industry.

• Water Usage: Semiconductor fabs require millions of gallons of ultrapure water daily. This poses a challenge for water-scarce regions like parts of India and China.
• Rare Earth Dependence: China dominates the global supply of rare earth elements, which are crucial for semiconductor manufacturing. India is exploring ways to reduce its dependence by developing its rare earth reserves.
• Sustainability: As the world moves toward greener technologies, the semiconductor industry must also adopt sustainable practices. India has an opportunity to build a more environmentally friendly semiconductor ecosystem from the ground up.

6. The Supply Chain Parameter: Resilience and Diversification

The COVID-19 pandemic and U.S.-China tensions have exposed vulnerabilities in the global semiconductor supply chain. Countries are now focusing on building resilient and diversified supply chains.

• China’s Vertical Integration Strategy: China is focusing on building a fully integrated supply chain within its borders to reduce reliance on foreign suppliers.
• India’s Role in Diversification: India is positioning itself as a trusted partner in the global supply chain. The government’s efforts to attract investments from companies looking to diversify away from China are beginning to show results.
• Collaboration with Taiwan: India is exploring partnerships with Taiwan to establish semiconductor manufacturing capabilities. Such collaborations could be a game-changer for India’s semiconductor ambitions.

7. The Talent and Human Capital Parameter

The semiconductor industry is highly specialized and requires a skilled workforce. Building a robust semiconductor ecosystem involves investing in education, research, and training.

• India’s Engineering Talent: India’s large pool of engineering graduates is an asset. However, the country needs to focus on developing specialized programs in semiconductor design and manufacturing.
• China’s Talent Challenges: Despite its investments, China faces a talent shortage in the semiconductor sector. The U.S. restrictions on Chinese students in semiconductor-related fields have further worsened the situation.
• Global Talent War: As demand for semiconductor professionals rises globally, India and China are competing for the same talent pool.

Conclusion

Semiconductors are no longer just a technological component; they are a symbol of national power and a critical determinant of geopolitical influence. The global race for semiconductor supremacy is reshaping the world order, with India and China at the center of this contest.

China’s approach is driven by massive state investments and a focus on self-reliance, while India’s strategy revolves around building strategic partnerships, leveraging its talent pool, and attracting global investments. Several parameters—technological, economic, geopolitical, security, environmental, supply chain resilience, and talent—will determine the future trajectory of these two nations in the semiconductor race.

As the world moves toward a more interconnected and technology-driven future, the role of semiconductors in shaping global geopolitics will only grow. How India and China navigate the complexities of this industry will have a profound impact not just on their own economic and strategic futures but also on the balance of global power in the coming decades.