Semiconductors are now a necessary component of contemporary society. Making semiconductors is a very intricate, high-stakes business, and it has traditionally been a war of corporate titans. Now, governments are competing with one another. These vital technological components, usually referred to as integrated circuits or, more generally, just chips, could be the smallest yet most exacting items ever created. Additionally, because they are so expensive and difficult to make, there is a global reliance on a small number of businesses, a dependence that was made abundantly clear by shortages during the pandemic. With the US tightening restrictions on exports to China in order to quell the rise of a rival economic power, chips have also turned into a geopolitical weapon.
Rewinding back, when the Covid-19 epidemic hit in December 2021, the IT industry encountered an unexpected difficulty: a severe shortage of semiconductor chips. Taiwan is the world's top producer of semiconductor chips, and the pandemic-related lockdowns prolonged chip delivery times. Everything was affected, including the production of cars and cell phones. As the US has prohibited the supply of cutting-edge chip-making software to China, they are at the center of the continuing trade conflict between Washington and Beijing. In the meantime, India announced a $10 billion incentive program to increase chip manufacturing in the nation as part of an ambitious effort to position itself as a rival to China. India becoming a center for producing semiconductors is still a work in progress, according to Indian Prime Minister Narendra Modi. India has made two unsuccessful attempts to construct semiconductor facilities over the previous 20 years. If the nation doesn't realize its potential, the opportunity may pass in 2023 as well.
Chip the New Oil
Practically, almost all modern equipment, from a phone to sophisticated defense systems, not to mention machines with advanced artificial intelligence, depends on semiconductors or chips. But just a small number of nations manufacture chips, one of the most cutting-edge technologies in existence, and some of those only focus on particular facets of it. The Covid-19 pandemic revealed how reliant the US was on Asian supply networks. At the same time as the trade and political conflict between Washington and Beijing and the escalating military tensions in the Taiwan Strait, four of the top chip manufacturers in the world are Taiwanese. The CHIPS and Science Act, enacted by the federal government, has made significant investments in the semiconductor industry in addition to those made by private companies.
Every aspect of life is going digital, and everything that is digital is powered by semiconductors. Therefore, this is essential to every area of human life. For the previous 50 years, geopolitics have been determined by the location of oil reserves; for the following 50 years, geopolitics will be determined by the locations of semiconductor supply chains. It's that crucial.
The key difference is that oil production is substantially more dispersed than chip manufacturing. In 2021, output in the world's top three oil-producing nations, Saudi Arabia, Russia, and the United States, accounted for 15, 13, and 12 percent of the total, respectively. While the US produced only 12 percent of the world's chips in 2021, Taiwan produces 20–25 percent of them annually. Taiwan boasts 92 percent of the world's production capacity for cutting-edge semiconductors, which is 10 nanometers and smaller.
China is anticipated to become a major role in the chip manufacturing industry in the meantime. According to the Semiconductor Industry Association, the nation expects to add nearly 40 percent of the world's new capacity by 2030 and will have 24 percent of the world's overall capacity by that time. There are worries that China's perspective leadership position could endanger the national security and economic growth of other nations, particularly the United States.
How is India Using the China and US Chip War for its Advantage?
India, the fifth-largest economy in the world, has recently paid more attention to its semiconductor industry and announced a number of strategies and partnerships to strengthen its domestic chip business. Despite the absence of domestic semiconductor companies, Prime Minister Narendra Modi's administration has made luring global behemoths a key component of its plan. Experts say that this has intensified the nation's economic competition with China, which has been engaged in an ongoing trade war with the US.
India has been attempting to form strategic partnerships related to semiconductors, along with other nations like the US, and moving towards bringing chip production to the nation. For reference, India lacks chip-producing fabs or semiconductor manufacturing facilities. As a result, the government launched a $10 billion government incentive program that can pay up to 50 percent of project expenses in an effort to entice global chipmakers.
Chip Ventures Entered India so Far
The $ 19.5 billion chip-making complex is being built in the western state of Gujarat by a partnership between Indian mining corporation Vedanta and Foxconn, the Taiwanese business that assembles Apple's iPhones. The joint venture submitted an application for incentives from the Indian government to build a semiconductor fab in Dholera, Gujarat, which is a factory that creates integrated circuits from unprocessed silicon wafers.
Anil Agarwal, the chairman of Vedanta, disclosed that the goal is to produce 40,000 wafers each month in about two and a half years. Separately, a group of investors known as ISMC Digital intends to erect a $3 billion fabrication facility in the southern state of Karnataka. The project's technological partner would be the Israeli business Tower Semiconductor.
Apparently, the Tata Group has announced plans to start making semiconductor chips in India very soon. Natarajan Chandrasekaran, the chairman of Tata Sons, reportedly stated in December of last year that the company is in discussions with other companies and intends to develop a semiconductor assembly testing business. The aforementioned factories would essentially be some of the first semiconductor production facilities in India.
The nations' governments are under the project of increasing cooperation in high-tech areas like semiconductors, advanced weapons, and supercomputing. It was the first conversation between President Biden and Prime Minister Narendra Modi of India about important and developing technology. The Biden administration's goals are crystal clear: to fortify ties with Asian partners and counter China's hegemony in cutting-edge industries. In order to increase competitiveness with China, the US is also exploring working with India on some manufacturing employment, according to reports.