Silicon Showdown: How U.S. Policy Redrew the Global Semiconductor Map

This week, the U.S. government unveiled its third set of export controls in as many years, intensifying its campaign to undercut China’s capacity to produce advanced semiconductors while bolstering its own position in the global tech race. These sweeping measures target 140 Chinese companies, restrict access to 24 categories of chip-manufacturing equipment, ban 3 critical software programs, and limit the sale of high-bandwidth memory used in customized AI chips. U.S. Commerce Secretary Gina Raimondo described the move as “the culmination of the Biden-Harris Administration’s targeted approach, in concert with our allies and partners, to impair the PRC’s ability to indigenize the production of advanced technologies that pose a risk to our national security.”

These restrictions represent the Biden Administration’s latest and perhaps most significant gambit in the broader strategic effort to curtail China’s access to advanced semiconductor technologies. Coupled with key initiatives like the CHIPS Act and the Foreign Direct Product Rule, these actions have not only disrupted China’s semiconductor ambitions but also recalibrated global supply chains, fostering new manufacturing hubs further from Beijing’s influence. With the latest announcement, it is an opportune moment to assess how these polices have reshaped the global semiconductor landscape—and U.S. strategic interests.

Lessons from the Front Lines of Tech Competition

During my tenure as Australia’s Ambassador for Cyber Affairs and Critical Technology, I witnessed the evolution of U.S. semiconductor policy firsthand. The shift was striking and, in my view, has had a more profound impact on global technology competition than any other recent policy initiative. Between 2017 and 2023, a growing consensus emerged among allied nations: supply chains for advanced technologies could no longer be left vulnerable to unchecked dependencies that posed both economic and security risks.

A vivid example of this shift was our collective effort to deploy subsea internet cables across the South Pacific, pre-empting Chinese efforts to install Huawei infrastructure. Allowing such infrastructure would have introduced not only security vulnerabilities but also potential for economic leverage. Yet, the true canary in the coal mine was the global rollout of 5G networks. The dominance of Chinese state-backed firms in supplying cost-effective, cutting-edge telecommunications equipment exposed a stark reality: Western nations and developing nations were overly reliant on China, with limited alternatives.

This challenge pushed us—and the United States in particular—to rally allies toward sourcing equipment from “trusted” providers without links to the Chinese state. The United States took a decisive leadership role through the Clean Network program, imposing trade restrictions to curb reliance on Chinese suppliers and urging partners to follow suit. However, what the 5G experience laid bare was a deeper issue: the absence of a viable U.S.-based alternative in key technology sectors. This hard lesson reverberated as policymakers shifted their focus toward semiconductors, recognizing the need to secure supply chains for these foundational components that underpin modern electronics.

U.S. Policy Goals: Containing China’s Technological Growth & Securing Leadership

Central to the U.S. strategy were the October 2022 export controls prohibiting Chinese firms from acquiring advanced semiconductor technologies and equipment, and the 2023 update which further tightened restrictions, closing loopholes previously exploited by Chinese companies. Specifically, the United States targeted the manufacturing equipment essential for producing cutting-edge chips at 5 nanometre (nm) and 3nm nodes, which are vital to many of the advanced technologies that increasingly shape our world.

China’s semiconductor ambitions have encountered significant setbacks due to these restrictions, particularly in its ability to produce cutting-edge chips. Despite Beijing’s aggressive investments—amounting to over $150 billion since 2014—to boost its domestic semiconductor industry, China remains heavily dependent on foreign technologies for key manufacturing processes. Data shows that China is only able to domestically produce 16 percent of its semiconductor needs, far short of its goal to produce 70 percent by 2025. China’s reliance on foreign manufacturing equipment has dented its ability to produce advanced chips, and U.S. export restrictions have hurt Chinese firms’ ability to compete for international contracts. Chinese memory chip manufacturer Yangtze Memory Technologies (YMTC), for example, laid off 10 percent of its workforce after U.S. export restrictions forced Apple to drop it as a supplier.

Global Supply Chain Reorientation: New Manufacturing Hubs & Shifting Dynamics

A direct impact of the U.S. policy decisions has been to set off a scramble among semiconductor companies to diversify their supply chains and among governments to navigate a more fragmented trade environment. Taiwan and South Korea remain critical players, but new manufacturing hubs are emerging as companies seek to reduce their reliance on China. The United States is also slowly reemerging as a semiconductor manufacturer since the passage of the CHIPS and Science Act, as its projected to grow its share of advanced manufacturing to 28 percent by 2032.

The behemoth of the chip manufacturing world, the Taiwan Semiconductor Manufacturing Company (TSMC), has responded to these incentives and controls by shifting some of its manufacturing capacity off Taiwan. Bolstered by CHIPS Act incentives, it is expanding facilities in Arizona whilst investing more than $20 billion in two fabrication plants in Japan. This strategy mitigates risks associated with a concentrated manufacturing base, giving TSMC greater resilience amid geopolitical tensions.

South Korea’s Samsung has looked to move its manufacturing base of chips away from China and has committed to investing $17 billion in a semiconductor fabrication plant in Texas. The facility will focus on manufacturing advanced logic chips used in AI, 5G, and automotive applications, and Samsung is also reinvesting in its manufacturing base in South Korea. It is also focusing its R&D efforts on cutting-edge chips, which are less likely to depend on Chinese suppliers. South Korea’s other major chip manufacturer, SK Hynix, hold 27 percent of the memory chip market, while Samsung controls over 43 percent of the global memory chip market.

As a critical supplier of semiconductor materials and equipment, Japan has also been a beneficiary of the U.S. policy approach. Japanese companies like Tokyo Electron and Shin-Etsu Chemical are major suppliers of semiconductor equipment; Japan, which already has a an approximately 30 percent share of the global market, has seen a rapid uptick in demand as global chipmakers seek to build new fabs outside of China. Japan has doubled-down on this approach, with Japanese Prime Minister Shigeru Ishiba announcing a $65 billion plan to bolster the country’s semiconductor and artificial intelligence industries.

India, the EU & Southeast Asia: Seizing Strategy Opportunities

Whilst India is a relative newcomer to the semiconductor market, it has spotted an opportunity to position itself as a manufacturing hub. In 2024 it committed $15 billion to build three chip plants, focused on producing 28nm chips, widely used in consumer electronics, defense and the automotive industries. India and the United States have also established a new agreement a large fabrication plant in India—part of Prime Minister Modi’s broader strategy to lure U.S. tech giants into India’s ecosystem.

India’s lofty ambitions will, however, experience significant challenges, ranging from lack of infrastructure, workforce limitations and its dependency on foreign technology. It will require Modi’s continual energetic engagement for this project to succeed and avoid India’s stifling bureaucracy and red tape.

Meanwhile, Southeast Asia is emerging as a key hub for semiconductor assembly and testing. Vietnam, Malaysia and Singapore, with their lower labor costs and strategic locations, are becoming attractive alternatives for companies seeking to mitigate risks associated with U.S.-China tensions. Yet the Indo-Pacific’s economic, social, and security disparities create practical hurdles in building a competitive semiconductor industry, and many countries in the region lack the established industrial ecosystems of Taiwan, South Korea, and Japan.

The European Union (EU) is also doubling down on semiconductor investment, with European companies like STMicroelectronics and Infineon Technologies ramping up capacity. Through its €43 billion EU Chips Act, the EU aims to double its share of global semiconductor production from 10 percent to 20 percent by 2030.

Potential Spanners in the Wheels of Indo-Pacific Progress

The decision to restrict semiconductor sales to China is not without significant geopolitical consequences, and Indo-Pacific nations are acutely aware of the risks. In a region where countries are wary of being ensnared in great-power rivalries, there are legitimate fears of Chinese retribution—often exacted in the form of economic punishment or state-sponsored cyber operations. This pattern has played out before, with Beijing imposing trade restrictions on South Korea and Japan, likely in response to U.S. constraints on technology exports.

Having served in government, I witnessed firsthand how Australia became subject to China’s economic pressure after we publicly challenged Beijing’s cyber activities, scrutinized its 5G technology, imposed national security measures, and tightened foreign investment rules. The economic restrictions China imposed on Australia in May 2020 underscored the resilience needed to maintain a firm stance in the face of escalating pressure. Indo-Pacific partners will need similar resolve, bolstered by a doubling down of U.S. support—both diplomatic and financial—to counter the coercion they may increasingly face.

These challenges, however, are not insurmountable. Sustained, hands-on engagement from the United States and its allies will be essential to maintain momentum and support the region’s ambitions in the face of mounting geopolitical pressures.

Fragmentation of the Global Semiconductor Ecosystem

While industrial policies typically take decades to yield results, in just three years, the U.S. strategy has achieved remarkable results. It has dramatically reshaped the semiconductor landscape, resulting in a far more fragmented ecosystem than what existed before 2022.

Despite Beijing’s substantial investments, China is likely to remain five to ten years behind in cutting-edge chip manufacturing. This considerable technological head start offers the is a rare opportunity to outpace China in key sectors reliant on advanced semiconductors, such as AI, quantum computing, and defense technologies. However, complacency could squander this precarious advantage, and previous failures, like the rollout of 5G, underscore the importance of sustained vigilance and action.

Although the U.S. strategy has succeeded in slowing China’s technological progress, it could inadvertently accelerate Beijing’s innovation efforts. Historically, constraints have spurred breakthroughs, and China may yet succeed in creating indigenous solutions. The ultimate measure of success for U.S. policy will not merely be maintaining the current lead but extending it—through continued investment, innovation, and collaboration with allies.

Dr. Tobias Feakin is Australia's former inaugural Ambassador for Cyber Affairs & Critical Technology. He is the founder of Protostar Strategy and a Senior Associate Fellow at the Royal United Services Institute (RUSI).