Over the last century, oil has been a precious resource that has triggered wars and diplomatic tensions. Now, however, semiconductors – tiny fragments of silicon – have taken center stage as the world’s two biggest economies, China and the US, vie for control. This USD 500 billion industry is expected to double by 2030, and whoever controls its supply chains will hold the key to global superpower status.

China is striving to produce these chips, with the US being one of its primary tech sources. However, the US has now cut off China’s access, creating an arms race in the Asia Pacific region. This is also being fought regarding the quality of Artificial Intelligence algorithms used in military systems.

Semiconductor manufacturing is a complex and highly specialized process integrated deeply into the global economy. The US invented the semiconductor, but East Asia has become the manufacturing hub, largely due to government incentives. As the industry develops, it becomes increasingly crucial to make the best and most efficient chips at scale, with the smaller, the better.

For the top chip manufacturers, the aim is to double the transistor density over time to create more powerful, valuable devices, such as supercomputers and AI. Most of the world’s chips are currently produced in Taiwan, providing the self-ruled island with a ‘silicon shield.’ Beijing has also prioritized chip production and is investing heavily in AI and supercomputers. It is nowhere near a global leader but is catching up quickly, especially in chip design capabilities.

The Biden administration is trying to choke off China’s access to chip-making technology, and last October, announced sweeping export controls. It has also banned US citizens and permanent residents from supporting the ‘development or production’ of chips at certain factories in China. This has hit China hard, as it imports both the hardware and the talent that drives its nascent chip-making industry.

To this end, the US is also working to create more chips, with the Chips and Science Act offering USD 53 billion in grants and subsidies to companies producing semiconductors in America. TSMC is investing in two USD 40 billion plants in the US, its only facilities outside Taiwan. Micron, the US’s largest manufacturer of memory chips, is also investing in producing more of these valuable components.

The battle for semiconductors has emerged as a central point of tension between China and the US. As these chips become increasingly valuable and integrated into every aspect of our lives, the winner of this battle will have the upper hand in an economy reshaped by the new digital age.