The global supply chain system has reached a decisive turning point, with semiconductor manufacturing capacity at the center of geopolitical and economic strategy. Once viewed simply as back-end infrastructure, chip foundries are now recognized as critical assets for national security, industrial resilience, and technological supremacy.

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Semiconductors power everything from defense systems and telecommunications to artificial intelligence and advanced mobility. Any disruption in chip supply not only hampers strategic industries but also exposes entire economies to systemic risk. To counter these vulnerabilities, governments are intensifying efforts to localize, reshore, or diversify production, reducing dependence on foreign fabs.

This recalibration is being driven by export restrictions, sanctions, and massive state incentives, shifting the focus from chip design dominance to manufacturing sovereignty. Today, the contest to secure advanced foundry capacity is shaping trade relations, industrial policies, and global investment flows.

Foundries as Strategic Infrastructure: Power Through Capacity

The control of chip fabrication plants has become synonymous with global influence. The physical location, scale, and capabilities of foundries now determine access to secure computing, defense technologies, energy infrastructure, and surveillance systems. Governments increasingly view supply resilience as impossible without domestic control over fabrication assets.

The industry is highly concentrated. TSMC alone produces about 92% of the world’s sub-7nm logic chips, consolidating advanced manufacturing into a single region. Replicating this capability elsewhere requires extraordinary capital and expertise, often with timelines stretching over a decade.

Policy responses underscore this urgency:

• The U.S. CHIPS and Science Act earmarks $52.7 billion, including $39 billion for fab construction.

• The EU Chips Act mobilizes an estimated €43 billion in combined public and private investment.

Both aim to reduce reliance on Asia’s advanced fabs while reshaping global production geography.

Asia’s Dominance and the Risks of Concentration

Taiwan and South Korea dominate global chipmaking, with TSMC and Samsung at the forefront of advanced-node production. TSMC controls more than half of the global foundry market and nearly all sub-7nm manufacturing capacity.

This centralization presents systemic risk. A geopolitical crisis in the Taiwan Strait could instantly halt production of next-gen chips, crippling global technology supply chains. Establishing equivalent facilities outside East Asia is possible but extremely expensive—TSMC’s 3nm development costs roughly $20 billion, while its Arizona fab is projected at $40 billion, making advanced fabs among the most capital-intensive projects in modern industry.

Cost, Security, and State Intervention

Building advanced fabs requires unprecedented collaboration between states and private industry. Cleanroom facilities, EUV lithography machines, and precision engineering equipment demand vast financial and energy resources—an EUV machine alone consumes around 1 megawatt of power.

Because semiconductors underpin defense and surveillance systems, governments see direct national security stakes in foundry control. Nations are stepping in:

• Japan pledged $5.3 billion to Rapidus to accelerate 2nm capabilities.

• China launched its Big Fund Phase III in 2024, backed by $47 billion in state financing.

These moves demonstrate the reclassification of foundries as strategic defense infrastructure, not just industrial assets.

Shifting Value: From Design to Manufacturing

Traditionally, fabless firms like NVIDIA, Qualcomm, and AMD dominated the value chain through chip architecture and design IP. That hierarchy is changing. Manufacturing—yield rates, process innovation, and packaging efficiency—has become the key bottleneck and, therefore, the primary source of competitive advantage.

Foundries are no longer mere contractors; they are essential collaborators in advanced chip development. Control of production slots at sub-5nm nodes is now a strategic asset. Delays in AI chip supply, largely due to advanced packaging bottlenecks, have already pushed data center deployment timelines back by 6–12 months, underscoring the critical importance of manufacturing excellence.

Decoupling and Multi-Polar Foundry Ecosystems

The semiconductor industry is transitioning from global integration to regional segmentation. Countries are prioritizing self-reliant ecosystems that protect IP, ensure supply chain resilience, and reduce dependency on rivals.

• The U.S., EU, Japan, China, and India are each developing domestic semiconductor clusters spanning design, fabrication, and packaging.

• China’s heavy reliance—over $400 billion in annual semiconductor imports in 2022—has accelerated its pursuit of local capacity.

• Export restrictions have amplified this trend. The U.S. banned access to advanced technologies (16/14nm logic, 18nm DRAM, 128-layer NAND) in 2022, compelling nations to double down on indigenous R&D.

China’s Long Game

China’s semiconductor strategy is deeply embedded in its national goals. SMIC has advanced to improvised 7nm nodes using deep ultraviolet (DUV) equipment, circumventing bans on EUV tools. Huawei’s Kirin 9000S, manufactured on SMIC’s DUV-based process, reflects these technical workarounds.

Yet, limitations persist. Without access to ASML’s EUV machines, China lags two to three generations behind leading-edge players. The $47 billion Big Fund Phase III targets the closing of this gap by investing across lithography, materials, memory, and packaging technologies.

New Metrics of Competitiveness: Yield, Trust, and Stability

The criteria for competitive foundry leadership are shifting:

• Yield and reliability are now as critical as cost.

• Geopolitical trust influences procurement, as governments and large buyers prioritize stable supply chains aligned with their national interests.

• Environmental sustainability is a growing concern. TSMC’s Taiwan fabs consume about 156,000 tons of water daily, roughly 9% of the region’s supply, adding sustainability to location decisions.

Talent Bottlenecks and Knowledge Transfer

Advanced manufacturing capacity depends not just on money and machines but also on highly skilled engineers and scientists. Knowledge asymmetry—built over decades within established hubs like Taiwan and South Korea—is proving hard to replicate.

• The U.S. CHIPS Act includes funding for training programs to grow a semiconductor workforce.

• Japan and Europe are rolling out industry–academia partnerships to accelerate expertise in process engineering.

Despite these efforts, scaling advanced-node production outside established clusters remains a slow and fragile process.

Conclusion: Silicon Sovereignty as the New Oil

Control over semiconductor foundries is now synonymous with economic resilience, technological power, and military capability. The 2021 auto industry chip shortage, which cost an estimated $210 billion, exposed how essential silicon sovereignty has become.

Advanced foundries are no longer just production facilities—they are geopolitical levers, akin to oil rigs in past decades. The nations that secure control over cutting-edge chipmaking will shape the next era of global economic and technological dominance.