Semiconductors are vital to the digital economy, powering smart devices and new technologies. The increasing adoption of artificial intelligence (AI) across industries is driving the demand for semiconductors because they are needed to maintain superiority in advanced technologies for defence, telecommunications, aerospace and data centres. Their strategic importance has triggered intense rivalry, especially between the United States of America and China. In fact, the raging semiconductor geopolitical rivalry between the US and China is creating realignments across the globe.
The U.S. leads in semiconductor design and manufacturing, while China has emerged as the largest consumer and is investing in its own industry to achieve self-reliance. This rivalry affects military capabilities, cybersecurity, and global supply chains. The semiconductor industry has become a geopolitical asset due to its impact on national security and economic competitiveness. Governments now view semiconductor production as essential national infrastructure, intensifying global competition in this sector. Any country that can control semiconductor supply is definitely going to win the AI race.
Even though China has the largest reserves of rare earth minerals for semiconductors, it lacks the equipment and technology to produce the most advanced semiconductors. The more advanced the semiconductor, the more compact and more efficient in terms of processing speed and energy consumption. At present, the most advanced chip or semiconductor is based on 2nm technology. Taiwan, through Taiwan Semiconductor Manufacturing Company, is the major producer of these advanced chips globally while the US leads in advanced semiconductor design and research. The US and its allies have restricted Chinese access to the advanced equipment and high-end technologies required for directly producing 5mn and 2mn chips.
What the US is doing
The U.S. enacted the CHIPS and Science Act of 2022, allocating billions of dollars to revive domestic manufacturing and innovation. Also, it has been forming alliances to prevent China from being able to produce the most advanced semiconductors, thereby enhancing their collective technological leadership. In addition, the export of advanced chips or machines to China has been restricted to prevent it from winning the AI race.
The Fab 4 alliance, spearheaded by the US in 2022, comprises the US, South Korea, Taiwan and Japan. The alliance controls the semiconductor market, including advanced chip manufacturing. A relatively new alliance, Pax Silica, launched in December 2025, is even more robust and comprehensive. Pax Silica has attracted many partners covering compute, semiconductors, advanced manufacturing, energy, and critical minerals. The number of countries joining this initiative continues to rise. It is meant to strengthen the supply chain covering critical minerals, advanced manufacturing, semiconductors, AI and technology infrastructure. Ultimately, this initiative will reduce the dependence on China for AI infrastructure and secure the global semiconductor supply chain.
China’s response
China is investing heavily in innovation and capacity to become less reliant on foreign companies for advanced chips. Presently, China has the technology to produce only 7nm chips efficiently. It does not have access to the most advanced Extreme Ultraviolet (EUV) lithography machines needed for more advanced chips. Only ASML from the Netherlands can produce these advanced machines. China, however, has been able to devise means of bypassing the machines to produce more advanced chips such as the 5nm chips.
Huawei Investment & Holding Co., Ltd, is leading the charge to make China win the AI race by producing the most advanced semiconductors. It has devised the LogicFolding technology that could improve the performance and efficiency of its chips. Chips are folded and stacked vertically to reduce data transmission speed. The chips then become faster and more efficient. Instead of focusing on reducing the size, LogicFolding technology increases density. Huawei has been able to produce chips that can offer performance and efficiency similar to that of the most advanced chips. The company has produced chips based on this technology over the past few years. And by 2031, it will be able to produce the most advanced chips- chips with a density that offers performance equivalent to a 1.4nm process. The chips will be the most advanced in terms of performance.
