In an operation last year, the Singapore police busted a major GPU smuggling ring to China. Three men were charged with fraud for allegedly illegally re-exporting NVIDIA GPUs to the Chinese AI company DeepSeek, bypassing US trade restrictions.
The incident underscores the complex geopolitical tensions and economic interests reshaping the high-stakes AI landscape. Countries like China, along with traditional US adversaries like North Korea, Russia, and Iran, face a high barrier when it comes to importing advanced AI chips. According to a recent Bloomberg report, the US government is drafting a tiered, worldwide licensing system for exporting AI chips, based on compute scale.
Capital markets firm Jeffries has even said that “the chip is the new oil”. With AI chips primarily being produced in one country, Taiwan, its foremost ally, clearly has the upper hand. US investors now hold about $668 billion in Taiwan equities, roughly 23% of the Taiwan Stock Exchange’s market capitalisation.
With semiconductors becoming strategic assets, countries are reassessing their trade relationships, imposing tariffs, and investing heavily in domestic production to secure their supply chains.
Protectionism or Sovereignty?
Industry leaders say the shift reflects a broader move toward technological sovereignty rather than simple trade protection. Governments now see semiconductors as critical infrastructure for sustaining economic growth and national security across sectors ranging from AI to defence systems.
Ruchir Dixit, Vice President and Country Manager of Siemens EDA, tells AIM that governments are recognising the strategic importance of semiconductors as an asset, just as they did with copper, oil, lithium, graphite, and other rare-earth elements. The push for domestic capabilities, therefore, goes beyond just trade tensions. Countries want stronger control over supply chains that power modern economies.
“Equate this with oil. There are a few countries that produced it, and then people realised that oil is a strategic asset. So everybody started to explore in their own areas,” Dixit says.
The shift follows years of disruptions across global semiconductor supply chains. The pandemic exposed how industries relied heavily on a small number of manufacturing hubs. Geopolitical tensions between the United States and China further accelerated the need for domestic chip strategies.
Global Race and Infrastructure
Countries across Asia, Europe, and North America are now investing heavily in semiconductor infrastructure. The US introduced subsidy programmes to expand domestic chip manufacturing. Europe launched similar initiatives to strengthen regional production.
Asian economies also continue to expand their semiconductor capacity. Taiwan remains central to advanced chip manufacturing while South Korea maintains its leadership in memory chips. Emerging economies, meanwhile, seek to capture new segments of the semiconductor value chain.
Investors are also shifting attention beyond chip manufacturers. The Chosun Daily reported that in South Korea, foreign investors have increasingly moved capital into semiconductor materials, parts, and equipment companies, signalling growing interest in the mid-section of the supply chain rather than just fabrication.
Gilroy Mathew, Chief Operating Officer at digital transformation solutions company UST, says geopolitical tensions have forced governments and companies to rethink dependence on global supply chains. “Semiconductors are now becoming a factor in geopolitical danger,” he remarks. “That is why everybody is thinking if they can also have a semicon strategy of their own.”
He adds that the technology sector once prioritised globalisation, but the narrative has changed. “It used to be all about globalisation, but now, we are actually looking at it inwards again,” he says.
This inward shift has led many countries to pursue semiconductor investments that focus on resilience rather than efficiency. This includes research facilities, design tools, and startup support programmes—all to bolster the capabilities of semiconductor startups.
When Geopolitical Conflicts Hit
Semiconductor supply chains also remain vulnerable to geopolitical disruptions. Conflicts affecting mineral supply, energy markets, and logistics can ripple through chip manufacturing and data centre expansions.
At the India AI Impact Summit last month, India joined the US-led Pax Silica initiative to secure global supply chains for semiconductors, AI, and critical minerals.
The current tensions involving the US-Israel-Iran conflict have raised concerns around energy infrastructure and shipping routes that support semiconductor and AI supply chains. In such cases, domestic semiconductor ecosystems can help countries cushion supply shocks.
MS Hwang, Research Director at Counterpoint Research, says geopolitical disruptions often create logistics bottlenecks that cannot be solved quickly through supply chain adjustments. While energy costs account for only a small share of semiconductor manufacturing costs, they influence demand and pricing by driving inflation and raising the cost of capital.
“For instance, constructing and equipping a state-of-the-art memory fab in South Korea requires a minimum investment of $50 billion. Geopolitical uncertainty acts as a major bottleneck for such investment decisions. In response, customers are increasingly looking to secure supply and incentivise investment by providing down payments through long-term contracts or guaranteeing long-term pricing,” he illustrates.
He also notes that geopolitical uncertainty can slow investment in the AI ecosystem, and investors usually do not take geopolitical risks into account. “For example, if the procurement of memory—which has recently seen soaring prices—is hindered, suppliers will struggle to source equipment, ultimately making the realisation of sovereign AI extremely difficult,” he describes.
What is India’s Selling Point?
India’s semiconductor ambition now centres on moving from a design hub to a full supply-chain participant. For years, the country has built a reputation as a hub for semiconductor design, engineering talent, and research.
Many multinational companies established engineering centres across Indian cities to tap into the country’s talent pool and contribute to global chip design and verification projects.
Mathew says India’s advantage lies in the ecosystem built through global capability centres (GCCs). “Many of the global semiconductors set up their GCCs in India as R&D,” he notes.
Milind Pimprikar, Chairman of CANEUS International, a non-profit organisation that aids sectors like aeronautics, space, defence, maritime, and clean energy, says India already has strong early-stage research capabilities. “India is very good in this technology readiness level 1–3,” he notes. That stage focuses on laboratory development and proof-of-concept technologies.
However, he adds that converting research into commercial products remains a key challenge. That requires testing capabilities, qualification, and manufacturing infrastructure. Initiatives such as India’s Design Linked Incentive scheme aim to support early-stage chip startups, like InCore Semiconductors, Vervesemi, Netrasemi, FermionIC, and more.
Industry groups also organise mentorship networks that connect founders with investors and manufacturing partners. These programmes aim to create a stronger pipeline from chip design to manufacturing.
Dixit says developing that full pipeline remains essential for countries that want to compete in the semiconductor industry. Hardware startups must navigate regulatory frameworks, funding requirements, and manufacturing partnerships before bringing products to market. This is where mentorship networks also play an important role in connecting founders with investors and manufacturing partners.
Pimprikar argues that stronger commercialisation hubs could help bridge the gap between research and production. Such platforms would connect startups with investors, manufacturers, and customers. He also points to the growing global demand for engineers with expertise in emerging technologies. “If I could get today 500 engineers in AI satellites, I would hire them in Germany,” he observes.
Dixit says, “What some countries did in 30 years, some in 40, some in 50 years; we’re trying to do this in 10–15 years.” While India’s initial progress may be slow, once the basic technological advancement is achieved, it will only take a handful of years to compete with global powers, he adds.
Even as semiconductor supply chains fragment globally, India’s semiconductor advantage lies in talent, consistency, and a vast GCC presence.
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