Though the US and European corporations used to dominate worldwide electronics, it may be tough to picture today. The West dominated in new technology and generated the most sophisticated chips worldwide for much of the 20th century. But things had evolved by the 1990s.

Japanese companies had jumped ahead, producing chips cheaper and more powerful than those produced abroad. Fast forward to now, and almost all the world’s chip manufacturing occurs in Asia; the US and Europe both account for less than 10% of the worldwide supply.

Almost all the world’s chip manufacture occurs in Asia; the US and Europe both account for less than 10% of the worldwide supply.

There are benefits and drawbacks, nevertheless, associated with Asia’s digital hegemony. While massive economies of scale have helped to lower prices, governments outside the area are becoming more concerned about industry concentration in this age of decoupling and de-risking. Global leaders are not blind to the hazards of having most of the world’s innovative chips produced in Taiwan, an economy seen as a renegade province by China.

Only heightened these worries are pandemic-era chip shortages and China’s significant increase in domestic semiconductor output. China has been making gains at the cheap end of the market and has for years pushed to enter the chips business.

Driven by geopolitical conflict and supply constraints, governments are increasing semiconductor manufacturing and providing subsidies to encourage top chipmakers to build plants within their borders. Complementing loans, guarantees, and tax credits, the US CHIPS and Science Act pledges $39 billion in grants for chipmakers.

The US CHIPS and Science Act pledges $39 billion in grants for chipmakers.

The European Union has its multibillion-dollar project across the water to increase industrial capability. Rising economies like Saudi Arabia and India also want to break through.

Moving semiconductor supply chains is no mean achievement. Decades of centralizing have solidified Asia’s indisputable center for semiconductor manufacture. For high-end semiconductors, which are crucial for artificial intelligence uses, Taiwan’s TSMC and South Korea’s Samsung Electronics dominate the market. Leading the market for legacy chips, less modern but very efficient semiconductors used in everything from blenders to autos, are manufacturers in Southeast Asia.

Few nations can gather the means and drive to compete in a time when new high-end chip facilities often cost north of $10 billion. Should any nation recover any market share, it is the United States. America still has major manufacturing capability and chipmaking knowledge.

Taiwan’s TSMC and South Korea’s Samsung Electronics dominate the market for high-end semiconductors.

It has also been particularly successful in drawing in innovative chipmakers. For instance, TSMC is developing a plant in Arizona hoping to generate next-generation semiconductors in a few years. Most crucially, Washington has been the least shy about devoting the funds needed to bring about it.

Still, even the United States cannot entirely do it by itself. New chipmaking facilities will require imported Asian goods, Japanese and European gear, or both. At least for the foreseeable future, US-made chips will also continue to be imported into Asia for assembly, testing, and packaging. And that just after manufacturing starts: TSMC’s Arizona facility has already experienced many delays.

What then has the industry ahead of it? A complete exodus of chip manufacturers from Asia seems implausible for all the forces altering global supply networks. Western factories under development largely help to diversify production bases and strengthen supply networks against shocks. Still, there is a price involved. Longer supply channels and more redundancy will entail lesser margins and more expenses.

Moving semiconductor supply chains is no mean achievement. Decades of centralizing have solidified Asia’s indisputable center for semiconductor manufacture.

Furthermore, adding to this is separating supplier chains. Supply chains will become increasingly segmented, and prices will rise as nations try to protect vital chipmaking capability and knowledge. Working with partners, the US is limiting the sale of essential technology and chipmaking equipment to China New foreign investment seems to be moving away from the nation.

It is not certain whether these initiatives will be successful. Isolation might force China to boost its own efforts at chip value chain elevation. Eventually, after all, necessity is the mother of innovation. And at an eye-watering $142 billion, estimates by the Washington-based Semiconductor Industry Association show China’s own chips drive surpasses expenditure by Western governments.