Strategic silicon: How geopolitics is redirecting semiconductor investment?

Geopolitical tensions are redirecting global investments in advanced semiconductor technologies, reshaping the semiconductor supply chain in pursuit of technological sovereignty.

The vast majority of the world's most advanced silicon chips are manufactured in Taiwan by a single company -- Taiwan Semiconductor Manufacturing Co. (TSMC). These chips power everything from data centers to smartphones. However, Taiwan's central role has become a geopolitical vulnerability. 

Mounting tension between China and Taiwan, paired with the growing strategic value of advanced semiconductors, has raised global concerns.

Advanced semiconductor investment worldwide
In response, governments and corporations have launched a sweeping wave of reshoring efforts. In the U.S. alone, over $480 billion in semiconductor-related investments were announced between 2024 and 2025. 

Major contributors include Texas Instruments ($60B), Micron ($200B), GlobalFoundries ($16B), TSMC ($165B), and Samsung ($40B), many supported by The Chips Act subsidies. These projects are strategically positioned to develop capabilities across advanced silicon nodes, high-bandwidth memory (HBM), advanced semiconductor packaging, and silicon photonics, all critical to the AI era.

Across Europe, the EU Chips Act is catalyzing local semiconductor ecosystems. TSMC, alongside Bosch, Infineon, and NXP, is co-investing in a 22/28 nm fab in Dresden, backed by the German government. Other key developments include Infineon's €3.5B MEGAFAB project and Silicon Box's €3.2B chiplet facility in Italy. These underscore Europe's ambition to reestablish sovereign manufacturing capacity.

In Japan, TSMC's Kumamoto fab (via JASM) has begun production, and a second, more advanced fab is under construction. The government has pledged over $5.4B to Rapidus, aiming for 2 nm pilot production by 2027. South Korea continues expanding its HBM and logic production with strong state backing.

Taiwan's strategic response
Meanwhile, Taiwan is reinforcing its leadership in advanced semiconductor technologies through strategic regulation. In March 2025, the National Development Council confirmed that TSMC's overseas fabs are subject to the "N-1" rule, which prohibits companies from transferring their most advanced process nodes abroad. 

Officials outlined three principles: the latest technology must stay in Taiwan, critical IP must not leave, and national security takes priority, ensuring Taiwan remains the hub of cutting-edge chipmaking.

TSMC continues to invest heavily at home, building seven new facilities in 2025, including six fabs and one advanced packaging plant in Taiwan. 2 nm production will ramp in the second half of 2025, and 3 nm output is set to grow 60% this year. The company projects AI-related wafer shipments will be 12× higher than in 2021, with large-die shipments up 8×.

Rethinking semiconductor supply chains
While these investments may enhance national capabilities, they also fundamentally reconfigure the global semiconductor supply chain. Today's semiconductor ecosystem, particularly for AI chips, is deeply rooted in East Asia, with Taiwan at the center, not only for wafer fabrication, but also for advanced packaging, testing, and final assembly. 

Manufacturing a chip with an advanced node is only the first step; without co-locating downstream processes, it makes little economic sense to fabricate in the U.S. only to ship wafers back to Taiwan for packaging.

Building a fab that manufactures advanced nodes already costs a fortune. Building a 2nm wafer fab with high-volume output requires an enormous investment, often approaching tens of billions of dollars. But, replicating the entire supporting ecosystem adds substantially more. 

TSMC's Arizona project illustrates this complexity: to make it operate effectively, TSMC had to rebuild much of its supply chain from Taiwan to the US.

This kind of transition inevitably drives up the cost of advanced chips, and only wealthy nations with strong political and financial backing can afford to play. While the U.S. Chips Act has catalyzed onshoring, the road ahead remains long and difficult. Key challenges include:

• Skilled labor shortages, exacerbated by anti-immigration policies
• Capital intensity, especially amid worsening global economic conditions
• Geopolitical friction, including Taiwan's "N-1" regulation, which restricts export of the most advanced nodes and technologies
• Supply chain immaturity and fragility, as many upstream and downstream partners remain concentrated in Asia.
• Policy uncertainty, as government subsidies and permitting shifts, can delay or disrupt projects, especially over multi-year timelines.

Summary
Meanwhile, the once-global semiconductor ecosystem is fracturing into regionally anchored supply networks, where national security instead of cost-efficiency increasingly shapes location strategy. 

The de-globalization of chip production isn't just a reaction to geopolitical risk; it reflects a deeper structural realignment. In this new era, semiconductors are no longer defined solely by performance; they have become instruments of sovereignty, security, and strategic leverage.

-- Dr. Yu-Han Chang, Principal Technology Analyst, IDTechEx, USA.