The great decoupling: how geopolitics is reshaping semiconductor supply chains

The semiconductor industry is experiencing an unprecedented transformation as geopolitical tensions drive a fundamental restructuring of global supply chains. What was once a model of globalized efficiency is rapidly fragmenting into regional manufacturing ecosystems, each with distinct technological trajectories and competitive dynamics.

The industry is seeing tighter export controls, more targeted tariffs, and increasing pressure to localize supply chains based on geopolitical alignment, and what that means is companies may soon have to design and manufacture chips differently depending on where they are selling them. For decades, the semiconductor industry epitomized global specialization. Design might happen in the US, manufacturing in Taiwan, assembly in Malaysia, and consumption worldwide. This model optimized efficiency but created vulnerabilities exposed during the pandemic's supply shortages.

Now, governments worldwide are investing hundreds of billions to increase their domestic semiconductor capacity. Europe has recognised the strategic importance of semiconductors and launched its own response. The comprehensive European Chips Act, mobilizes over €43 billion to public and private investment to stimulate manufacturing and innovation, aiming to double the EU’s global market share from 10% to 20% by 2030.

The US CHIPS Act allocates a total of $52.7 billion for domestic semiconductor manufacturing, aiming to reverse decades of manufacturing migration. This funding is part of a larger, roughly $280 billion legislative package aimed at boosting domestic research and manufacturing of semiconductors in the US. Driven by these incentives, private companies have announced over $500 billion in investments to build, expand, and modernize chip facilities across 25+ states. The US is now projected to triple its domestic semiconductor manufacturing capacity in the next decade.

The US has paired its industrial initiative with a targeted ‘chokepoint’ strategy. In October 2022, it implemented export controls to restrict China’s access to advanced semiconductors and the equipment and software needed to produce them. These measures block Chinese firms from acquiring critical technologies, including high-end chips and Electronic Design Automation (EDA) software. To reinforce the effort, the U.S. coordinated with the Netherlands, home to ASML, the sole supplier of essential EUV lithography machines and Japan, creating a coalition to constrain China’s technological growth.

Facing what it views as a campaign of technological containment, China accelerated its national strategy to achieve semiconductor self-reliance. Through coordinated funding efforts, China is channelling resources into building domestic capabilities. This ambition is backed by staggering levels of state funding, primarily through the National Integrated Circuit Industry Investment Fund, or “Big Fund.” Today, almost half of the registered capital in China’s chip industry is state-owned or state controlled.

China is expected to add more chipmaking capacity than the rest of the world combined in the coming years, and its domestic champion, SMIC, has grown to become the world’s second-largest pure-play foundry by volume. Massive investments in domestic memory production through companies like CXMT and YMTC aim to reduce dependency on foreign suppliers, while development of alternative domestic equipment suppliers seeks to circumvent export restrictions.

Despite these export curbs, companies such as Huawei are making real strides. Their Ascend series of AI chips is an example of how they’re pushing forward. The Chinese government is also pressuring domestic industries, such as EV makers to source more chips from local suppliers, reinforcing the self-reliance strategy. In retaliation for the controls, China has also begun to weaponize its own supply chain dominance, banning the export of critical minerals such as gallium and germanium to the U.S. in December 2024.

The result is the clear emergence of two parallel technological universes. The U.S.-led sphere is focused on maintaining a commanding lead at the technological frontier, building a secure, resilient supply chain for the most advanced technologies among a network of trusted partners. The Chinese sphere, driven by the pursuit of self-sufficiency, aims to insulate its economy from foreign pressure and become the world’s indispensable supplier of mature-node chips. For companies, this is not just about staying competitive, it is about staying compliant and resilient in two very different regulatory and technological environments.

The 2025 Trump administration's tariffs have added further complexity, affecting raw materials, chemicals, end products, and non-US semiconductors. These policies are forcing companies to reconsider manufacturing footprints, explore reshoring options, and develop new strategies for maintaining competitiveness in an increasingly fragmented global market.

The great semiconductor decoupling represents more than a trade dispute; it marks a new era of strategic competition where technological capability is intricately linked to national power. The era of a seamlessly integrated global semiconductor supply chain is decisively over, replaced by a new reality defined by regionalized blocs, strategic rivalries, and a technological iron curtain. The competition between these two emerging worlds will not only determine the future of technology but will also shape the geopolitical landscape for decades to come.

This great decoupling creates strategic challenges across the ecosystem:

For Semiconductor Manufacturers:

• Balancing regional compliance requirements with global competitiveness

• Managing potential overcapacity as regions duplicate capabilities

• Navigating increasingly complex export control regimes

For Equipment Suppliers:

• Addressing diverging technology roadmaps across regions

• Managing restrictions on advanced technology sales

• Competing with emerging domestic alternatives in restricted markets

For End Customers:

• Securing supply chain resilience across fragmented manufacturing landscapes

• Managing increased costs from tariffs and supply chain inefficiencies

• Navigating complex country-of-origin requirements

The industry's future will be shaped by how companies navigate these tensions between technological possibility and geopolitical constraint. Success will require unprecedented strategic flexibility, scenario planning capabilities, and deep understanding of regional policy environments. Those who master this new landscape will find opportunities amid the disruption, while those who cling to outdated globalized models may find themselves locked out of key markets or caught in the middle of a geopolitical tug of war.