Inside the global chip war:Taiwan’s dominance, China’s EUV breakthrough US’ $165 Bn manufacturing bet| Part 2

In part 1 of our semiconductor journey, we went inside the extraordinary world behind the tiny chips powering almost everything around us. We learned why the AI boom has suddenly made semiconductors one of the world’s hottest industries, how CPUs, GPUs, AI accelerators and even simple analog chips perform very different jobs, and why manufacturing these tiny pieces of silicon is considered one of the most complicated industrial processes humans have ever created. But knowing how chips are made only tells us half the story. Because there is an even bigger question: Who actually makes the world’s most advanced chips and what happens if that supply suddenly stops? The AI revolution runs through Taiwan You might design the world’s most powerful AI processor in California, but somebody still has to manufacture it. And there’s a good chance that journey eventually leads to Taiwan. At the centre of this ecosystem sits Taiwan Semiconductor Manufacturing Company (TSMC), the manufacturing powerhouse behind chips designed by many of the world’s biggest technology companies. TSMC pioneered the “foundry” model: instead of competing with customers by designing its own processors, companies can bring their chip designs to TSMC and ask it to manufacture them. That seemingly simple business model has turned TSMC into one of the most important companies in modern technology. According to the figures cited in the documentary, more than 90% of the world’s most advanced chips are manufactured by TSMC, with much of that leading-edge capacity concentrated in Taiwan. And that’s where the problem begins.
The global chip supply chain: Critical, complex and vulnerable A modern semiconductor might fit on your fingertip, but producing it can involve companies spread across half the planet. Chip designs are heavily concentrated in the United States. Silicon wafers come largely from Asian suppliers, including Japan and Taiwan. Critical manufacturing machinery comes from countries such as the Netherlands, the US and South Korea, while specialised components are supplied from Germany, Japan and elsewhere. Eventually, many of these pieces meet inside enormous fabrication plants or fabs in Taiwan. It is an extraordinary example of globalisation working at its best. Taiwan also sits in an earthquake-prone region. More importantly, it remains at the centre of a decades-long geopolitical dispute with China. The economic consequences of a serious disruption could therefore be enormous. A February 2026 Bloomberg Economics estimate cited in the documentary suggested that a conflict involving Taiwan could potentially cost the global economy around $10 trillion. That explains why governments no longer view semiconductor factories as ordinary manufacturing plants. They increasingly view them as strategic infrastructure.

The global push towards chip making The United States once manufactured a much larger share of the world’s semiconductors. In 1990, nearly 40% of global chips were manufactured in the US. By 2024, according to figures cited in the documentary, that share had fallen to roughly 10%. Washington now wants some of that manufacturing capacity back. The $52 billion CHIPS Act, passed in 2022, was designed to encourage semiconductor companies to build factories and strengthen supply chains inside the United States. One of the most ambitious projects is unfolding in Arizona. TSMC has committed around $165 billion to its US expansion, transforming parts of the Arizona desert into what has increasingly been described as a new “Silicon Desert.” Building factories, however, is only part of the challenge. Taiwan’s semiconductor advantage wasn’t created overnight. It grew from decades of specialised engineering knowledge, suppliers, infrastructure and highly skilled workers concentrated around existing fabs. America isn’t simply trying to construct semiconductor factories. It is trying to recreate an entire ecosystem. China’s push for semiconductor independence is entering a new phase While the United States is trying to bring semiconductor manufacturing home, China is attempting something potentially even more difficult: Building a chip ecosystem that doesn’t depend on Western technology. China is already the world’s largest semiconductor market, but historically it has depended heavily on foreign companies for advanced chips and the machines required to manufacture them. That vulnerability became impossible to ignore after US restrictions increasingly limited Chinese companies’ access to advanced semiconductor technologies. Huawei became perhaps the most famous example. After Washington imposed restrictions beginning in 2019, many observers expected Huawei’s advanced semiconductor ambitions to suffer a major setback. Instead, the company shocked the industry in 2023 when a Huawei smartphone appeared with an advanced China-made processor. China has since poured enormous resources into domestic semiconductor development. The original documentary pointed to a roughly $50 billion government-backed semiconductor fund, while additional incentives worth tens of billions of dollars have reportedly been considered. Chinese technology giants have also backed domestic semiconductor companies and startups. But one enormous obstacle remained: EUV lithography. As learned in Part 1, ASML is currently the only company capable of commercially producing the highly sophisticated EUV machines needed for the most advanced semiconductor manufacturing. Export restrictions have prevented these systems from being supplied to Chinese chipmakers. China’s secret race to crack the code A July 2026 Times of India report describes a highly secretive Chinese effort likened to a semiconductor “Manhattan Project” aimed at developing a home-grown EUV lithography system. According to the report, Chinese engineers reportedly activated a functional domestic EUV prototype in Shenzhen in late 2025, an important milestone if the reported capabilities can ultimately be translated into reliable industrial production.
Today’s ASML EUV systems generate 13.5-nanometre extreme-ultraviolet light and use extraordinarily precise mirrors and other components to print incredibly small circuit patterns onto silicon. China has been prevented from buying these systems, forcing manufacturers such as SMIC to push older DUV lithography technology much further than originally intended. The reported Chinese prototype suggests Beijing may be making progress toward generating EUV domestically. But there is an important distinction between making a prototype work and building a machine capable of mass-producing millions of commercially competitive chips. The TOI report says the Chinese prototype is estimated to operate at around 100–150 watts, compared with roughly 250–300 watts for established commercial ASML systems. It reportedly processes only around 40–60 wafers per hour, meaning it is not yet competitive for high-volume semiconductor manufacturing. China’s existing workaround also comes at a price. According to the report, SMIC can use older DUV equipment and multiple patterning to manufacture advanced nodes, but the process can result in lower yields and substantially higher production costs than mature EUV-based manufacturing. In other words: China may have found a way through the EUV door but it hasn’t yet caught ASML on the other side.

Next AI breakthrough may begin in a chip factory The AI race is usually presented as a competition between models. Which chatbot is smarter? Which company has the best model? Who can build artificial general intelligence first? But underneath that software race sits a much more physical competition. AI requires factories. It requires silicon wafers, lithography machines, advanced memory, enormous fabrication plants, specialised chemicals, precision optics and thousands of highly trained engineers. And those resources cannot simply be downloaded from the internet. That’s why the next chapter of AI may be shaped just as much by TSMC’s fabs, ASML’s lithography machines, America’s semiconductor investments and China’s attempt to build an independent chip ecosystem as by the companies creating AI models.