Semiconductor Geopolitics: How U.S., China, Korea, and Taiwan Shape a Fragile Supply Chain

📌 Supply-Chain Risk: U.S.–China–Korea–Taiwan Tensions Around Semiconductor & Materials Trade

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📌 Introduction — Why the Semiconductor Supply Chain Became a National-Security Risk

The “oil of the 21st century” is no longer oil. It’s semiconductors.

From smartphones and laptops to EVs, AI servers, and even advanced weapons systems, there’s virtually no field untouched by chips. We now live in an era where everyday life, national security, and future growth engines all hinge on semiconductors.

The problem is that this core industry is geographically concentrated to an extreme. In other words, the global semiconductor supply chain is dominated by a handful of countries—and that network can be shaken at any time by political conflict or military confrontation. That’s why it’s now widely labeled a “supply-chain risk.”

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1) Each Country’s Monopoly Role

The semiconductor industry isn’t structured so that one country does everything end-to-end. Instead, the long value chain—design → manufacturing → assembly → consumption—is divided across countries.

Taiwan (TSMC)

TSMC, the world’s largest pure-play foundry, controls over 60% of global contract manufacturing. For cutting-edge nodes like 3nm and 2nm, it’s no exaggeration to say TSMC is virtually the only option. U.S. Big Tech—Apple, NVIDIA, Qualcomm—outsources most of their leading-edge chip production to Taiwan.

Korea (Samsung Electronics, SK hynix)

Korea is a memory powerhouse. If you combine DRAM, NAND, and—crucially—HBM (high-bandwidth memory) for AI servers, its global market share exceeds 70%. Put differently, the core components of data storage and compute bandwidth are, for all intents and purposes, dominated by Korea.

United States

The U.S. has a smaller share of front-end manufacturing, but it dominates in chip design (IP) and equipment. Fabless leaders like NVIDIA, AMD, and Qualcomm design the brains (GPUs and CPUs). And at the equipment and design-automation layers—think ASML (Netherlands) and Applied Materials (U.S.) for advanced tools, and EDA software (Synopsys, Cadence)—there’s no easy substitute for China or anyone else.

China

China is the world’s largest electronics consumer market and assembly base. Many iPhones, laptops, and home appliances are assembled there, and its domestic market is too big for global firms to ignore. But its capacity to produce leading-edge semiconductors remains limited, leaving it heavily dependent on U.S.–Korea–Taiwan supply chains.

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2) Structural Instability

The global IT ecosystem runs only when these four players perform their unique roles in sync. That very structure also embeds severe fragility:

Political conflict: The U.S.–China trade war, Taiwan Strait tensions, and Korea–China trade frictions can disrupt chip supply at any time.

Military risk: Any armed conflict involving Taiwan could immediately paralyze over half of the world’s advanced chip supply.

Economic shockwaves: In 2021, an auto-chip shortfall alone caused roughly KRW 210 trillion in losses for global automakers. A disruption in leading-edge supply would deliver a far larger hit.

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3) Why It’s a Security Risk

Semiconductors aren’t just an economic good:

Military systems: Stealth fighters, missile guidance, and satellite communications can’t operate without cutting-edge chips.

National economies: In Korea, semiconductors account for over 20% of total exports. Supply disruptions feed directly into the trade balance and the FX market.

Global financial markets: If bellwethers like NVIDIA, TSMC, and Samsung wobble, the shock propagates across global equities and ETFs.

Hence the chip supply chain has become a national-security issue. When the U.S. Department of Defense warns that “Taiwan risk is U.S. national-security risk,” this is what it means.

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✅ In short, semiconductors are the ‘bloodstream’ of the 21st-century economy.

The world economy runs only when the U.S., China, Taiwan, and Korea all function smoothly—yet that same interdependence creates structural risk where any one pillar faltering can threaten both the global economy and security.

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👉 In the sections that follow, we examine how these risks materialize in practice through concrete cases: the U.S.–China tech war, Taiwan Strait tensions, Korea’s “sandwich” dilemma, and America’s reshoring strategy.

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📌 Part I. How the Global Semiconductor Supply Chain Is Built

1) Role-Sharing by Country — A System That Works Only When All Four Mesh

This is not a one-country, end-to-end industry. Each country specializes in specific stages, and the global IT ecosystem only works when they mesh.

United States — Empire of Design & Tools

While its manufacturing share is smaller, the U.S. captures the most value through fabless design and equipment/software monopolies.

NVIDIA: >80% GPU share (as of 2025). With AI server and data-center demand exploding, GPUs—the “rice of AI”—are under its control.

AMD: Long-term GPU supply agreement with OpenAI totaling $100 billion (2025–2029).

EDA software: U.S. firms Synopsys and Cadence virtually dominate design automation.

Semiconductor equipment: U.S. Applied Materials and Netherlands-based ASML (EUV lithography) dominate advanced tools. The U.S. leverages export controls to constrain China.

Taiwan — Heart of the Foundry

TSMC holds 60%+ of the global foundry market.

Realistically, only TSMC mass-produces 3nm/2nm at scale.

Most Apple A-series chips, NVIDIA GPUs, and Qualcomm SoCs are made in Taiwan.

Any disruption at TSMC moves global stocks and FX, instantly.

Korea — The Unrivaled Leader in Memory & HBM

Samsung Electronics: #1 in DRAM and NAND, ~40% share.

SK hynix: >50% of the HBM market, effectively the key supplier for NVIDIA’s AI GPUs.

Chips account for roughly 20% of Korea’s exports—the industry is the “backbone” of the economy.

China — The Giant Hub of Demand & Assembly

Over half of the world’s smartphones are assembled in China.

It’s the largest consumer market for electronics—too big to ignore.

But sub-14nm leading-edge capacity is blocked by U.S./Dutch controls. Huawei/SMIC are pushing ahead, yet without EUV tools there are hard limits.

China is building self-reliance in mature nodes, packaging, and assembly.

👉 Summed up: the U.S. is the brain (design), Taiwan the hands (manufacturing), Korea the memory (storage/bandwidth), and China the body (consumption/assembly).

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2) Where the Supply Chain Is Fragile — One Pillar Slips, the World Shakes

2021 auto-chip shortage

Post-COVID disruptions hit automakers hard. Ford, GM, VW and others cut output by millions of units. Industry losses reached ~KRW 210 trillion (AlixPartners, 2021). The world learned that “one tiny chip can halt entire industries.”

Taiwan Strait risk

A military incident stopping TSMC would choke off core chips for Apple, NVIDIA, and Qualcomm.

U.S.–China tech war

Washington restricts tools/EDA to block China’s leading-edge ambitions; Beijing counters with rare-earths, mature chips, and its vast domestic market.

Korea and Taiwan face a “sandwich risk”—squeezed between geopolitics and commerce.

Korea’s macro exposure

Semiconductors exceed 20% of exports. Memory price crashes or supply disruptions can rattle the entire economy. In 2023, the memory downturn coincided with Korea’s GDP growth downgrades.

👉 Chips are no longer “just components.” They’re the bloodstream of the real economy—and a direct inflation channel when supply falters.

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✅ Bottom line: The global chip chain is an ultra-connected system spanning the U.S., Taiwan, Korea, and China—but that very design makes it unstable. Semiconductors are both the “oil of the 21st century” and a “geopolitical powder keg.”

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📌 Part II. The U.S.–China Tech War and the Taiwan Risk

1) U.S. Controls on China — Where Security Meets Technology

Since 2022, the U.S. has treated advanced semiconductors as strategic military assets, going far beyond ordinary trade rules.

EUV lithography: ASML (Netherlands) is the sole supplier. With U.S.–Dutch coordination, EUV shipments to China are blocked.

EDA software: Synopsys and Cadence are under U.S. export controls.

Sub-14nm tool controls: Since 2023, a broader range of advanced tools faces restrictions, capping China’s push to self-sufficiency.

The CHIPS Act (2022) also ties subsidies (for Samsung, TSMC, etc.) to restricting new investments in China. In short, Washington is using semiconductors as a geopolitical lever to restrain China’s military/AI rise—not just to protect domestic industry.

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2) China’s Counter — Self-Reliance and Weaponizing Resources

Homegrown chips: Huawei and SMIC are pushing 7nm production, but without EUV, output and yields are constrained.

Resource leverage: China controls over 60% of global rare-earths supply. In 2023 it restricted exports of gallium and germanium—key inputs for advanced chips—tightening pressure on the U.S., Korea, and Taiwan.

Domestic-market card:

~30% of global smartphone sales occur in China.

Around half of the world’s EV sales are in China.

Global firms try to “walk both sides”—supporting U.S. policy while trying not to lose China’s massive market.

Net-net: China is disadvantaged at the leading edge but counters with resources, scale, and price power.

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3) Taiwan Strait — The World Economy’s Biggest Wild Card

A large share of the world’s leading-edge foundry capacity sits in Taiwan.

TSMC concentration: iPhone chips, NVIDIA GPUs, Qualcomm SoCs—Taiwan is the chokepoint.

Conflict scenario: Any kinetic event in the Strait could shatter the global ICT supply chain overnight.

U.S. DoD (2021) warning:

> “If Taiwan’s semiconductor supply is cut off, U.S. GDP could fall by up to 10%.”

This isn’t a sector issue; it’s systemic. Each flare-up in the Strait has rippled through New York, Seoul, and Tokyo markets for exactly this reason.

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📌 Part III. Korea’s Dilemma and America’s Onshoring Play

1) Korea’s Double-Edged Sword — The “Sandwich Risk”

Korea makes ~70% of the world’s memory chips, yet its largest export market is China.

Export structure: Over 60% of Korea’s chip exports go to China (incl. Hong Kong).

Alliance structure: Korea is aligned with the U.S. through the CHIPS Act and “Chip 4” (U.S., Korea, Japan, Taiwan).

This creates a structural contradiction: commercial dependence on China vs. security alignment with the U.S.

Case in point — SK hynix Wuxi (China):

A major DRAM hub, yet constrained by U.S. rules that block EUV tools. Long-term investment plans are clouded, and Korea Inc. feels the pressure of forced supply-chain reconfiguration.

👉 Follow Washington and you risk losing Chinese sales; invest in China and you risk running afoul of U.S. rules. That’s the sandwich.

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2) U.S. Reshoring — Pulling the Chain Back Home

Washington is using the CHIPS Act to bring fabrication back onshore:

TSMC Arizona: 2nm lines, ~$40B investment.

Samsung Texas: Advanced foundry expansion, $17B+.

Intel Ohio: A massive new fab complex underway.

Constraints remain:

Costs: U.S. fab costs run 30–50%+ above Asia.

Talent: Shortages in advanced process engineers; continued reliance on Taiwanese/Korean expertise is likely.

👉 The realistic aim isn’t full autarky. It’s to bind allies into a U.S.-centric supply network: subsidies for Korea/Taiwan to invest stateside, in exchange for tighter limits on China exposure.

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✅ Snapshot:

The U.S. treats chips as a security asset and seeks to isolate China at the leading edge.

China counters with resources and domestic scale while racing to self-reliance.

Taiwan is the single largest source of systemic risk.

Korea must walk a tightrope between economic survival and alliance commitments.

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📌 Part IV. How Supply-Chain Risk Hits the Economy

1) Prices — Shockwaves Across Sectors

Chips sit at the heart of smartphones, appliances, cars, and AI servers. Disruptions don’t stay in one lane; they cascade into broad inflation.

2021 auto-chip shortfall:

Global auto output fell by ~11 million vehicles; losses were estimated at ~KRW 210 trillion (AlixPartners, 2021).

New-car prices spiked, and used-car prices surged by 30%+—a highly unusual move.

In consumer electronics, shortages delayed launches and lifted prices, squeezing consumers.

👉 Semiconductor risk is a direct inflation channel for the real economy.

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2) FX Volatility — Direct Line to Korea’s Trade Balance

For Korea, semiconductors aren’t just another export—they’re the core pillar (20%+ share).

When USD/KRW spiked into the 1,400s in 2023, one key driver analysts cited was weak chip exports. The chain reaction was classic: memory price slump → export drop → worse current account → weaker KRW.

👉 In chip-heavy economies like Korea, supply shocks morph quickly into FX and financial-market instability.

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3) Investment Uncertainty — Markets Are Hyper-Sensitive

Foreign investors tend to pull capital from Korea and Taiwan when supply-chain uncertainties rise.

During periods of heightened Taiwan Strait tension (2022–2023), TSMC fell sharply and foreign investors sold Korea’s chip blue chips. Global ETF houses repeatedly flagged “China risk” and “Taiwan risk” as central to allocation decisions.

👉 Chip tensions propagate from the real economy to FX, equities, and global ETF flows—full-spectrum risk.

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📌 Part V. Future Scenarios & Takeaways

1) Worst Case — A Taiwan Strait Conflict

If U.S.–China tensions turned kinetic and Taiwan’s fabs were idled, the supply chain could snap overnight. The U.S. Department of Defense (2021) warned U.S. GDP could drop up to –10% in such a scenario—implying not just an ICT standstill, but a global recession risk.

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2) Managed Competition — An Unstable Equilibrium

The most plausible path is managed competition: continued rivalry, but with essential trade preserved.

The U.S. excludes China from leading-edge chips and tools.

China maintains clout in mature nodes and critical materials (e.g., rare earths).

Korea and Taiwan keep their technological edge and try to balance sales to both sides.

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3) Technological Breakthroughs — The Only Real Pressure Valve

Ultimately, innovation is the best hedge against supply risk:

The U.S., Korea, and Japan push on to 2nm, HBM4, and next-gen architectures.

Even if China can’t fully overcome tool sanctions, it can still dominate in domestic-market mature nodes and resource supply.

The market may bifurcate: leading-edge performance chips vs. resource-/scale-driven mature chips.

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✅ Final Take — Chips on the Front Line Between Economy and Security

Semiconductors are no longer “just” an industrial good:

A national-security asset at the core of military and AI competition,

A geopolitical weapon on the front line of great-power rivalry,

A market and FX variable that reprices risk in real time.

Tension among China, Taiwan, Korea, and the U.S. isn’t a mere trade spat—it’s the essence of 21st-century power politics.

👉 For investors, treat chip risk as a macro (not sector) variable. For governments, industrial policy and security strategy must be set together, not in silos.

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📌 Sources

Ministry of Trade, Industry and Energy (Korea), Semiconductor Industry Trends 2024

UNCTAD, World Investment Report 2024

U.S. Department of Defense, Semiconductor Supply Chain Risks Report (2021)

Bloomberg; Reuters (2023–2025)

KITA (Korea International Trade Association), Supply-Chain Risk Analysis (2024)