Tag Archive for: semiconductors

Trump brings AI, not democracy, to the Middle East

US foreign policy no longer pursues strategic influence through ideological alignment but through advanced technological primacy and infrastructural reach.

When US President Donald Trump returned to the Middle East earlier this month, he did not arrive bearing promises of democracy, stability or shared values, unlike previous administrations. Instead, he brought semiconductors, AI data centres and tech CEOs.

The centrepiece of the trip was a sweeping deal to deliver hundreds of thousands of Nvidia’s most advanced chips to the United Arab Emirates and Saudi Arabia, backed by plans to construct the largest AI campus outside the United States. For decades, US foreign policy has sought to export freedom and democracy. Now, as one US official noted, Washington wants to ‘spread American AI’.

The abrupt reversal of Biden-era restrictions on chip exports to the Gulf shows that Washington is adjusting to a rapidly shifting geopolitical and geoeconomic terrain. In this situation, the Gulf can leverage its capital and strategic positioning, potentially changing the trajectory of US pre-eminence in the region.

This shift is being driven, in no small part, by China. In early 2025, Beijing unveiled DeepSeek’s R1 large-language model, reportedly trained at a fraction of the cost of US-based OpenAI’s ChatGPT. But its deeper significance to the non-Western world lies in the fact that AI power can now be scaled strategically, affordably and beyond the boundaries of Western infrastructure. In Gulf capitals, the emergence of Beijing’s AI was read as a geopolitical signal that China presented an alternative to dependence on the West, meaning it could also be used to hedge against potential US tech export restrictions.

Some Western narratives portray Trump’s willingness to share advanced technologies as a generous concession. But it is more likely an effort to entangle Gulf states in US-led technological ecosystems. This entanglement involves anchoring US cloud infrastructure in the region, supplying chips that require US servicing, and promoting platforms that lock partners into proprietary software environments. As the US’s petrodollar-enabled power is receding, this ultimately preserves Western influence by making access to critical infrastructure conditional and asymmetrical. Washington acted to bind the region to US systems only after China emerged as a viable alternative for the Gulf and before regional states thoroughly drifted into competing technological spheres.

The Gulf is not blind to this reality and is not waiting to be persuaded. DeepSeek is already integrated into ARAMCO data centres in Dammam. Closer integration with Chinese systems gives Middle Eastern states leverage and reduces the incentive to be a passive recipient of technology or a subordinate node in Western-led security frameworks. Instead, Gulf states are actively shaping their own roles as financiers, developers and brokers in the global AI economy. An understated dynamic is that much of Silicon Valley’s innovation pipeline is now being significantly bankrolled by Gulf sovereign wealth funds.

In 2025, Saudi Arabia’s Public Investment Fund increased its shares in Amazon by more than 50 per cent. Abu Dhabi’s Mubadala Investment Company, one of the emirate’s three major funds, has emerged as a major US tech backer. Through MGX, an Abu Dhabi-based AI vehicle, Mubadala co-invested US$30 billion alongside Microsoft and BlackRock, and joined OpenAI’s US$6.6 billion raise in 2024. These funds are now embedded in the very infrastructure that sustains Western tech innovation ecosystems.

In that light, Trump’s entourage of venture capitalists and platform CEOs offering access to cutting-edge technology should not be viewed as an end in itself. The advanced chips pledged to Emirati and Saudi firms are rather a means to an end; they are the cost of retaining access to Gulf capital.

This recalibration is particularly stark when contrasted with how the US engages its smaller partners. In the Pacific islands, for instance, Washington has offered subsea cable infrastructure on the condition that they reject Chinese terrestrial networks or risk disconnection from the broader system. But that logic fails in the Gulf because the Middle East’s economic situation gives it greater negotiating power.

Some might still believe that the US can reassert its model of AI exceptionalism. But the outcomes of this trip suggest the US accepts that this is no longer the case. Instead, Washington under Trump is showing that it will share, compromise and, when necessary, concede if it ultimately results in the ‘best’ deal for the US economy. Australia and other US allies should ensure that such deals are not just economically rewarding but also contribute to their security.

The recent developments in the chip domain do not necessarily indicate the collapse of US power, but they are nevertheless transformational. The US remains a formidable actor, but it is no longer the sole architect of a new world order underpinned by technological supremacy. And if the US must hand over the crown jewels of its AI economy to avoid being outflanked by emerging tech powers, and to stay relevant, so be it. That may be the price that needs to be paid.

Anticipating what Trump wants, Taiwan puts money in America first

Taiwan’s President Lai Ching-te must have been on his toes. The island’s trade and defence policy has snapped into a new direction since US President Donald Trump took office in January.

The government was almost certainly behind a deft move by the country’s giant semiconductor company, TSMC, to set up three production facilities in the United States. Also, Lai’s administration has stepped up plans to import the kinds of US products that would catch Trump’s eye. It’s pushing for a hefty rise in defence spending, too.

Anyone would think that Taiwan had done its homework and was ready for the new US administration. Or maybe it’s just faster on its feet than most. Senior Taiwanese officials have been carefully studying Trump’s agenda and looking for items they can enthusiastically support and that advance Taiwan’s interests.

Take TSMC’s announcement in early March that it was sinking US$100 billion into the US to build the chip plants, along with a research and development centre, bringing its total pledged investments in the US to US$165 billion. This came after Trump accused Taiwan of stealing the US’s chip business on the campaign trail and threatened a 100 percent tariff on chips.

In Taiwan, there was an uproar. Many Taiwanese believe TSMC, which makes at least 80 percent of the world’s most advanced chips in Taiwan, is a ‘silicon shield’. They see it as crucial for Taiwan’s geopolitical protection as it gives foreign countries an incentive to protect the country. There were worries that if Lai went along with Trump’s push to reclaim the world’s chip industry for the US, the silicon shield would be weakened.

But Lai understood that, if he appeared to be obstructing Trump’s agenda, diplomatically isolated Taiwan might be discarded. Had Trump not won the US election, TSMC probably would not have announced such a large investment. But the gamble paid off. On the day of the announcement of the deal, Trump appeared happy.

‘I would say it came off as an extraordinary success,’ Chris Miller, author of Chip War and a world expert on the semiconductor industry said at a seminar in Taipei in late March.

‘TSMC managed to put itself in a position of a partnership with the new administration,’ Miller said. ‘All these are wins for TSMC and wins for the U.S.-Taiwan relationship as well.’

‘I don’t think the TSMC announcement solves every issue. But it does put the relationship on a much stronger footing.’

Taiwan’s chip industry is unlikely to see significant changes in the next five years. Building plants in America is a sluggish process. Many experts also reckon TSMC is born of a unique industrial and cultural ecosystem in Taiwan that will be extremely hard to uproot and duplicate in the US.

Lai’s moves don’t stop with chips. He also has plans to buy natural gas from Alaska, announced as early as February. Taiwan historically has one of the strongest environmental movements in Asia and most Taiwanese are highly conscientious about conservation. But Lai and his officials noted Trump’s plans to expand the oil and gas industry.

They also noted Trump believes trade deficits are a threat to the US economy. Lai and his team pragmatically hope the procurements will help reduce the US’s deficit with Taiwan, which in 2024 was its sixth largest, and that this will also help with Taiwan’s energy security.

Currently Australia, Qatar and the US are the three largest suppliers of natural gas to Taiwan, with the US supplying 10 percent. When the Alaskan deal eventuates, it’s highly likely that Taiwan will prefer to reduce imports from Qatar, as it will be unwilling to alienate Australia for strategic reasons.

Then, Lai also moved quickly with plans to buy US agricultural products. Taiwan’s foreign minister announced in late March that Taiwan would send a procurement mission to the US this September. Lai has also promised to push the defence budget to more than 3 percent of GDP this year, up from the planned 2.45 percent.

Of course, Lai’s battle is far from over. The Trump administration is highly unlikely to be content with that level of defence spending and will push Taiwan to spend 5 percent or even 8 percent of its GDP on defending itself. And on 2 April, Trump announced a new wave of tariffs in the US’s most aggressive trade action in nearly a century. Among them was a 32 percent tariff on goods from Taiwan, exempting semiconductors. Outraged Taiwanese officials are protesting. Miller says he expects much more friction and a lot of ‘hard-elbowed’ diplomacy between Taiwan and the US for the next four years.

But Taiwan notably proposes no retaliatory tariffs. Lai is obviously still focused on good relations with Trump.

These early moves say a lot about Lai’s leadership style. He and his independence-minded Democratic Progressive Party have revealed a strong pragmatic streak. Lai has also shown he is able to put himself in the minds of Trump and his supporters and anticipate what pleases them.

The US has many chip vulnerabilities

Although semiconductor chips are ubiquitous nowadays, their production is concentrated in just a few countries, and this has left the US economy and military highly vulnerable at a time of rising geopolitical tensions. While the United States commands a leading position in designing and providing the software for the high-end chips used in AI technologies, production of the chips themselves occurs elsewhere. To head off the risk of catastrophic supply disruptions, the US needs a coherent strategy that embraces all nodes of the semiconductor industry.

That is why the CHIPS and Science Act, signed by President Joe Biden in 2022, provided funding to reshore manufacturing capacity for high-end chips. According to the Semiconductor Industry Association, the impact has been significant: currently planned investments should give the US control of almost 30 percent of global wafer fabrication capacity for chips below ten nanometres by 2032. Only Taiwan and South Korea currently have foundries to produce such chips. China, by contrast, will control only 2 percent of manufacturing capacity, while Europe and Japan’s share will rise to about 12 percent.

But US President Donald Trump is now trying to roll back this strategy, describing the CHIPS Act—one of his predecessor’s signature achievements—as a waste of money. His administration is instead seeking to tighten the export restrictions that Biden introduced to frustrate China’s AI ambitions.

It is a strategic mistake to de-emphasise strengthening domestic capacity through targeted industrial policies. Coercive measures against China not only have proved ineffective, but may have even accelerated Chinese innovation. DeepSeek’s highly competitive models were apparently developed at a fraction of the cost of OpenAI’s. A substantial share of the semiconductors used in DeepSeek’s R1 model comprises chips that were smuggled through intermediaries in Singapore and other Asian countries, and DeepSeek relied on clever engineering techniques to overcome the remaining hardware limitations it faced. Meanwhile, Chinese tech giants such as Alibaba and Tencent are developing similar AI models under similar supply constraints.

Even before the DeepSeek breakthrough, there were doubts about the effectiveness of US trade restrictions. The Biden administration’s export ban, adopted in October 2022, targeted chips smaller than 16nm, banning not only exports of the final product, but also the equipment and the human capital needed to develop them. Less than a year later, in August 2023, Huawei launched a new smartphone model (the Mate 60) that uses a 7nm chip.

Even if China no longer has access to the most advanced lithography machines, it can still use old ones to produce 7nm chips, albeit at a higher cost. While these older machines do not allow it to go below 7nm (Taiwan Semiconductor Manufacturing Company is working on 1nm chips), Huawei and DeepSeek’s achievements are a cautionary tale. China now has every reason to develop its own semiconductor industry, and it may have made more progress than we think.

To reduce its own supply-chain vulnerabilities, the US cannot rely on an isolationist reshoring-only approach. Given how broadly the current supply chain is distributed, leveraging existing alliances is the only viable way forward. ASML, the Dutch firm with a near-monopoly on the high-end lithography machines used to make the most advanced chips, cannot simply be recreated overnight.

So far, the US has focused on reducing security risks related to the most sophisticated chips, giving short shrift to the higher-node chips that are needed to run modern economies. Yet these legacy chips (those above 28nm) are key components in cars, airplanes, fighter jets, medical devices, smartphones, computers and much more.

According to the Semiconductor Industry Association, China is expected to control almost 40 percent of global wafer fabrication capacity for these types of chips by 2032, while Taiwan, the US and Europe will account for 25 percent, 10 percent, and 3 percent, respectively. China will thus control a major strategic chokepoint, enabling it to bring the US economy to a halt with its own export bans. It also will have a sizable military edge, because it could impair US defences by cutting off the supply of legacy chips. Finally, China’s security services could put back doors into Chinese-made chips, allowing for espionage or even cyberattacks on US infrastructure.

Compounding the challenge, Chinese-made chips are usually already incorporated into final products by the time they reach the US. If the US wants to curtail imports of potentially compromised hardware, it will have to do it indirectly, tracking down chips at customs by dismantling assembled products. That would be exceedingly costly.

Fortunately, the US does not lack policy tools to reduce its vulnerabilities. When it comes to military applications of legacy chips, it can resort to procurement restrictions, trade sanctions (justified on national-security grounds), and cybersecurity defences. As for expanding domestic production capacity, it can use anti-dumping and countervailing duties to counter unfair Chinese practices, such as its heavy subsidisation of domestic producers.

Chips, and the data they support, will be the oil of the future. The US needs to devise a comprehensive strategy that addresses the full range of its current vulnerabilities. That means looking beyond the most advanced chips and the AI race.

TSMC’s $100 billion bet: strengthening ties or weakening Taiwan’s leverage?

Taiwanese chipmaking giant TSMC’s plan to build a plant in the United States looks like a move made at the behest of local officials to solidify US support for Taiwan.

However, it may eventually lessen commitment from Washington since it is a step toward US domestic production of semiconductors, reducing reliance on Taiwanese supply. The US’s friends, particularly Japan and South Korea, may make similar moves as they have much the same incentive as Taiwan to strengthen relations with Washington.

For Taiwan, semiconductors have long been more than an economic asset; they have been a strategic shield. The island’s role as the world’s most advanced chip producer has created an unspoken security guarantee, as its survival matters to the global economy. But as TSMC shifts production to the US, that shield may begin to weaken.

Taiwanese officials understand that economic entanglement with the US strengthens political ties. TSMC’s US$100 billion investment is an effort to deepen those ties and ensure that Taiwan remains indispensable to Washington. The goal is clear: by embedding Taiwan into the US economy, its security will become a priority.

Yet shifting production overseas brings unintended consequences. The more the US secures its own chip supply, the less dependent it becomes on Taiwan. Over time, Washington may feel less compelled to maintain a strong military commitment to the island. The very move intended to guarantee US support could ultimately make Taiwan more expendable.

The transactional nature of US foreign policy under President Donald Trump highlights the risks of Taiwan’s strategy. The US has shown that its commitments are not always permanent. When allies are no longer seen as essential, support can fade. Ukraine has witnessed the limits of US backing.

For the US, TSMC’s investment aligns perfectly with economic nationalism and the push for supply chain security. Bringing semiconductor production home reduces the risks that geopolitical instability presents. It also fits neatly into the broader US-China rivalry, as Washington seeks to curb Beijing’s access to advanced chip technology. But in securing its own position, the US may inadvertently erode Taiwan’s leverage.

Taiwan is not alone in using economic diplomacy to bolster security ties. Japan and South Korea are watching closely, knowing that integrating their industries with the US strengthens their alliances. Both nations are making their own semiconductor investments in the US, mirroring Taiwan’s strategy.

For these allies, the calculation is the same: a deeper economic footprint in the US may translate into stronger security commitments, but the longer-term consequences remain uncertain. If Washington’s dependence on Asian chipmakers diminishes, will its military presence in the region follow suit?

Beijing sees TSMC’s move as both a challenge and an opportunity. On one hand, it accelerates China’s race to achieve semiconductor self-sufficiency. China has already invested billions in its domestic chip industry, knowing that reliance on foreign technology is a vulnerability. If the US and its allies shift production away from Taiwan, China may step up its technological ambitions, or act before Taiwan’s strategic value declines further.

On the other hand, any reduction in reliance on Taiwanese chips makes a US military intervention in a Taiwan conflict less certain. The more the US secures its semiconductor supply, the less important Taiwan becomes to its strategic interests. This shift could embolden China to take a more aggressive stance in the region.

TSMC’s expansion into the US reflects Taiwan’s effort to safeguard its future by deepening ties with its most powerful ally. But this strategy carries risks. Taiwan’s greatest asset, its dominance in semiconductor manufacturing, has made it a linchpin of global stability. As that capability is distributed across multiple locations, Taiwan’s strategic leverage may erode.

Taiwan is making itself indispensable to the US economy in the hope that this translates into an ironclad security commitment. But history has shown that alliances built on economic necessity are not always stronger. As the US moves toward greater self-sufficiency, Taiwan must navigate an increasingly complex geopolitical landscape where economic influence alone may not be enough to ensure its security.

The world is shifting, and Taiwan’s bet on economic diplomacy is a high-stakes gamble. The outcome will shape not just Taiwan’s future, but the broader balance of power in the Indo-Pacific.

The time is right for an Australian semiconductor moonshot

In a recent report for ASPI, Robert Clark and I asserted that Australia had all the right ingredients to build, from the ground up, its own national semiconductor fabrication ‘moonshot’. Like the original American moonshot during the space race with the former Soviet Union, present-day national security and geopolitical imperatives compel Australia to embark on its own historic technology quest.

The goal: to leverage Australia’s attributes, from its world-class universities and human capital to its entrepreneurial spirit and effective public-sector institutions. Canberra’s close security ties with the United States and economic ties to Washington’s strategic partners offer a unique pipeline for technology transfer and investment. Australian participation in strategic semiconductor ecosystems and supply chains—despite being virtually absent today—is real and achievable.

Clark and I argued that by focusing on older, so-called legacy or trailing-edge, semiconductor technologies—which have relatively low barriers to entry and start-up costs—Australian entities can tap into a nascent global semiconductor renaissance. This is due to demand for specialised legacy chip technology in the automotive, clean technology, medical technology, internet of things, energy and other sectors. Companies in these emerging niches promise to form strategic partnerships with players across the semiconductor value chain, from research, development and design to foundry-related manufacturing.

Since our report was published in September, three significant developments have reshaped the international semiconductor landscape, all of which encourage an Australian moonshot.

First, in October, Washington rolled out new export controls aimed at Chinese semiconductor companies. For the first time, US regulation targeted older technologies as well as US citizens and permanent residents working for or with blacklisted Chinese entities. Washington’s bombshell upended a long-held assumption in the trade community that ‘in China, for China’ revenue streams tied to legacy technology sales were safe from US sanctions.

These latest controls have proven costly for many American firms, including Applied Materials, Lam Research and KLA Tencor, all of which have sold chip manufacturing equipment to Chinese customers. Other foreign companies such ASML (based in the Netherlands), Tokyo Electron (Japan), Samsung (South Korea) and TSMC (Taiwan) have sustained similar collateral damage.

These four countries, together with the US, make up the semiconductor Group of 5, the handful of elite players that control the exclusive intellectual property and critical technology that feed into global semiconductor value chains. They also happen to be long-time allies and strategic partners of the US.

Washington has exerted diplomatic pressure on Amsterdam, Tokyo, Seoul and Taipei, with the aim of aligning them with American techno-nationalist policy. This comes at great economic cost and raises the question of what Washington can offer its partners in return for their loyalty and hardship.

Despite objections from affected firms, the Japanese and Dutch governments have gone on record to oblige Washington, while South Korean and Taiwanese firms have been given a one-year reprieve from complying with the latest China-technology ban.

Washington’s latest round of export controls is accelerating strategic decoupling from China. New prohibitions are driving targeted supply chains towards ‘reshoring’, regardless of higher costs and efficiency challenges. Other factors such as climate change (semiconductor supply chains have big carbon footprints) and the dangers of future pandemics are compounding the need to restructure and ring-fence strategic supply chains. This is feeding a process of reglobalisation and has opened the door for new partnerships.

The second major development is the surge of more than US$200 billion in private investment in localised chip fabrication in the US, sparked by the recent enactment of the CHIPS and Science Act. This money is flowing into public–private partnerships across 16 states and represents a cross-section of investors including Micron, Intel, TSMC and Samsung, as well as niche players such as Japan’s Mitsubishi Gas Chemical, which makes highly specialised chemicals for semiconductor manufacturers.

All Group of 5 countries have introduced their own CHIPS Act–style programs. Some analysts argue that this is evidence that reshoring efforts will spur a negative-sum race to the bottom and will therefore backfire. Early evidence suggests otherwise.

Productive cross-fertilisation is occurring through the Group of 5. Intel recently announced a US$85 billion investment in foundries and R&D facilities in Germany, Ireland, Italy, Poland, Spain and France. TSMC has invested in a new chip fabrication plant in Japan, in partnership with Sony, and is in discussions for a new plant in Germany.

In Japan, IBM and Rapidus, a government-backed chip maker, have formed a partnership to manufacture leading-edge chips. Once again, public–private partnerships among trusted entities within the Group of 5 are sparking a reglobalisation phenomenon—not deglobalisation—and firms from all participating countries have the opportunity to forge new partnerships.

As to what Washington can do for its allies: it can facilitate their integration and participation in new cross-fertilisation opportunities.

A third development pertains to the AUKUS security pact, and the need to rewrite the US International Trade and Arms Regulations to facilitate the free flow of leading-edge technologies between the US and Australia.

Regulatory hurdles under the ITAR framework prevent certain sensitive technologies from flowing to Australia, and many in Washington are calling for Congress to amend the laws by writing in an exception for Australia similar to arrangements made with Canada. This would avoid years of bureaucratic red tape associated with rewriting old laws and create deep and productive technology ties for US and Australian security interests—immediately.

The ITAR discussions present the ideal opportunity to broaden the security–technology alliance to include strategies for semiconductors. There is no better time for diplomats, security officials and other key leaders in both the US and Australia to tether the AUKUS and other security relationships to new plans for semiconductors.

All of these things are auspicious developments for Australia’s semiconductor moonshot.