Semiconductors are becoming one of the clearest manifestations of the changing nature of power in the global economy. Chips are no longer merely industrial inputs. They are foundational infrastructure for artificial intelligence, smart vehicles, communications, energy, military systems, data centers, and a large share of the digital economy. The semiconductor competition between China and the United States should therefore be understood not simply as a trade dispute, but as a contest over control of technological chokepoints in the twenty-first century, an issue that also sits at the intersection of technology policy, economic security, and technology geopolitics for the Technology Diplomacy Institute.
A major turning point in this competition came with the experience of ZTE in 2018 and, subsequently, the broad U.S. export restrictions introduced in October 2022. From Beijing’s perspective, these developments demonstrated that dependence on foreign technology could become a source of geopolitical leverage. CSIS argues that following these developments, China’s semiconductor policy evolved from an industrial development policy into one with a much stronger national-security dimension. China has mobilized substantial resources in response. According to MERICS, China’s state-backed “Big Fund” and other government resources have directed more than CNY 686 billion into the semiconductor industry since 2014, excluding additional support from local governments and private investment. But the central question is what “semiconductor self-sufficiency” actually means.
Self-Sufficiency Means Building the Whole Chain
The semiconductor value chain is among the world’s most complex technology supply chains. Chip design, electronic design automation software, materials, manufacturing equipment, lithography, deposition, etching, metrology, fabrication, packaging, and testing depend on networks of companies and countries. No country currently controls all of these links at the highest level. U.S., Japanese, and Dutch restrictions have also targeted different parts of this chain. China therefore faces a challenge that cannot be solved simply by building more fabs. The most difficult challenge lies at the leading edge. MERICS assesses that China has a strong position in mature-node production and backend processes, but remains behind in advanced semiconductors and the equipment required to produce them. SMIC has demonstrated the ability to manufacture 7-nanometer-class chips, but China’s access to advanced extreme ultraviolet lithography equipment remains constrained.
Yet export controls have also produced a paradoxical effect. The same policies intended to slow China’s technological progress have strengthened incentives for self-sufficiency. Rather than focusing exclusively on reaching the latest process node, China has gradually pursued a “whole-of-chain” approach. The objective is to connect chip designers, equipment manufacturers, materials suppliers, packaging companies, research institutions, and domestic customers. Huawei occupies a particularly important position in this strategy. The company is no longer simply a telecommunications firm. It has become a central actor in China’s effort to rebuild its semiconductor supply chain, with its Hubble investment arm backing dozens of companies across the ecosystem.
At the same time, China is increasing its presence in memory. ChangXin Memory Technologies, or CXMT, has emerged as a major Chinese DRAM producer and is moving toward more advanced products such as DDR5 and high-bandwidth memory, technologies that are increasingly important for next-generation artificial intelligence infrastructure. This matters because the future of the chip war will not be determined by logic chips alone. Memory, packaging, equipment, materials, and even domestic demand can become new arenas of competition.
China is also using its domestic market as an instrument of industrial policy. The “buy Chinese” approach is becoming particularly important for equipment and chips used by domestic industries. CSIS shows that the Chinese government has sought to turn domestic demand into an initial market for Chinese technology producers, since without domestic demand, Chinese equipment and chip companies would have fewer opportunities to achieve scale and accumulate operational experience. This point is crucial. In China, self-sufficiency is not only a question of supply. It is also about creating a market for domestic technology. From this perspective, U.S. export controls have produced two different effects. In the short term, they have made access to advanced technologies more difficult and increased development costs. Over the longer term, however, they have strengthened incentives to invest in domestic alternatives and pushed China toward restructuring the value chain. CSIS similarly points to this dual effect. The restrictions have disrupted parts of China’s ecosystem while also becoming a catalyst for broader self-sufficiency efforts.
The Chip War Is Not Only About the Most Advanced Chip
The key question, therefore, should not be whether China can soon manufacture a 2-nanometer chip. That question reduces a strategic issue to a single technical metric. A more strategic question is whether China can localize enough critical bottlenecks in the value chain to maintain the capacity required for artificial intelligence, automobiles, telecommunications, industry, and defense even without full access to Western technologies. If the answer is yes, China could achieve a degree of technological resilience even without quickly reaching full parity with TSMC. The distinction between technological leadership and technological resilience is important. China may remain behind global leaders in the most advanced nodes in the near term. But if it can build sufficient capabilities in mature chips, memory, packaging, equipment, materials, design, and domestic demand, it can reduce its strategic dependence.
China is also expanding its broader innovation capacity. Its R&D expenditure reached CNY 3.9262 trillion in 2025, equivalent to 2.80 percent of GDP. Combined with industrial policy, these resources give China greater capacity to absorb technological setbacks over a longer time horizon. The trajectory should nevertheless not be assumed to be uniformly successful. Advanced semiconductor manufacturing requires tacit knowledge, precision equipment, high-purity materials, software stacks, and operational experience that develop over time. Government investment alone cannot create all of these capabilities rapidly. This is where the limitations of absolute self-sufficiency become clear. Semiconductors are inherently a global industry, and China still needs interaction with global networks of knowledge, equipment, markets, and standards to accelerate its development.
The future of China’s semiconductor supply chain is therefore more likely to involve not a complete break from dependence, but a restructuring of dependencies. This development also matters for Iran. Iran is unlikely to compete in this chain simply by seeking direct entry into advanced-node manufacturing. More realistic opportunities may emerge in chip design, embedded systems, packaging, specialized equipment, materials, industrial applications, power electronics, and the development of regional markets. From a technology diplomacy perspective, cooperation with China should also move beyond chip purchases toward understanding supply-chain architecture, knowledge transfer, academic cooperation, development of packaging and design capabilities, and connecting Iranian companies with complementary parts of China’s ecosystem.
Ultimately, the chip war may be less about who can manufacture the most advanced chip and more about who can build a supply chain that is more resilient to geopolitical shocks. China is responding to that question not by waiting for rapid technological supremacy, but by gradually redesigning the architecture of its dependencies.