Decoding the Battle for Chip Supremacy
Updated: Feb 28
The global semiconductor supply chain is often described as being in transition, moving away from China toward India, Vietnam, Mexico, and other emerging economies. Trade data across multiple layers of the semiconductor value chain suggests a more nuanced story.
"The system is not relocating, but diversifying."
Moving Beyond the “Shift Away from China” Narrative
The global semiconductor supply chain is undergoing structural transformation, reshaped by technology, trade, and geopolitics. Upstream fabrication equipment remains concentrated among a handful of advanced economies. Midstream semiconductor production has broadened across Asia, with Taiwan and the Republic of Korea anchoring advanced chip fabrication, while Southeast Asian economies expand assembly and processing roles. Functional roles within the ecosystem have become differentiated. Downstream electronics assembly shows visible geographic redistribution. To understand this transformation, we examine the supply chain across four empirical layers: fabrication equipment, semiconductor components, assembly and testing through export–import positioning, and finally consumer electronics and communication devices.
Since Taiwan does not report as a separate economy in the UN Comtrade database, it does not appear in the trade visualizations presented here; however, its structural position in the global semiconductor network is discussed separately as a special case using external trade datasets.
Rather than mapping aggregate trade dependencies, this article examines the semiconductor ecosystem as a multi-layered production architecture, tracing how specialization and integration vary across equipment, device fabrication, and embedded electronics.
Methodology and Data Framework
Data Source: All trade data used in this analysis is sourced from the United Nations Comtrade Database (UN Comtrade), accessed using HS 2017 classification codes. The dataset covers exports and imports from 2014–2024.
Taiwan specific trade comparisons and export rankings referenced in this article are based on external trade datasets, as Taiwan does not report separately in the UN Comtrade portal interface. These include the CEPII BACI International Trade Database (2021 edition), which reconstructs bilateral trade flows and reports Taiwan as ‘Chinese Taipei’, as well as HS-level export rankings from the Observatory of Economic Complexity (OEC). Where necessary, official trade statistics from the Taiwan Ministry of Finance (Customs Administration) and aggregate trade data from the World Trade Organization (WTO) were used to validate export values and global positioning.
Layered Classification Approach: To avoid examining trade flows in isolation, we adopt a four-layer value chain framework reflecting the different stages of the semiconductor ecosystem. This layered method allows us to distinguish between upstream fabrication process, midstream semiconductor components, assembly and testing, and downstream electronics where final products are exported. Rather than treating semiconductors as a single category, this framework captures how value moves across these inter-connected stages.
HS Codes Selected:
Layer 1 (Upstream – Fabrication Equipment): HS 848620 (Semiconductor manufacturing machinery) and HS 848690 (Parts of semiconductor manufacturing equipment). These represent the capital-intensive technological backbone of chip production.
Layer 2a (Midstream – Semiconductor Components): HS 854231 (Processors and controllers), HS 854140 (Diodes, transistors), and HS 854239 (Other integrated circuits). These categories capture core semiconductor components trade across varying complexity levels.
Layer 2b (Assembly and Testing): Export–import ratios calculated for the Layer 2 HS codes to determine structural roles (export hubs, integrators , domestic absorbers).
Layer 3 (Downstream – Consumer Electronics and communication devices): HS 847130 (Laptops/portable computers), HS 851713 (Smartphones), and HS 851762 (Communication equipment). These represent high-volume final products that embed semiconductor components and reflect geographic shifts in assembly.
Country Selection: The analysis focuses on major structural players and emerging hubs, including China, United States, Malaysia, Philippines, Vietnam, India, Mexico, Republic of Korea, Japan, and the Netherlands, to capture both dominant and rising nodes in the ecosystem.
Analytical Logic: Rather than measuring absolute dominance alone, we examine trend trajectories, relative scaling, and functional specialization across layers to understand whether the supply chain reflects displacement or diversification. Further, a Sankey diagram helps us understand the major connectivity across various countries in different stages of the supply chain, thus hinting towards smaller link-chains/groupings amongst countries.
Layer 1 – Fabrication Equipment: Concentration at the Technological Core
The fabrication equipment layer reveals remarkable structural stability. Semiconductor manufacturing machinery and related equipment parts continue to be dominated by a small group of advanced economies.
Over the past decade, the Netherlands has more than doubled its semiconductor machinery exports, with a particularly sharp acceleration after 2020. Japan shows steady long-term expansion with a cyclical form of moderation, while the United States experienced strong growth through 2021 before stabilizing to a lower value. These three countries comprise a large share of the upstream technological core of the industry.
China’s exports of semiconductor equipment have increased gradually from a small base yet remain far below the leading tier. Emerging manufacturing hubs such as Vietnam, Malaysia, Mexico, and India are largely absent in this layer.
This upstream stability reflects fundamental supply chain principles. Fabrication equipment is capital-intensive, R&D-driven, and protected by intellectual property barriers.
Layer 2a – Semiconductor Components: Parallel Scaling Across Asia
The semiconductor components layer presents a different dynamic of ‘expansion across multiple geographies.
In processors and controllers, China’s exports nearly doubled from the mid-2010s to the early 2020s, reinforcing its dominant scale. Yet Malaysia and the Republic of Korea have also expanded significantly. Malaysia’s consistent upward trajectory places it firmly among the top exporters, while Korea remains structurally central, especially in memory devices. Vietnam’s rise from marginal participation to meaningful export scale since 2018 signals widening midstream integration.
In diodes and transistors, China’s exports surged sharply after 2019 and leads by a huge margin, while Malaysia and Vietnam showed steady upward movement.
The category of other integrated circuits reveals similar parallel scaling: China expanded strongly, but Malaysia and the Philippines accelerated notably.
Across other electronic ICs, the pattern is clear: China remains the largest exporter. However, production capacity is broadening geographically, particularly across Southeast Asia.
Overall, there seems to be the start of a deliberate risk diversification by multinational firms beyond a single dominant node that China earlier fulfilled in this layer.
Layer 2b – Assembly and Testing: Export–Import Ratios Reveal Roles
Layer 2a focused on export scale, producing and exporting semiconductor components in absolute terms. In Layer 2b, we transition from measuring volume to understanding structural role within the value chain using the same HS codes using export–import ratios. Analysis reveals distinction between export-oriented producers, assembly hubs, and downstream integrators, allowing us to see how countries function within the semiconductor ecosystem rather than just how much they export.
A ratio below 1 indicates that a country imports more semiconductor components than it exports. This often signals integration into downstream electronics manufacturing. China and Vietnam fall into this category, reflecting large domestic absorption of chips for integration into laptops, smartphones, and networking equipment.
A ratio around 1 suggests balanced production and consumption. A rartio moderately above 1 indicates export-oriented semiconductor manufacturing. Malaysia and Korea exhibit such outward-facing profiles, consistent with strong integration into global semiconductor supply chains.
Very high ratios, as seen in the Philippines, suggest strong specialization in semiconductor assembly and testing for export, with limited domestic semiconductor absorption.
Layer 2 demonstrates that diversification is functional.
The question of whether a high or a low export-ratio is better is irrelevant, since countries are not competing uniformly across identical stages, they occupy differentiated roles within the ecosystem.
Layer 3 – Consumer electronics and communication devices: Redistribution Becomes Visible
Downstream electronics assembly shows the clearest geographic diversification.
In laptops, China remains inarguably dominant, though growth moderated after 2021. Vietnam’s exports increased steadily after 2018, reflecting electronics relocation.
In smartphones, China continues to export at massive scale. Yet India’s exports have more than doubled in recent years, aligning closely with its Production Linked Incentive (PLI) scheme. Vietnam also maintains a strong smartphone export presence, although it is dwindling in recent years.
In communication and networking equipment, China expanded strongly through the early 2020s before softening. Vietnam and Mexico exhibit steady upward trajectories, reflecting ASEAN integration and nearshoring under USMCA.
This layer is highly sensitive to tariffs, geopolitical risk, labor costs, and industrial incentives. As a result, it is the most mobile stage of the supply chain. But, China still dominates this category as a major exporter globally.
Integrated Insight – A Layered Redistribution of Risk
Taken together, the four layers reveal that the semiconductor supply chain is not undergoing a simple geographic shift, but a structural rebalancing across stages of production.
In the upstream layers of fabrication equipment which involve capital-intensive inputs, the supply chain is concentrated by specific players, mostly advanced countries. This is because this process is technologically dense, capital intensive, and governed by intellectual property. These capabilities accumulate over decades and are embedded in ecosystems of suppliers, engineers, and research institutions, thus limiting mobility amongst countries. There is little evidence of rapid geographic convergence in this layer, and none of the emerging manufacturing hubs have yet penetrated it meaningfully.
Midstream semiconductor production, however, is more modular. Foundry and assembly operations can scale across geographies when supported by infrastructure, policy incentives, and multinational integration. Here, diversification is visible; Malaysia, the Philippines, and increasingly Vietnam have expanded their roles. The growth of these Southeast Asian hubs does not signal the erosion of China’s capacity, rather they are scaling alongside China, in response to risk mitigation and supply chain resilience strategies.
Downstream electronics assembly is the most mobile segment of the ecosystem. It is sensitive to tariffs, trade agreements, labor costs, and geopolitical uncertainty. It is therefore unsurprising that diversification is most pronounced here. India’s rapid expansion in smartphone exports, Vietnam’s strong position in both smartphones and networking equipment, and Mexico’s strengthening integration into North American supply chains show how firms are redistributing final-stage production across regions. These shifts are not replacing China’s downstream role; they are layering additional capacity alongside it. The closer we look at the consumer facing production, rising geographical distribution becomes clear. This trend of increasing diversification down the supply chain reflects underlying economics of the value chain in action.
What emerges from this layered analysis is a system that is not decoupling away from China but reconfiguring. Rather than abandoning established hubs, firms appear to be building redundancy. China remains central in device exports and final electronics, yet Southeast Asia is absorbing incremental capacity. India is a rising player as a large-scale assembly platform . Mexico is consolidating its role in regional electronics manufacturing. The United States is reinforcing upstream and advanced-node production through strategic industrial policies.
It can be observed that no single country or region monopolizes all stages of the value chain. The future semiconductor ecosystem is likely to be characterized by concentrated high-end fabrication clusters, diversified production hubs, and assembly networks pivoted around the nearby region.
Country Trajectories in a Diversifying System
Taiwan’s pivotal position in the semiconductor network
Taiwan is not a reporting economy in the UN Comtrade database, hence it is not included in the trade figures and visualizations generated for this study. However, publicly available trade databases such as BACI (2021) and OEC show that Taiwan occupies a structurally central position in the global semiconductor ecosystem across multiple layers of the value chain.
In the upstream layer, Taiwan is an important exporter of semiconductor-related manufacturing equipment and precision machinery components, though it does not surpass the Netherlands, Japan, or the United States in export scale.
In the midstream layer, Taiwan is one of the largest exporters of integrated circuits in the world, frequently ranking among the top two in key categories such as processors/controllers and other integrated circuits, a position that places it ahead of many of the countries analyzed here, including Korea, Malaysia, and China.
In terms of assembly and testing, Taiwan’s export-import ratios for semiconductor components align with those of other export-oriented production hubs (such as Korea and Malaysia), reflecting its role as another major export-oriented producer rather than a domestic absorber of semiconductor components.
In the downstream layer of consumer electronics and communication devices, Taiwan is a prominent exporter of computers and communication equipment, often ranking ahead of most emerging assembly hubs and trailing only China and the United States in these product categories; by contrast, it plays a less significant role in smartphone exports. Taken together, these external rankings and export profiles confirm that Taiwan is a highly integrated node in the global semiconductor network, particularly in midstream production and certain categories of final electronics devices.
China: Scale, Integration, and Domestic Absorption
China remains central across midstream and downstream layers. Its dominance in semiconductor components exports and final electronics reflects ecosystem depth. The country’s comparatively lower export-import ratio in semiconductor components does not signal weakness; rather, it underscores its role as a massive integrator of chips into final electronics devices.
Initiatives such as ‘Made in China 2025’ and the National Integrated Circuit Industry Investment Fund (commonly referred to as the “Big Fund”) have directed billions of dollars toward domestic fabrication capacity, design firms, and upstream technology development. More recent efforts emphasize semiconductor self-reliance in response to export controls, including targeted support for mature-node production and domestic equipment capabilities.
China’s trajectory is one of adaptation: maintaining downstream dominance while gradually strengthening upstream autonomy.
United States: Upstream Technological Anchor
The United States plays a critical role in upstream equipment and advanced semiconductor technologies. While it is not the largest exporter of consumer electronics, it remains central in semiconductor manufacturing equipment, design, and high-performance chip architecture.
The CHIPS and Science Act (2022) represents a strategic effort to reinforce domestic fabrication capacity through subsidies, tax incentives, and R&D support. The policy recognizes that control over advanced-node fabrication and equipment supply is a matter of economic and geopolitical leverage. Beyond fabrication, the United States continues to dominate in semiconductor design, intellectual property, and EDA (Electronic Design Automation) software, which are less visible in trade statistics but foundational to the semiconductor ecosystem .
The U.S. leads in technology rather than production volume, anchoring the most knowledge-intensive parts of the system.
Malaysia: Export-Oriented Semiconductor Specialist
Malaysia’s consistent presence across semiconductor components exports reflects decades of strategic industrial development. Beginning in the 1970s, Malaysia positioned itself as a semiconductor assembly and testing hub, building clusters in Penang and other industrial zones. Today, it remains one of the world’s most important back-end semiconductor processing center.
Its strong export–import ratio signals a highly outward-facing production model. Malaysia’s semiconductor ecosystem is supported by multinational integration driven by targeted tax incentives through the Malaysian Investment Development Authority (MIDA) that helped attract global firms. Later on, specialized industrial parks, and government initiatives such as the National Semiconductor Strategy (NSS) announced in 2023, aimed to upgrade capabilities toward higher-value activities.
Malaysia’s trajectory suggests continued strengthening as a semiconductor export hub, with gradual movement into higher-value packaging.
Philippines: Assembly Powerhouse
The Philippines exhibits one of the highest export orientations in semiconductor components, reflecting its deep specialization in assembly and testing. Its rise in integrated circuit exports over the past decade signals further assimilation into global semiconductor supply chains.
Government support has historically focused on export processing zones and foreign direct investment facilitation through agencies such as the Philippine Economic Zone Authority (PEZA). Recent discussions under the Philippine Semiconductor and Electronics Industries Foundation (SEIPI) emphasize upgrading skills and attracting higher-value segments.
The Philippines’ strength lies in specialization rather than scale across all layers. It has positioned itself as a reliable, export-oriented back-end processing hub within a distributed Asian semiconductor network.
Vietnam: Strategic Electronics Integrator
Vietnam’s rise across device exports and final electronics manufacturing reflects a planned integration into global production networks. It transitioned from a peripheral player to a major electronics exporter, particularly in smartphones and communication equipment.
This transformation has been supported by aggressive foreign direct investment strategies, industrial clustering policies, and participation in trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). The government’s National Strategy for Industry Development and incentives for high-tech investment have played an important role in attracting multinational electronics manufacturers.
Vietnam’s model has been downstream-intensive, but the steady expansion in semiconductor components exports suggests active efforts to participate in midstream segment.
India: Rapid Downstream Scaling
India’s most visible growth appears in smartphone exports, which have risen sharply in recent years. This growth is closely linked to the Production Linked Incentive (PLI) scheme for Large-Scale Electronics Manufacturing, launched in 2020. This scheme created incentives for multinational corporations to relocate, thus scaling domestic manufacturing rapidly.
India remains import-dependent in semiconductor components, as reflected in its export–import ratios. However, the government has also introduced the India Semiconductor Mission and incentive programs for semiconductor fabrication and assembly plants to gradually build upstream capacity.
Mexico: Nearshoring Beneficiary
Mexico’s steady expansion in networking and communication equipment reflects its integration into North American supply chains. Under the United States–Mexico–Canada Agreement (USMCA), Mexico has strengthened its role as a regional manufacturing hub for electronics and automotive-related components.
Integrated logistics corridors, and established maquiladora industrial zones provide structural advantages. Mexico’s semiconductor components exports remain modest relative to Asia, but its downstream electronics assembly capacity is strengthening.
Big Picture and Way Ahead
What these country trajectories ultimately show is not a race where one nation replaces another, but a system in which different countries are strengthening different parts of the semiconductor value chain guided by geopolitical, economical and technological positioning. China remains central because of its scale and integration capacity. The United States anchors critical upstream technologies. Taiwan plays a pivotal role in advanced semiconductor components production, forming one of the core midstream pillars of the global ecosystem. Malaysia and the Philippines specialize in semiconductor processing. Vietnam, India, and Mexico are expanding in electronics assembly, supported by targeted policy incentives and trade integration. Rather than relocating, the semiconductor supply chain is diversifying production across stages. This shift reflects risk management and strategic diversification.
The way forward lies in understanding these complementary roles and investing in capabilities that resonate with each country’s strengths, ultimately, the semiconductor industry’s evolution will hinge on layered coordination and mutual specialization, rather than a zero-sum race among nations.
Very insightful article by Ritesh & Sagar. Especially the Sankey diagram towards the end gave reality check with respect to semiconductor supply chain at global level.