Silicon Is the New Economy
Everything runs on silicon. Your phone, your car, your fridge, your power grid, your military. The global economy isn't built on oil anymore. It's built on sand — refined, etched, and packaged into chips by a supply chain so concentrated it makes OPEC look diversified.
Now at this point I could write a joke with the punchline "what, they're invading us for our sand?"
And that supply chain is about to reshape the geopolitical map.
From Sand to Superpower
Follow the chain. Silicon dioxide — sand — gets refined into ingots of ultra-pure silicon. Those ingots get sliced into wafers. The wafers get etched with circuit patterns using extreme ultraviolet lithography machines made by exactly one company on the planet: ASML, in the Netherlands. The lenses inside those machines? Made by Zeiss in Germany. The precision required is measured in nanometres. There is no alternative supplier.
The wafers then go to foundries — overwhelmingly in Taiwan (TSMC) and South Korea (Samsung) — where they become the chips that power everything. Every AI model, every data centre, every military system, every RP2040 in every keyboard and quadcopter.
This isn't a supply chain. It's a single point of failure for the entire global economy.
I've been fascinated by this chain for years. In 2014, I was sharing a 1978 BBC Horizon documentary about the dawn of the microprocessor — the same dynamics were visible even then:
In the documentary it was clear that whoever controlled chip fabrication would control the future economy. Nearly fifty years later, we're living in exactly that world.
The Taiwan Question
Here's the geopolitical calculus that nobody in polite company wants to say out loud.
Why does America defend Taiwan? Freedom? Democracy? Shared values? Those are nice stories. The real answer is simpler: TSMC fabricates the majority of the world's advanced semiconductors. If China takes Taiwan, China controls the chip supply. America can't allow that. Taiwan's silicon is Taiwan's shield.
The semiconductor industry calls this the "silicon shield" — the idea that Taiwan's indispensability to the global chip supply makes it too valuable to let fall. It's the best defence policy ever devised. No aircraft carriers required, just clean rooms.
Except Taiwan is dismantling its own shield.
Building Your Way to Irrelevance
TSMC is building fabs in Arizona. Samsung is building in Texas. The US CHIPS Act is throwing $52 billion at domestic semiconductor manufacturing. The stated goal is "supply chain resilience." The unstated consequence is strategic.
Every wafer fabricated in Arizona is a wafer that doesn't need to come from Hsinchu. Every advanced node brought onshore reduces America's dependence on Taiwan. And every percentage point of reduced dependence weakens the strategic case for defending the island.
Taiwan is transferring its most valuable strategic asset to the country that's supposed to protect it. Once the capacity is there — once America can fab its own leading-edge chips — the calculus changes. The silicon shield dissolves. And Taiwan becomes a geopolitical problem without a geopolitical solution.
The Taiwanese government knows this, by the way. There's been domestic opposition to the TSMC Arizona project for exactly this reason. But the commercial pressure is enormous, and saying no to your security guarantor isn't straightforward.
The Exposure Map
Taiwan isn't the only one exposed. Pull the thread and the whole Western Pacific unravels.
South Korea hosts Samsung's fabs and SK Hynix's memory production. If America's strategic interest in the region diminishes, South Korea's security guarantee weakens too. And Seoul is within artillery range of North Korea.
Japan is rebuilding its semiconductor industry (Rapidus, with our old friend IBM), but it's decades behind on leading-edge fabrication. Japan's economic security is tied to a regional stability framework that depends on American engagement.
An insular, isolationist America — and the current trajectory suggests exactly that — doesn't need to formally abandon these alliances. It just needs to care less. When you can make your own chips, the urgency of defending someone else's fabs drops considerably.
And supply chains aren't just economic vulnerabilities anymore — they're attack surfaces. We saw that spectacularly in 2024:
BOMs and bombs — I should really work on my dad jokes.
When intelligence agencies are weaponising hardware supply chains — literally putting explosives in pagers — the idea that chip fabrication is "just" an economic issue becomes absurd.
ASML: The Most Important Company You've Never Heard Of
If chips are the new oil, ASML is the drilling equipment. There is no plan B.
ASML's extreme ultraviolet (EUV) lithography machines cost roughly €350 million each. They're the size of a double-decker bus. They work by generating a plasma hotter than the surface of the sun to produce light at a 13.5nm wavelength, which gets focused through Zeiss optics to etch transistor patterns onto silicon wafers.
No other company can make these machines. China can't. Russia can't. Nobody is close. The Netherlands — specifically, a mid-sized Dutch city called Veldhoven — is the bottleneck for every advanced chip on the planet.
This makes the Dutch government's export control decisions more geopolitically significant than most UN resolutions. When the US pressured the Netherlands to restrict ASML sales to China, it wasn't a trade policy — it was an act of strategic containment.
The entire digital economy — AI, cloud computing, autonomous vehicles, military systems — depends on optics made by a German company, assembled into machines by a Dutch company, operated in fabs that are migrating from East Asia to the American Southwest. The concentration of capability would be laughable if the stakes weren't existential.
AI Accelerates Everything
Now add AI to the equation. The demand for silicon is about to go vertical.
I wrote that in 2020, when Nvidia attempted to acquire ARM — a deal that eventually fell through under regulatory pressure. Four years later, Nvidia's market cap passed $3 trillion and every AI lab on the planet is fighting for GPU allocation. The silicon dependency is only deepening.
Training large language models requires thousands of GPUs. Inference at scale requires even more. Every company building AI needs chips. Every country that wants AI sovereignty needs fabs. The competition for fabrication capacity is intensifying at exactly the moment the supply chain is being restructured.
This is going to drive costs in two directions simultaneously. Leading-edge chips (the kind that train AI models) will stay expensive because demand outstrips supply. But the rest of the market — the microcontrollers, the memory, the commodity silicon — will get cheaper as older fabs get displaced and repurposed. AI doesn't just consume chips. It accelerates the entire cycle of design, fabrication, and deployment.
The companies and countries that control silicon fabrication will control the AI economy. Full stop. Everything else is a downstream consequence.
The Pattern
Now at this point I would do another dad joke, but instead I'll leave you with an analogy.
Zoom out far enough and the pattern is always the same. Whoever controls the critical resource controls the era.
Land in the agricultural age. Coal and steel in the industrial age. Oil in the twentieth century. Silicon in the twenty-first.
The difference is concentration. Oil is distributed across dozens of countries. Silicon fabrication — the advanced kind, the kind that matters — is concentrated in a handful of facilities, dependent on machines from a single supplier, using optics from a single manufacturer.
We've built the entire digital economy on top of a supply chain with no credible Plan B. And we're only now starting to notice.
This is a pattern I keep coming back to — the gap between how important something is and how few people understand the supply chain behind it. If you want to talk about what this means for your technology strategy, get in touch.
This article is part of The Long View — spotting signals and patterns before they're obvious.