US–China–Taiwan chip export controls, critical minerals policy and new alliances like Pax Silica

The semiconductor industry in 2027 remains a battleground where geopolitical rivalry, technological innovation, and resource scarcity intersect with unprecedented intensity. Recent developments underscore how the United States and its allies have escalated export controls, China has doubled down on domestic capabilities and strategic resource management, and new multilateral coalitions are reshaping the global semiconductor ecosystem. Meanwhile, surging hyperscaler demand and critical mineral shortages are adding urgent complexity to a rapidly evolving landscape.

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Allied Export Controls: Expanding the Frontiers of Restriction and Enforcement

In the first half of 2027, allied export controls on semiconductor technologies have not only expanded in scope but also intensified in enforcement, signaling a paradigm shift in how technology transfer to China and other adversaries is managed:

• Expanded Technology Coverage: Export controls now explicitly include AI accelerators and neural network processors fabricated at 5nm and below, along with advanced chip packaging and wafer-testing equipment. This closes previous loopholes that allowed limited flows of cutting-edge technologies to China, tightening the allied grip on critical manufacturing capabilities.

• Critical Minerals Added to Control Lists: For the first time, strategic minerals such as gallium and germanium—key inputs in advanced semiconductor processes—have been classified under export restrictions. This move reflects a growing recognition that control over raw materials is as strategically vital as control over finished chips.

• Heightened Enforcement Actions: The record-setting $252.5 million penalty against Applied Materials earlier this year demonstrates the U.S. Bureau of Industry and Security's (BIS) uncompromising stance on violations. Investigations are now targeting TSMC subsidiaries and intermediaries suspected of circumventing controls through complex third-country routing, emphasizing the ongoing challenges in policing globalized supply chains.

• Clarification on AI Chip Shipments: U.S. authorities have publicly confirmed that no Nvidia H200 AI chips have been shipped to China since the expiration of Trump-era limited approvals, reinforcing the allied commitment to restricting high-performance AI hardware exports.

• Supply Chain Diversification Initiatives: The U.S. government is proactively supporting new semiconductor export and manufacturing routes through Southeast Asian hubs like Vietnam, aiming to reduce overreliance on China-centric logistics and enhance allied supply chain resilience.

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China’s Resilient Dual Strategy: Covert Procurement and Massive Domestic Scaling

China continues to pursue a robust and multifaceted response that blends covert procurement with aggressive domestic capacity expansion and strategic resource management:

• Persistent Covert Procurement: Despite enhanced allied intelligence and enforcement, covert chip transfers through third-country intermediaries persist. The infamous DeepSeek incident of 2026, which involved illegal transfers of Nvidia Blackwell architecture chips, remains emblematic of enforcement difficulties.

• Massive Domestic Build-Out: China has committed over $50 billion in subsidies to expand memory production and advanced packaging, focusing on mature yet strategically important nodes such as 14nm and 7nm. Companies like CXMT and YMTC are rapidly scaling output to replace embargoed technologies and meet domestic and regional demand.

• SMIC’s Advanced Node Progress: Despite severe U.S. restrictions, SMIC reports meaningful progress toward commercial viability of AI chip fabrication at advanced nodes, signaling a significant push for semiconductor self-sufficiency.

• Strategic Mineral Leverage: Beijing has reimposed rare earth export restrictions in early 2027, exacerbating global supply constraints. With critical mineral stockpiles up by 20% since mid-2026, China wields these resources as a potent geopolitical and economic lever.

• Huawei’s AI Chip Innovations: Huawei continues to accelerate AI chip development, reinforcing China’s determination to reduce dependence on foreign technology amid tightening global restrictions.

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Deepening Allied Cooperation: Pax Silica Expansion and U.S.-India Partnerships

Allied nations are fortifying cooperative frameworks that integrate technology collaboration, supply chain security, and capacity expansion:

• Pax Silica Alliance Growth: Since India’s accession in mid-2026, the Pax Silica alliance has evolved into a broader “technology democracy” coalition. Both South Korea and Australia have formally expressed intentions to join, which would significantly bolster allied efforts to contain China’s technological influence and foster shared innovation.

• U.S.-India AI Opportunity Pact: This initiative promotes joint AI chip design and manufacturing ventures. Leading Indian conglomerates like Tata are partnering with global semiconductor leaders such as Qualcomm and AMD, accelerating India’s emergence as a key semiconductor hub.

• Major Fab Investments:

  • Micron’s $9.6 billion AI memory fab expansion in Boise, Idaho is advancing rapidly to meet surging AI-driven memory demand.
  • TSMC’s fabrication projects in Japan and Vietnam continue their strategic progression, underscoring diversification away from Taiwan and China.
  • Imminent fab announcements in India and Southeast Asia are projected to further fortify regional manufacturing resilience.

• Cybersecurity and Governance Initiatives:

  • The Semiconductor Supply Chain Cybersecurity Act (SSCA) enforces enhanced transparency and risk mitigation across allied supply chains.
  • The Trusted Tech Alliance has expanded to include more Indian and European chipmakers, strengthening collective cyber defense.
  • UAE-based AI leader G42 is spearheading efforts to develop ethical frameworks for deploying U.S.-origin AI chips within allied countries.

• Innovative Industry Partnerships: The trilateral collaboration between Powerchip Semiconductor Manufacturing, Intel, and SoftBank is pioneering new AI memory technologies designed to alleviate critical capacity bottlenecks driven by hyperscaler demand.

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Hyperscaler Demand and Market Dynamics: Nvidia’s Dominance and Emerging Competitors

Hyperscalers continue to be the principal drivers of semiconductor market dynamics, accelerating demand and innovation cycles:

• Leading hyperscalers — Meta, Microsoft, Alphabet, and Amazon — invested over $650 billion in AI infrastructure in 2026, fueling extraordinary demand for GPUs, AI accelerators, and memory.

• Nvidia’s Q1 2027 earnings exceeded expectations, with CEO Jensen Huang revealing near-finalization of a strategic partnership with OpenAI, cementing Nvidia’s dominance in AI hardware.

• AMD’s 6-gigawatt GPU supply deal with Meta underscores efforts to diversify suppliers amid constrained Nvidia production capacity.

• OpenAI’s rapid infrastructure scaling and Microsoft Azure’s 31% year-over-year revenue growth highlight robust market momentum.

• New entrants like Toronto-based startup Taalas are innovating AI chips embedding large language models (e.g., Llama) directly on silicon, challenging Nvidia’s position by integrating inference capabilities at the hardware level.

• Recent capacity additions include the operational $4 billion wafer fab in Sherman, Texas (GlobalWafers) and record financial results from SkyWater Technology’s 2025 fiscal year, marking notable U.S. domestic capacity growth aligned with AI demand surges.

• A Federal Reserve study indicates AI data centers are proliferating beyond traditional hubs, complicating export control enforcement and reshaping supply chain flows.

• Investor sentiment remains cautiously optimistic; Morgan Stanley’s forecast revisions ahead of Nvidia’s Q4 2027 earnings report (due February 25) are highly anticipated as key market indicators.

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Critical Mineral Shortages: Escalating Urgency and Diplomatic Stakes

Critical mineral shortages have worsened, threatening semiconductor and aerospace supply chains:

• Despite the U.S.-China trade truce initiated in October 2026, rare earth shortages persist, with gallium, germanium, and other critical mineral supply pressures intensifying.

• The export freeze announced by Carney, a major strategic minerals supplier, triggered shockwaves in Washington, prompting urgent policy recalibrations to address an estimated $120 billion supply shock.

• Industry experts warn that without coordinated international cooperation and rapid diversification of supply sources, bottlenecks could severely disrupt global technological progress and national security.

• Critical mineral issues are now central to upcoming U.S.-China diplomatic negotiations, which may define future frameworks for mineral availability and export controls.

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Near-Term Watchlist and Strategic Outlook

• Pax Silica Expansion: The formal accession of South Korea and Australia is expected to significantly enhance allied semiconductor cooperation and containment of China’s technological ambitions.

• U.S.-China Rare Earth Negotiations: Diplomatic talks scheduled in coming months may open pathways for controlled critical mineral sharing, with profound implications for global supply stability.

• Fab Announcements in India and Southeast Asia: Imminent announcements will further diversify and secure regional semiconductor manufacturing capacity.

• Continued Enforcement Actions: Additional investigations and high-profile penalties are anticipated, underscoring the need for robust corporate compliance amid escalating regulatory scrutiny.

• Urgent Scaling of AI Chip and Memory Production: Meeting hyperscaler demand remains critical to avoid cascading disruptions across automotive, defense, and technology sectors.

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Conclusion

As 2027 unfolds, the semiconductor sector stands at a decisive juncture characterized by intensifying allied export controls, China’s resilient and multifaceted countermeasures, and deepening multilateral alliances such as Pax Silica and the U.S.-India AI Opportunity Pact. The growing scarcity of critical minerals and surging demand from hyperscalers add layers of complexity that demand swift policy action and strategic agility.

The escalating enforcement efforts, coupled with pioneering industry innovations and expanding allied cooperation, are driving a profound restructuring toward a multipolar, resilient semiconductor ecosystem. Navigating this volatile and fiercely competitive environment successfully will be pivotal for securing global technological leadership, supply chain security, and national economic interests in the semiconductor era.