Divergent Ambitions: Can the US-India Semiconductor Alliance Sustain Itself?

By: Aisha Khemani

Photo by UNIVERSITY OF SOUTH FLORIDA

Introduction

Amidst the Gulf War and the Cold War of the 20th century, oil was not merely a commodity but a strategic asset that granted countries influence and served as the backbone of many bilateral relationships. Today, semiconductor chips have taken on a similar role, powering nearly every piece of technology we use. As semiconductor production becomes key to maintaining global standing, the U.S.-India semiconductor alliance has emerged as a pivotal partnership to counter China’s dominance, diversify supply chains, and foster technological innovation. While the partnership must navigate challenges like differing geopolitical priorities and economic strategies, it has the potential to position both nations as leaders in technological advancement.

Background

In the 1960s and 1970s, a “semiconductor revolution” emerged in Asia, leading the U.S. to relinquish its status as a chip manufacturing hub and begin outsourcing production. Currently, Taiwan produces 92% of the world’s most advanced semiconductors, positioning itself as a critical partner for any nation seeking to exert influence over the global order (Manjunath, 2024).

Taiwan’s status is a major geopolitical issue. Despite having an independent democratic government, only 12 countries recognize Taiwan as its own nation, while China sees it as a breakaway province and aims for a reunification with the island (Brown, 2023). The U.S. officially follows the One-China policy, viewing Taiwan as part of China. However, it maintains unofficial ties with Taiwan, including providing $2 billion in annual military aid (“U.S. Lends Taiwan $2 Billion to Buy American Defense Equipment,” 2022). This support is crucial for the U.S. to maintain access to Taiwan’s semiconductor industry; if China controlled Taiwan, it would dominate semiconductor manufacturing and significantly weaken U.S. influence worldwide (Brown, 2023).

While the U.S. invests in protecting Taiwan from Chinese aggression, top government officials have cautioned that it is not a foolproof strategy. Therefore, investing in domestic manufacturing and diversifying chip sources is essential. In 2022, the bipartisan CHIPS and Science Act was signed into law, allocating $280 billion to enhance U.S. semiconductor capacity, catalyze research and development, and create regional high-tech hubs (Badlam et al., 2022).

The U.S. has also looked to other partners to help diversify its semiconductor supply chain. India has emerged as a critical partner in this effort. In recent years, India has aimed to foster self-reliance in manufacturing and strengthen its semiconductor industry as it vies for influence on the world stage. It has an ambitious target to increase the sector’s value by $345 billion by 2030. A lofty goal like that cannot be achieved alone (Jacob, 2024). 

In recent years, India’s relationship with the U.S. has significantly strengthened, marked by a rare bipartisan consensus in Washington on the importance of  the partnership. At the core of this consensus is the recognition of India as a crucial counterweight to China (Bajpaee, 2024). India-China relations have deteriorated due to persistent border tensions, trade disputes, and China’s growing alliance with Pakistan (Levesques, 2024). Capitalizing on these escalating tensions, the U.S. has encouraged India to participate in initiatives like the “West Asian Quad” (I2U2) and the Indo-Pacific Economic Framework for Prosperity (IPEF), which India once avoided, to prevent antagonizing China (Bajpaee, 2024; Khan, 2023).

​​Current State of US - India Semiconductor Alliance

In September, the U.S. Department of State announced its partnership with the India Semiconductor Mission to “improve the global semiconductor value chain” (Jacob, 2024). A key aspect of this “watershed” arrangement is the construction of the first-ever national security semiconductor plant focusing on advanced sensing, communication, power electronics, and green energy applications (“India to Establish First National Security Semiconductor Plant in Partnership with U.S.,” 2024). Additionally, Micron Technology, an American company, announced it would launch the first Indian-made semiconductor chip in 2025, while another U.S. chipmaker, Analog Devices has reached an agreement with India’s Tata Group to explore the development of semiconductor products in India (Jacob, 2024). Officials in both nations have lauded this growing partnership as it allows the U.S. to avoid “supply chain bottlenecks” amid rising geopolitical tensions between China and Taiwan. For India, a partnership with the U.S. could bolster its ambitions to become a global semiconductor hub, as the willingness of companies to invest in India will likely increase (Swain, 2024).

Contention in U.S-India Bilateral Relationship

While optimism surrounds growing U.S.-India cooperation, both nations are competing for influence in a vital market and have distinct geopolitical perspectives. India adheres to a policy of strategic autonomy, aligning with the Global South and occasionally rejecting the U.S.-led liberal international order to preserve its neutrality. Despite deepening ties with the U.S., India continues prioritizing its relationship with Russia, its top defense partner, even as U.S.-Russia relations have deteriorated due to the Russo-Ukraine war (Bajpaee, 2024). For instance, following Russia’s invasion of Ukraine, the Biden administration attempted to pressure India into distancing itself from Russia, but India instead chose to purchase heavily discounted Russian oil (Bajpaee, 2024). Such actions, reflecting India’s determination to assert its autonomy, are “antithetical to the U.S. goal of maintaining primacy in the international system” and are likely to create ongoing tensions (Grossman, 2024).

India also occasionally perceives U.S. policies as a threat to its interests, particularly due to American support for Pakistan, which India regards as a terrorist state. The historical alliance between the U.S. and Pakistan during the Cold War and the Bangladesh War of Independence remains vivid in Indian memory. More recently, following the U.S. withdrawal from Afghanistan, the U.S. has pursued closer ties with Pakistan, expanding the focus beyond security to include trade and investment. (Grossman, 2024)

Proposed Policy Change

While both nations’ goal of countering China’s influence can bring them closer, it cannot sustain the partnership alone. For the collaboration to be viable, both countries must move beyond mere cooperation and foster genuine trust, ensuring that neither needs to outmaneuver the other. 

In 2018, the U.S. Department of Commerce granted India STA-1 status, the highest designation under the Strategic Trade Authorization (STA) program, placing India on par with traditional allies like the United Kingdom, Canada, and South Korea. This status allows India to acquire and export controlled dual-use and sensitive U.S. technologies. However, certain advanced semiconductor manufacturing technologies, such as extreme ultraviolet (EUV) lithography systems, remain excluded from this classification. Expanding STA-1 to include these critical technologies would simplify India's access to them by eliminating the need for individual export licenses. Under the current framework, U.S. companies must obtain individual licenses to export these technologies, which can delay transactions, potentially hindering the pace of semiconductor development​ (Khalid, 2018).

The expansion of STA-1 would likely strengthen India’s trust in the U.S. by reinforcing its position as a key global partner. However, it could raise concerns among U.S. companies about the possibility of increased competition. Despite these concerns, it remains economically unfeasible for the U.S. to establish a fully self-sufficient semiconductor supply chain, as even a robust domestic industry would still rely on a diverse array of imported products and technologies. When U.S. allies like India develop their own semiconductor capabilities, it benefits the U.S. by fostering greater global integration. Every additional participant in the semiconductor ecosystem strengthens it. Expanding India’s access to advanced semiconductor technology would increase the U.S. semiconductor ecosystem’s appeal to investors, enhancing its R&D potential and benefiting both nations by fostering innovation and ensuring a more resilient global supply chain (Thomas, 2022)

Conclusion

The U.S.-India semiconductor alliance represents a vital step in diversifying the global semiconductor supply chain and countering China’s dominance. However, for this partnership to reach its full potential, both nations must overcome divergent geopolitical priorities and foster greater trust. Expanding India’s STA-1 status to include advanced semiconductor manufacturing technologies is a crucial policy change that would significantly strengthen this partnership. By reducing export licensing requirements, it would streamline India’s access to these essential technologies, supporting its growth as a semiconductor powerhouse, For the U.S., encouraging India’s semiconductor development can enhance global integration and ensure a more resilient supply chain, benefiting both nations in the face of rising geopolitical tensions.

The views expressed in this publication are the authors' own and do not necessarily reflect the position of The Rice Journal of Public Policy, its staff, or its Editorial Board.

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