HOW DOES INTERNATIONAL CHIP PRODUCTION WORK?
To produce a chip, several elements are required. Melle Scholten explains: “Raw materials largely come from China and Ukraine. Chip design mostly takes place in the United States and South Korea, often based on European innovations and intellectual property. The essential equipment for chip manufacturing comes mainly from Europe and Japan. All these components are then brought together in a so‑called foundry, the most well-known and advanced of which is the Taiwanese TSMC. A chip on its own is of little use to the consumer, of course, so it is exported to companies that incorporate them into final products. Think of consumer electronics such as smartphones or gaming consoles, but so‑called ‘smart missiles’ also rely on chip technology.”
Given that the most advanced chips have both civilian and military applications, governments regularly intervene in the export of chips and their building blocks. “But because the entire production process is highly international, countries generally prefer not to step on each other’s toes too much,” says Scholten. He compares it to a game of pick‑up sticks (Mikado), but on a global scale: “You don’t want the other party to win, but you also need to be careful not to knock the whole system out of balance.”
HOW CAN TRADE LEAD TO PEACE?
If governments and companies primarily act out of self‑interest, how can trade possibly lead to peace? Scholten: “Perhaps a stylised example might help. Imagine two countries, A and B. Country A produces a strategic product, X, and sells it to B. If B expects that future supplies of X may become uncertain, it might choose to attack or take over A to secure access to X. This is one of the reasons why Japan invaded Indonesia during the Second World War: to secure access to oil, which was vital for the war industry.”
Scholten continues: “Now imagine that A cannot simply produce X, but needs a second product, Y, which it imports from a third country, C. The calculation for B becomes far more complex, because even if B were to seize A, that does not guarantee access to X. Country C could cut off the supply of Y, making the production of X impossible.”
Scholten recently published an article on this topic. “In it, we argue that this sketch broadly resembles the global chip production chain. It partly explains why China has conducted many military exercises around Taiwan but still has not invaded the island, despite its military superiority. Even if China were able to capture TSMC’s factories undamaged, they would be useless without American software and European machinery.”
HOW STABLE IS THIS SITUATION?
Unfortunately, the world order is far more fragile than it was ten years ago and is becoming less stable still. “Dutch companies such as ASML and Nexperia play important roles in the international chip trade, which means both Washington and Beijing exert significant pressure on The Hague concerning the regulation of such firms. As a NATO ally, the Netherlands has so far largely honoured American demands, even when this leads to direct conflict with China and delivers a substantial blow to the Netherlands’ international reputation, as seen in the recent Nexperia affair.”
Scholten: “The model we describe in our article only works if chip production is globally distributed and every actor restrains the others with the threat of sanctions. But this also means that individual countries would ideally prefer to have the entire production chain within their own borders. We see both the United States and China taking strategic steps to reduce their dependence on each other (and on the rest of the world) for chips. From an individual viewpoint this is logical, but the consequences for the world, in our view, are negative.”
Melle Scholten obtained his PhD in April 2025 at the University of Virginia in the United States. He is an expert in international and comparative political economy.
