Shakti Fab and the Lobito Corridor both offer India strategic opportunities to play a pivotal role in this broader geopolitical realignment.
Swasti Rao 27 December, 2024 05:16 pm IST
(c) Copyright Thomson Reuters 2024
The outgoing Joe Biden administration has been unusually active in recent weeks, making significant decisions with long-term implications. These include lifting certain restrictions on Ukraine and imposing stricter trade measures on China. The structural effects of these moves will become evident in 2025 and beyond. As recently as early December, the administration delivered its third major blow to China’s semiconductor industry. This effort seeks to curtail China’s ability to access and produce advanced chips that could support artificial intelligence for military purposes or pose risks to the United States’ national security.
For India, these developments are not merely a geopolitical spectacle but hold direct strategic relevance. Beyond observing this unfolding competition, New Delhi has an opportunity to assess its role in helping the US build resilience in semiconductor production and supply chains amid the intensifying “chip war.”
A global tug-of-war
The US has maintained dominance in the semiconductor industry since Silicon Valley pioneered the technology. Over time, however, East Asian nations such as Taiwan and Japan emerged as key manufacturing hubs, incentivised by government subsidies. As Chris Miller highlights in his book Chip Wars: The Fight for the World’s Most Critical Technology, this evolution allowed the US to establish critical business and strategic alliances in a region vulnerable to Russian influence during the Cold War. In the current Cold War-style rivalry between the US and China, these alliances remain crucial in countering Beijing’s ambitions for a unipolar Asia.
China, while not a leader in manufacturing advanced semiconductors, holds a commanding position in the production and supply of critical rare earth minerals, accounting for 70 per cent of global output. These minerals are essential for creating integrated circuits used in chips for civilian and military purposes. In response to US export restrictions, China has banned exports of key minerals such as gallium, germanium, and antimony, while tightening control over graphite, further complicating global supply chains. These minerals are essential components in making integrated circuits of chips, for both civilian and military applications.
Despite its dominance in rare earth mining, China’s position is not unassailable. First, the US is the second-largest producer of rare earth minerals globally. Second, China relies on US technology to process these minerals into complex semiconductors with game-changing capabilities. However, the Biden administration’s efforts aim to prevent China from independently developing technology to control other parts of the semiconductor supply chain.
While the Trump 1.0 administration adopted a hawkish stance on China, the Biden administration has taken robust measures to restrict Beijing’s access to semiconductor technology. What plays in the US’ favour is that China depends on foreign hardware and expertise to enhance its chip production capabilities. Indeed, this shows a fragile balance of dependencies.
No conversation on chips can be complete without Taiwan. Taipei remains central to the global semiconductor industry, with its dominant chipmaker TSMC supplying a significant share of the world’s semiconductors. The island’s President has described this dominance as a “silicon shield,” offering a degree of protection against China, which claims sovereignty over Taiwan. However, from the US perspective, Taiwan’s role also creates vulnerability to supply chain disruptions, particularly as cross-strait tensions rise.
To mitigate this risk, the Biden administration passed the CHIPS and Science Act in 2022, pledging nearly $53 billion to boost US semiconductor manufacturing. While this move raised concerns in Taiwan about reduced American commitment to its defence, TSMC quickly responded by investing $40 billion in its first manufacturing plants outside the country, located in the US.
Continuing struggle
The Biden administration’s efforts to reduce dependence on China’s rare earth capabilities and bolster supply chain resilience go beyond the CHIPS Act. Two notable initiatives highlight this broader strategy.
First is the US-India semiconductor fabrication agreement. In September 2024, the US and India signed a groundbreaking fabrication agreement aimed at expanding and diversifying the global semiconductor ecosystem. Under this partnership, Bharat Semi, 3rdiTech, and the US Space Force joined forces to transfer critical technologies to India as part of the India Semiconductor Mission. These technologies focus on manufacturing infrared, gallium nitride, and silicon carbide semiconductors, essential for both national security and commercial applications.
This collaboration led to the creation of “Shakti,” India’s first semiconductor fabrication plant and the first of its kind within the Quad. The multi-material fab is designed to support modern warfare capabilities—advanced sensing, communications, and high-voltage power electronics—while also addressing commercial sector needs. It signifies a major milestone in India’s semiconductor ambitions and the US commitment to diversifying its chip supply chain.
Second is the Lobito Corridor and Africa’s re-engagement. The US has sought to re-engage with Africa through the Lobito Corridor, a key railroad project backed by the Group of Seven’s Partnership for Global Infrastructure and Investment (PGII), connecting Angola to the port of Lobito. This initiative, supported by the US and the European Union, aims to enhance Western access to critical minerals like cobalt while reducing reliance on Chinese supply chains. The project spans Angola, Zambia, and the Democratic Republic of the Congo, encouraging Western companies, particularly miners, to increase their presence in these mineral-rich regions.
For the record, the Lobito Corridor is the lesser-known connectivity initiative of the PGII. The widely known but currently stalled one is the IMEC Corridor linking India and Europe via the Middle East.
Both projects may face potential delays due to challenges in securing de-risked financing for critical investments. Despite this, the outlook for Lobito is positive, bolstered by Biden’s recent visit to Africa to strengthen ties with key nations along the corridor.
US agencies have already provided funding for the first phase of Lobito’s upgrade, while European nations committed additional support during the project’s latter phase, launched in October 2023. American firms are also stepping up; for instance, KoBold Metals, which leverages AI for critical mineral exploration, recently signed an MOU with the Africa Finance Corporation (AFC).
India, a signatory to IMEC, has an opportunity to deepen its engagement in Africa through investments in the Lobito Corridor. Africa has been a key focus under Prime Minister Narendra Modi, with instruments like lines of credit and triangular development partnerships with European countries – such as France and Italy – already in place. The corridor represents a promising avenue for India to bolster “friendshoring” investments and contribute to alternative supply chains for semiconductors, the cornerstone of the digital future.
A matter of timing and implementation
The success of these initiatives hinges on effective implementation. While agreements are significant, tangible results depend on actions taken on the ground. Sceptics in India have expressed doubts about US commitment, citing challenges in the bilateral relationship despite shared concerns about China.
However, India’s pursuit of a multipolar Asia and Indo-Pacific requires active collaboration with like-minded nations. Building resilient, complex semiconductor supply chains is a critical part of this effort, as dominance in this field will shape both global security and economic orders.
Shakti Fab and the Lobito Corridor both offer India strategic opportunities to play a pivotal role in this broader geopolitical realignment.
Swasti Rao is a Consulting editor, ThePrint and foreign policy expert. She tweets @swasrao. Views are personal.