The Semiconductor Race in the Indo-Pacific (Time to Build a Shared Ecosystem)
The race to build the semiconductor industry has become an important part of global economic competition. The United States, China, Japan, South Korea, Taiwan, and India are investing to strengthen their chip industry capacity. In Southeast Asia, Singapore, Malaysia, the Philippines, Vietnam, Thailand, and Indonesia are also seeking to take part in the value chain of an industry that forms the foundation of the digital economy.
However, behind each country’s ambitions lies a fundamental question: should the future of the Indo-Pacific semiconductor industry be determined by each country’s ability to build its own industry, or rather by their ability to form a mutually complementary production ecosystem?
Competition and the Cost of Self-Reliance
The semiconductor industry does not stand alone. Its production requires design, software, specialized materials, precision machinery, fabrication, packaging, testing, and highly skilled workers. Taiwan holds an important position in chip fabrication, South Korea is strong in memory, Japan excels in materials and equipment, while the United States has strengths in design and technology. China is developing its domestic capacity, while India is expanding its design and manufacturing capabilities.
In Southeast Asia, Singapore plays a role in fabrication and high-value-added activities. Malaysia and the Philippines have experience in packaging and testing. Vietnam is expanding its electronics manufacturing base, while Indonesia has opportunities to develop skilled workers, component suppliers, and semiconductor user industries.
This map shows that the region’s strength lies precisely in its differences in capabilities. However, if every country seeks to master every stage of production, investment may be duplicated and costs may increase. National self-reliance pursued without considering regional efficiency could even create new dependencies on imported technology, equipment, and materials.
Lessons from the Silk Road
The history of Asian trade shows that prosperity does not always arise from each region’s ability to produce everything independently. The Silk Road connected East Asia, Central Asia, South Asia, the Middle East, and the Mediterranean through networks of land and maritime trade. Goods, knowledge, technology, and ideas moved across regions, forming economic relationships that transcended political borders.
Of course, the Silk Road is not a model that can simply be applied to the modern economy. However, history provides an important lesson: connectivity can create value that cannot be produced by a single region in isolation.
In this context, a semiconductor race oriented solely toward national self-reliance risks overlooking the cross-border nature of the industry from the outset. The issue is not whether countries should compete, but whether that competition builds shared capacity or instead increases fragmentation.
When Competition Creates Losses
Japan’s experience shows that industrial advantage is not permanent. In the 1980s, Japan was a major force in memory DRAM. However, technological and business model changes, competition from South Korea and Taiwan, as well as structural problems in the industry, contributed to the decline of Japan’s position in semiconductors. The lesson is that maintaining national capacity without adapting to changes in the industrial structure can erode competitiveness.
Another example comes from the United States–China solar panel trade war. A study by Wang and Houde published in the Journal of the Association of Environmental and Resource Economists in 2026 estimated that, without the trade barriers examined, demand for residential solar systems in the United States would have been 22.5% higher. In the study’s estimates, a US$1 tariff on producers increases the final price of an installed system by US$1.17.
The solar panel case is not evidence that all industrial protection necessarily fails. However, the experience shows that benefits to certain producers can be accompanied by losses for installers, consumers, and downstream industries. A policy that protects one segment does not necessarily strengthen the entire ecosystem.
Building an Indo-Pacific Ecosystem
David Ricardo’s theory of comparative advantage explains that countries benefit when they specialize according to relative opportunity costs. In the semiconductor industry, this principle supports the division of production stages based on each country’s technological capabilities, productivity, and costs.
Meanwhile, the theory of agglomeration economies explains how the proximity of companies, suppliers, research institutions, and skilled workers increases productivity through knowledge exchange and economies of scale. The global value chains framework also shows that value added is determined not only by the location of factories, but by control over design, technology, production, and markets.
Thus, success should not be measured merely by the number of chip factories built by each country. More relevant measures are increases in productivity, technological capabilities, value added, and the ability to maintain supply continuity.
The first step is to map regional capabilities and needs. Countries need to identify industrial strengths, technological gaps, workforce needs, and the risks of supplier dependence.
The second step is to establish a division of roles. Taiwan and South Korea can contribute in fabrication and chip technology; Japan in materials, equipment, and research; the United States in design, software, and technology; Singapore in fabrication and high-value-added services; Malaysia and the Philippines in packaging and testing; while India expands its contribution in design and manufacturing. Vietnam and Thailand can strengthen their electronics manufacturing base. Indonesia needs to develop technical education, component suppliers, design and testing, as well as demand from the electric vehicle and electronics industries. This division is not a permanent boundary. Each country can continue to enhance its capabilities and move into higher-value-added stages of production. The goal is to create complementarity, not to freeze each country’s position.
The third step is to build shared governance through technical standards, collaborative research, skills development, mechanisms to respond to supply disruptions, and transparency in investment incentives. Supply-chain cooperation under the Indo-Pacific Economic Framework can serve as one foundation, although a more specific semiconductor agenda is needed. Integration must also take into account export controls, technology security, and differences in strategic interests.
From a Race Toward Shared Prosperity
Building an ecosystem does not mean eliminating national competition. Competition remains necessary to drive innovation. However, there is a difference between competing to control every stage of the industry and competing to strengthen each country’s respective advantages within a regional network.
Amid the fragmentation of the global economy, resilience does not necessarily mean producing everything independently. Resilience can also be built through networks of diverse partners, alternative suppliers, and mutually complementary production capacities.
If the Silk Road once connected Asia’s trading centers, the semiconductor ecosystem can become a modern economic network connecting the Indo-Pacific’s technology hubs. The challenge is not merely to build more factories, but to ensure that each country’s investments also strengthen the capabilities of the region as a whole. The future of the Indo-Pacific semiconductor industry does not have to be a race with a single winner. It can become a regional economic project that enables each country to grow through its own strengths while also benefiting from the capabilities of other countries.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of IIPA and this platform.
Author
Dr. Eko Setiobudi, SE, ME is an economist, lecturer at STIES Mitra Karya Bekasi, Indonesia, and business practitioner. His areas of interest include macroeconomics, fiscal policy, financial markets, economic development, international trade, and Indonesia’s role in the global economy. He writes on economic and geopolitical developments in Indonesia, ASEAN, the Indo-Pacific, and the global economy.