What Happened
- A McKinsey Global Institute report titled "Geopolitics and the Geometry of Global Trade: 2026 Update" found that AI hardware shipments — chips, servers, and networking equipment — accounted for approximately one-third of global trade growth in 2025
- Despite rising geopolitical tensions and widespread predictions of trade contraction, global trade grew faster than the global economy in 2025
- Both US imports and Chinese exports reached new highs; however, both economies continued reorienting trade flows away from geopolitically distant partners and toward aligned economies
- Semiconductor and data-centre equipment exports from Asian hubs (Taiwan, South Korea, Southeast Asia) to the United States were the single largest contributor to this AI-driven trade surge, with AI hardware shipments growing nearly 40% year-on-year
Static Topic Bridges
Artificial Intelligence and the Global Technology Supply Chain
Artificial Intelligence infrastructure — particularly large language models and generative AI systems — requires massive computational hardware: graphics processing units (GPUs), high-bandwidth memory (HBM), custom AI accelerators (ASICs), and networking switches. The manufacture of this hardware is geographically concentrated: TSMC in Taiwan controls over 90% of advanced chip fabrication; Samsung and SK Hynix in South Korea dominate HBM production; NVIDIA in the US designs the dominant AI GPUs. This concentration creates both economic opportunities and supply chain vulnerabilities, drawing AI deeply into geopolitical calculations.
- Global semiconductor industry revenues are projected to reach $975 billion in 2026, a record high driven by AI demand
- AI hardware shipments grew ~40% in 2025, accounting for ~one-third of global trade growth
- TSMC's fabs in Taiwan account for over 50% of all semiconductors and 90% of the most advanced chips globally
- The US imposed AI Diffusion Rules (January 2025) restricting advanced chip exports to China through third countries
- Sub-5nm and sub-3nm chip production is ramping in the US, Taiwan, and South Korea through 2026
Connection to this news: The McKinsey report quantifies what was previously directional — AI hardware has become a macro-level trade driver, not merely a tech sector story. This has direct implications for trade statistics, geopolitical alignments, and industrial policy globally.
Geopolitics and Trade Fragmentation
Since 2017, a structural shift has been underway in global trade: the gradual decoupling of the US-China trade relationship and the emergence of "friend-shoring" — routing supply chains through geopolitically aligned partners. The McKinsey report captures this acceleration. The WTO's "most-favoured-nation" principle, which requires non-discriminatory trade among members, is under increasing pressure as countries impose export controls, technology restrictions, and preferential industrial policies that favour allies. Trade blocs and bilateral agreements are thus gaining importance relative to multilateral WTO frameworks.
- US-China trade tensions described as the "single biggest force" reshaping global trade geometry in 2025
- Both the US and China reoriented trade toward geopolitically closer partners
- Trade grew faster than global GDP in 2025 despite widespread predictions of contraction under tariff pressures
- Advanced economies and China alike accelerated the shift away from geopolitically distant partners
- India stands to benefit from friend-shoring trends as Western companies diversify from China
Connection to this news: The report's finding that trade grew despite tariffs — propelled by AI hardware — underscores that technology supply chains are increasingly immune to standard tariff levers, raising new questions about trade regulation frameworks that UPSC Mains frequently tests.
India's Position in the Global Technology and Semiconductor Landscape
India is actively seeking to enter the global semiconductor and electronics manufacturing ecosystem through the India Semiconductor Mission (ISM) and the PLI (Production-Linked Incentive) scheme for electronics. The government has approved semiconductor fab projects (Tata Electronics-PSMC, Micron Technology for ATMP, CG Power-Renesas for OSAT). India's strength currently lies in chip design, IT services, and electronics assembly rather than advanced fabrication. The Biomanufacturing-AI integration and semiconductor ambitions are both part of India's broader strategy to climb the global technology value chain.
- India Semiconductor Mission (ISM) launched 2021 with ₹76,000 crore incentive outlay
- Tata Electronics-PSMC fab approved: 28nm process node, in Gujarat
- Micron Technology: semiconductor ATMP unit in Sanand, Gujarat (approved 2023)
- India's IT/ITES sector earns ~$250 billion in annual revenues — primarily in software services
- India accounts for ~20% of global chip design workforce, but minimal fabrication
Connection to this news: As AI hardware becomes a dominant trade growth driver globally, India's ability to participate in this supply chain — currently limited to design and ATMP — determines its share of the largest new engine of trade growth, making semiconductor policy a strategic priority.
Key Facts & Data
- AI hardware shipments grew ~40% in 2025
- AI hardware (chips, servers, networking equipment) accounted for ~one-third of global trade growth in 2025
- Global semiconductor industry revenues projected at $975 billion in 2026 (record high)
- TSMC controls 90% of advanced chip fabrication globally
- US imposed AI Diffusion Rules (January 2025) restricting advanced chip access for China through third countries
- Both US imports and Chinese exports reached new highs in 2025 despite tariff escalation
- Global trade grew faster than global GDP in 2025
- US-China trade decoupling has accelerated since 2017, with both sides reorienting toward geopolitically aligned partners
- India Semiconductor Mission: ₹76,000 crore incentive outlay for domestic chip manufacturing