Analyst Chris Miller argues China's core challenge is manufacturing, as it lacks the advanced lithography tools monopolized by ASML. The US and Taiwan are projected to produce 30 times more quality-adjusted AI chips, a gap unlikely to close soon.

TSMC's new Arizona factory can produce NVIDIA's advanced chips, but this doesn't solve US supply chain dependency. The chips must still be shipped back to Taiwan for the critical advanced packaging stage, meaning the primary bottleneck remains firmly in Asia despite onshoring manufacturing.

While energy supply is a concern, the primary constraint for the AI buildout may be semiconductor fabrication. TSMC, the leading manufacturer, is hesitant to build new fabs to meet the massive demand from hyperscalers, creating a significant bottleneck that could slow down the entire industry.

Arm's CEO argues the US has lost its 'muscle memory' for 24/7 manufacturing. The core issue is cultural: manufacturing isn't seen as a prestigious career, unlike in Taiwan where working for TSMC is highly esteemed. This cultural gap is a major hurdle for onshoring efforts.

TSMC's "pure-play foundry" model, where it only manufactures chips and doesn't design its own, builds deep trust. Customers like Apple and NVIDIA can share sensitive designs without fear of competition, unlike with rivals Intel and Samsung who have their own chip products.

To build a new American semiconductor foundry by 2028, Substrate is rejecting the modern specialized model. Instead, it's vertically integrating by designing and building its own lithography tools. This return to the industry's roots is aimed at reducing complexity and cost, enabling them to move faster.

The ongoing wave of investment in automation and upgrading existing US facilities is not the end goal. It's the first step for companies recalculating supply chain costs due to tariffs. This "brownfield" optimization proves the economic viability of US production, paving the way for larger "greenfield" projects once existing capacity is maximized.

Taiwan's TSMC dominates advanced chip manufacturing not only through technical excellence but also its business model. By acting as a pure-play foundry that doesn't compete with its clients (unlike Intel or Samsung), it fostered unique trust and partnerships, making it the central hub of the semiconductor ecosystem and a critical geopolitical asset.

The U.S. focus on building domestic fabrication plants (fabs) is misguided because fabs represent a lower value-added, highly capital-intensive part of the semiconductor value chain. National security and economic strategy would be better served by focusing on downstream activities like testing and packaging, which are closer to the end consumer.