Washington recognizes the need to deter Beijing from seizing the chips that power American electronics. Nevertheless, policy makers are struggling to prevent China from capturing the semiconductor market with the same tactics it used to dominate the markets for telecommunications infrastructure, solar panels and electric vehicles. While the Biden administration has proposed a $50 billion investment in semiconductor manufacturing through the U.S. Innovation and Competition Act, Congress continues to discuss the legislation but not pass it. If Congress enacts the bill, U.S. investment would still be only a third of what the Chinese government will spend.

From 1990 to 2020, China built 32 semiconductor megafactories, compared with 24 megafactories in the rest of the world. None were built in the U.S. According to Mr. Chang, U.S. firms are no longer able to build cutting-edge chips because it costs half as much to operate a semiconductor plant in East Asia as it does domestically. Even with ideal policies, it is unlikely that U.S. companies can overtake TSMC’s leadership in advanced chips.

Meanwhile, China has made impressive gains in its semiconductor sector. China is on track to overtake Taiwan as the world’s largest manufacturer of chips as soon as 2025. It already prints more than half the world’s circuit boards, which are necessary to install chips in devices. China controls critical raw materials that create choke points in the supply chain: It produces 70% of the world’s silicon, 80% of tungsten and 97% of gallium, each of which is essential in semiconductor fabrication.