A new kind of creative destruction has brought a paradox to the world semiconductor industry.

As we know, geopolitical and other existential factors have disrupted globalization and fragmented the global supply chain for semiconductors. But these same forces also provide historic opportunities for innovation and growth. In other words, the world isn't de-globalizing. It is re-globalizing.

These changes run counter to deeply entrenched economic thinking. The free-economy model holds that governments need to stay out of the market unless there is a catastrophic market failure. TSMC CEO CC Wei said this month that U.S. and Chinese measures to control the flow of technology "undermine the productivity and efficiency that globalization brings. In more blunt terms, TSMC founder Chang Chung-Mou said, "Globalization is almost dead, and so is free trade."

But there are real problems with applying old-fashioned economic principles strictly to the continuing changes in the global economy.

First, traditional economic calculations around hypothetical market failures themselves fail to explain the existential costs of predatory, state-centric behavior in the open trading system. China has subverted the international system by exploiting the size of its economy and its neo-mercantilist practices. As a result, the metrics applied to open and fair trade are no longer applicable to assessing the various components of strategic supply chains.

Traditional models also do not properly account for the disruptive costs of climate change. The semiconductor supply chain has a huge carbon footprint. The process of completing a single wafer (the substrate used to manufacture an integrated circuit) involves multiple shipments across international borders.

Finally, the old model eventually led to a highly concentrated manufacturing location, Taiwan, which now accounts for 60% of all the world's microchips and 90% of the world's most advanced chips. This is untenable given the risks of future epidemics, natural disasters, and of course geopolitics.

The specialized emerging industries of the future are already beginning to revive. They benefit from localized and regionalized government-led initiatives and public-private partnerships. Publicly funded efforts such as the U.S. climate-focused Inflation Reduction Act and the European Green Deal are sparking the emergence of new technology ecosystems.

All of these are driving demand for specialized semiconductors. But industries such as electric vehicles can thrive on older legacy technologies (chips above 10 nanometers) that require much cheaper manufacturing facilities. TSMC has made a big political splash by announcing that two new fabs in Arizona will absorb at least $42 billion to make state-of-the-art 5-nanometer and 3-nanometer chips, primarily for defense-related fields such as supercomputing, quantum science and advanced weapons systems.

In the United States, the Chip and Science Act has inspired deepening innovation and production partnerships between companies and universities. U.S. semiconductor company SkyWater Technologies has invested $1.8 billion to build a commercially viable foundry in the Discovery Park area of Purdue University. This partnership will grow exponentially. Since Chips was enacted in August, private investment has exceeded $200 billion.

More broadly, the five major semiconductor groups (the United States, Japan, Korea, the Netherlands and Taiwan) share fundamental values and geopolitical interests. They form the core of the re-globalization collective. These are the building blocks of a broader network of trusted partnerships.

The EU, Japan, South Korea and Taiwan have developed their own Chip Act-style plans. They may look competitive, but in the long run this should be seen as a positive-sum development. The chip re-globalization process already includes Intel's recently announced $85 billion investment in fabs and R&D facilities in Germany, Ireland, Italy, Poland, Spain and France. TSMC has partnered with Sony to invest in a new plant in Japan, and is in talks for a new plant in Germany.

As the skeptics predicted, cross-fertilization among the Big Five is far from leading to bottom-up competition or futility. It has the potential to expand into other compatible markets, from Israel to Singapore to Costa Rica. Countries that have not historically been part of the semiconductor industry, such as Australia, are exploring ways to join the revival.

Japan, South Korea and the Netherlands owe their semiconductor prowess to early industrial policies. The Cold War space race gave birth to the world's first integrated circuits, made by Sendong Semiconductor. But no region has been more influenced by industrial policy than Taiwan, which transformed itself from an agricultural economy in the 1970s to a semiconductor hotbed. TSMC's patriarch, Chang Chung-Mou, played a crucial role in this. This is the cycle of globalization and re-globalization.