Wed Feb 25

Why India joining the US alliance on AI tech is an opportunity for Australia

Written by Arup George, Research Manager, UNSW Sydney

India has formally joined ^[1] the United States’ flagship international alliance on artificial intelligence (AI) supply chain security: “Pax Silica ^[2]”. Officials from both countries signed the Pax Silica declaration on the sidelines of a major AI summit ^[3] in New Delhi last week.

This initiative seeks to bring together US “allies and trusted partners” to lead the global AI race. Australia was a founding member ^[4].

While Taiwan looks set to keep dominating advanced AI chip manufacturing, it relies on a complex international supply chain, with critical aspects dominated by China.

When essential elements come from a narrow set of suppliers, even minor disruptions can ripple globally. Diversity matters. That’s why Australia and India now have an opportunity to become essential international players.

Why Washington is building an alliance

AI is rapidly becoming a foundational resource of the 21st century across manufacturing, logistics, finance, healthcare, drug discovery ^[5] and defence ^[6].

The Pax Silica alliance recognises different countries play distinct and critical roles in building the tech that powers AI.

For example, advanced chip-design expertise is concentrated in the US ^[7]. Key semiconductor manufacturing equipment comes from the Netherlands ^[8] and Japan ^[9].

South Korea produces a small but important slice of the world’s AI computer chips. But the biggest chip maker by far is the tiny island nation of Taiwan.

The world’s chip factory

Taiwan produces 90% of the world’s most advanced AI chips ^[10], designed by US firms such as Nvidia, Google and AMD.

These firms overwhelmingly depend on Taiwan Semiconductor Manufacturing Company (TSMC ^[11]). This remains the only manufacturer that can produce the world’s most cutting-edge chips at scale.

And their advantage extends beyond making chips. TSMC also possesses unique advanced packaging capabilities that integrate AI accelerators with high-bandwidth memory chips.

This is essential for achieving the tight coupling of “compute” and memory demanded by modern AI workloads. TSMC is not just dominant – it is a single-point-of-failure ^[12] in the AI ecosystem.

Taiwan can’t do it alone

Despite this dominance, TSMC still relies on a global network of partners across Japan, the US, France and Germany to supply ultra-pure materials derived from mineral inputs (such as silicon, copper, tungsten, and rare-earth elements).

Among these, the rare-earth ^[13] inputs are critical in polishing wafers ^[14] to the near‑atomic‑scale flatness needed.

Rare-earth magnets are also indispensable in fabrication equipment that demands sub‑nanometre positioning accuracy. (A nanometre ^[15] is one millionth of a millimetre.) These materials have no alternatives at present.

China has a near-total dominance ^[16] in rare-earth refining, and magnet manufacturing. This significantly narrows TSMC’s options in securing these inputs. It also creates a major chokepoint ^[17] within the chip supply chain.

One company – TSMC – dominates global chip manufacturing. Chiang Ying-ying/AP ^[18]

Australia’s mineral strength

Australia has relatively rich rare earths deposits ^[19] among other semiconductor raw materials such as silica, gallium, germanium, antimony, copper, and gold.

Right now, however, we don’t have the domestic capability ^[20] to process these. Most materials are exported to China for processing them to semiconductor-grade purity levels. This locks Australia into the lowest segment of the value chain.

Australia can partner with advanced refiners, such as Japan or South Korea, but that will only preserve Australia’s current role as a supplier.

If Australia wants to move up the value chain (that is, produce more than just the basic raw inputs), it needs to partner with a country that can help it build out a refinement pipeline together. Some parts of the process here, some somewhere else.

This is where India enters the equation.

Turning minerals into materials with India

India has large-scale speciality chemicals capability — including rare earth processing ^[21] facilities. Trade agreements ^[22] already enable the movement of Australian critical minerals and metals into India’s manufacturing ecosystem.

However, right now, India does not have the capability to refine raw inputs into semiconductor grade materials. To get there, other members of the alliance, such as the US and Japan, would need to transfer their purification standards and quality assurance systems.

Building semiconductor-grade refinement facilities will not be quick or cheap. Advanced chipmakers have strict quality requirements. Getting qualified to supply global chipmakers is a slow and exacting process. It can take years before materials are approved for volume supply.

Why the world will be watching

If Australia and India cooperate to set up a stable semiconductor minerals pipeline, then that won’t be just another policy initiative. It will be about whether future chip supply chains are fragile and concentrated, or diversified and resilient.

How this all plays out could shape the affordability of consumer products such as electric vehicles, the cost of renewable energy, the availability of AI-enabled devices, and broader economic security.

Pax Silica is an opportunity for Australia and India to emerge as trusted suppliers of semiconductor-grade minerals and materials – and a much-needed alternative to China.