The U.S. and its allies are joining forces on chips. That could stop China reaching the next level

Analysts told CNBC that leading chipmaking nations are forming alliances in order to stop China from entering the cutting-edge of the industry.

The United States, South Korea, Japan and Taiwan all have strong chip industries.

The immediate reason for all this is China, according to the chairperson of the high tech geopolitics programme.

The teaming up shows how important chips are to economies and national security while also showing a desire by countries to stem China's advancement in the critical technology.

Kotasthane was a guest on the latest episode of CNBC's Beyond the Valley.

Semiconductors are important because they are used in so many products. Artificial intelligence applications and even weaponry are dependent on them.

A surge in demand for consumer electronics and supply chain disruptions caused the importance of chips to be thrust into the spotlight.

Governments were made aware of the need to secure chip supplies. President Joe Biden has pushed to reshore manufacturing in the US.

Design, packaging, manufacturing, and the tools that are required to do that are just some of the areas that make up the Semiconductor Supply Chain.

ASML is the only firm in the world that can make machines that are complex enough to make the most advanced chips.

The United States is no longer the leader in manufacturing. Taiwan's TSMC and South Korea's SAMSUNG have dominated the manufacturing of the world's most advanced Semiconductors over the last 15 years. Intel was the United States' largest chipmaker.

The global foundry market is dominated by Taiwan and South Korea. Foundries are places that make chips.

Governments around the world are on edge due to the concentration of critical tools and manufacturing in a small number of companies.

There is a political angle to it because there are many companies spread across the world. If one company doesn't give you what you need, what would you do? One of the countries might put things about espionage through chips. Kotasthane said that those things made it a tool.

Business continuity is at risk in places of contention like Taiwan due to the concentration of power in the hands of a few economies. Taiwan is considered a province by Beijing and will be reunified with the mainland.

Taiwan has a central role in the Semiconductor Supply Chain. Since a lot of manufacturing takes place in Taiwan, there is a fear that if China were to occupy the island, what would happen? Kotasthane spoke.

The chip supply chain is so complex that no country can go it alone.

In the past two years, countries have been seeking chip partnerships. Biden traveled to South Korea in May to visit a plant. The U.S. Commerce Secretary, Gina Raimondo, met her Japanese counterpart, Koichi Hagiuda, in Tokyo to discuss cooperation in fields such as Semiconductor and export control.

The president of Taiwan told the governor of Arizona that she would like to produce democracy chips for the US. The world's most advanced chipmaker is located in Taiwan.

The United States, India, Japan, and Australia are collectively known as the Quad.

South Korea, Japan, and Taiwan are powerhouses in the Semiconductor supply chain. There are not final details of this.

There are a number of reasons why these partnerships are happening.

Kotasthane said one is about bringing together countries with similar advantages to form alliances that can make chips. He said that it doesn't make sense to go it alone because of the complexity of the supply chain.

U.S. President Joe Biden met with South Korean President Yoon Suk-yeol in May 2022 on a visit to the Samsung Electronics Pyeongtaek campus. The U.S. and South Korea, along with other countries, are seeking to form alliances around semiconductors, with the aim of cutting out China.

China isn't involved in the push for partnerships like this. These alliances are meant to cut China off from the global supply chain.

Kotasthane thinks that China's development in this sector will be severely constrained by these alliances.

Both China and the US see each other as competitors in technology. As part of the battle, the U.S. tried to cut off China from critical Semiconductor and Tools.

According to Paul Triolo, the technology policy lead at Albright Stonebridge, the goal is to prevent China from developing the capability to produce advanced Semiconductor domestically.

Where does that go?

China has pumped a lot of money into its domestic chip industry in the past few years in order to boost self-sufficiency and reduce its dependence on foreign companies.

It would be difficult because of the complexity of the supply chain and the concentration of power in the hands of very few companies.

China uses a lot of foreign tools and equipment in areas such as chip design.

Over the long term, I do think they [China] will be able to overcome some of the current challenges... yet they won’t be able to reach the cutting edge that many other countries are.

Kotasthane says manufacturing is the "Achilles' Heel" for China. SMIC is China's largest contract chipmaker. The company's technology is not as advanced as those of TSMC and SAMSUNG.

It requires a lot of international collaboration and it's a big problem for China because of the way it has antagonized its neighbors.

Three, four years earlier in terms of international collaboration will be possible.

As the U.S. and other major Semiconductor powerhouses form alliances, China's ability to reach the leading edge of chipmaking is in question.

China will be able to overcome some of the current challenges, but they won't be able to reach the cutting edge that many other countries are.

There are some cracks in the relationship between the US and South Korea.

Ahn Duk-geun, South Korea's trade minister, said in an interview with the Financial Times that there were disagreements between South Korea and the US over Washington's continued restrictions on exports to China.

The US government's actions have caused a lot of concern in the Semiconductor industry.

China is the world's largest importer of chips and is a key market for chip companies around the globe. With politics and business mixing, there could be more tension between nations in these high tech alliances.

Not all U.S. allies are eager to sign up for these alliances, as they have major equity in both manufacturing in China and selling into the China market. Most people don't want to offend Beijing over these issues.

Attempts to coordinate parts of the global Semiconductor supply chain could cause major damage to innovation, driving up costs and slowing the pace of development of new technologies.