Which government? Taiwan, where it matters? This is a major part of their economy; they all win big. I bet they'd sooner surrender to China.

Some other government? This wouldn't have much impact on chips, except to make it a lot less likely anyone makes chips in that country ever again — which isn't to say no nation would do it; economic history is full of this sort of thing, particularly as nations start going the way of Venezuela.

That just disrupts the profit incentive of competitors.

The entity that manufactures the product is compensated for it, meaning the money isn't being siphoned off by a random third party. Price controls grant a wind fall to consumers who are in no position to build another semiconductor plant. It's basically a wealth transfer away from the semiconductor industry into the consuming industries. If you want semiconductor prices to drop then either grant a subsidy or let the government build a plant that produces way more than the market really needs.

A single shortage plus price increase might not be able to pay for a whole plant, but any plans to expand capacity will be shifted forward rather than be delayed. If the profit motive exists the construction of the new plant will happen one year sooner and it will be bigger in anticipation of future shortages.

Probably the limiting factor is one needs to make sure the customers of chips stay viable. I mean, one hopes the shortage will eventually be over and foundries will want to make sure they didn't gut their own market.

Few consumers will say "eh, modern tech is too expensive, I don't need the internet, phones, computers or cars anymore".

For most uses of tech, demand is there even if the price doubles.