US-China Tensions and the Fight Over Semiconductor Supply Chains

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Heritage Foundation

As the COVID-19 pandemic continues to disrupt production and distribution, Western countries must reassess the geostrategic risks of global supply chains. This is a prime opportunity for the United States to show leadership.

Supply chains are increasingly at the center of the technological cold war between the U.S. and China—none more so than the semiconductor supply chain. This trillion-dollar industry presents the U.S. with unique strategic challenges and national security risks, which illuminates both the importance and fragility of the semiconductor supply chain.

Semiconductors, typically called chips, are ubiquitous in modern life. They are found not only in critical defence systems but also in energy, finance, and communications products. The production of a single computer chip often requires more than a thousand steps, passing through numerous international borders. This complicates trust in the supply chain and increases opportunities for foul play by malicious insiders and foreign agents alike, who can exploit and steal sensitive technology.

William Evanina, former director of the National Counterintelligence and Security Center, explains, “Exploitation of our supply chains by foreign adversaries—especially when executed in concert with cyber intrusions and insider threat activities—represents a direct and growing threat to strategically important U.S. economic sectors and critical infrastructure.”

 

If economic espionage and supply chain security are not taken seriously, America’s long-term competitive economic advantage will be unfairly eroded, and its security compromised. This increases the need to develop U.S. supply chain resilience through a layered defense that addresses both cyber weaknesses and insider threats.

Currently, the U.S. semiconductor industry contributes 39% of the total value of the global semiconductor supply chain, with U.S.-allied nations contributing another 53%. Conversely, China contributes 6%, and is only advanced in the assembly, testing, and packaging stage of the supply chain. However, as part of the “Made in China 2025” and “Digital Skill Road” initiatives the Chinese Communist Party is intent on developing its semiconductor manufacturing.

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America Must Prioritize Trade Policy in Its Global Competition with China

Instead of using trade policy to help counter China’s aggressive, malign influence across the globe, the U.S. has stood idly by while the rest of the world moves ahead rapidly along with Beijing.

China has joined the Regional Comprehensive Economic Partnership with 15 other countries in Asia, applied to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, proposed the Comprehensive Agreement on Investment with the European Union, and recently hosted members of the Gulf Cooperation Council to discuss the possibilities of a free-trade agreement (FTA).