When the Biden administration officially signed the CHIPS and Science Act in late 2022, it initiated the conversation on the priority of the United States (US) to secure the supply chains of critical and emerging technologies in the long run. This was the first indication that the intended decoupling from strategic and technological rivals (the elephant in the room being China) had officially been greenlit. While the Covid pandemic brought the discussions on building resiliency into existing supply chains to the forefront, the last few months have displayed the aggressive policies of the West, particularly the US, to undercut the role of its rival in key technology domains.
But what was the intended plan and the roadmap to achieve such an ambitious task? As far as we can observe from the initiatives and policies taken by different nation-states, it has followed a common trajectory with similar decoupling objectives. There are broadly three strategies adopted by established technological powers such as the US and rising tech giants such as India to kickstart the intended ‘decoupling’.
One, dependency reduction was emphasised and stressed, especially in key areas of technology. Many multilateral forums included the need to build redundancy in supply chains to bridge existing bottlenecks and fragilities. Protectionist policies focusing on self-reliance were championed, and many countries started looking for alternatives to keep their supply chains intact.
Two, with the conversation on dependency reduction gathering steam, there was a massive push at the domestic level to build and develop facets of specific technology industries. It was also in the hope of creating domestic tech giants that could be competitive globally and provide leverage to the state itself. It was clearly visible through major industrial policies such as the US’s CHIPS and Science Act, EU’s Chips Act and India’s Rs 76,000 crore package to build the semiconductor industry. The era of industrial policy (now focusing on specific technology sectors) was back in the limelight.
Three, the recent past has also focused on the ability of oneself to undercut its rival in the technology space. While tech sectors were never viewed before from a zero-sum perspective due to the borderless nature of technology and globalisation efforts, a ‘techno-nationalist’ approach is being taken by nation-states now. There is an intrinsic effort now to prop up one’s tech industry while striving to reduce adversaries’ global competitiveness in the same domain. This has resulted in technology becoming a fulcrum of geopolitical and strategic contestations and has created a network of alliances looking to secure and dominate technology supply chains.
While all these efforts aimed at decoupling existing technology supply chains have taken off, there needs a hard relook at the extent to which such a ‘decoupling’ might happen and the duration required for that actually to take place. Considering China’s role in the existing global trade ecosystem, the intended dissociation from its markets and its influential position can be a challenge in the near future.
China As A Market
One of the factors for the possible delay in any such effort to decouple might be the sheer size and need of the Chinese market for technology goods and services. The country remains a massive revenue generator for most private-sector technology firms, especially from technological powers such as the US, Japan and South Korea. The recently signed CHIPS and Science Act placed immense restrictions on private companies conducting business with China and their domestic firms. This was met with frustrated and exasperated responses from the private sector firms that bank on the Chinese market for yearly turnovers.
Despite a growing semiconductor power rising in its electronic goods exports yearly, China remains one of the world’s largest importers of technology goods. The country’s imports keep rising along with the domestic industry’s growth. This is not all. Several countries, such as India and other European nations, import a wide variety of technology goods (components and finished products) and depend on cheap Chinese imports to ensure lower prices for their citizens. With China’s domestic market deeply integrated with global technology supply chains, the process of decoupling in such critical areas remains a long-term vision for now.
The Fallacy of ‘China+1’ Strategy
Another crucial aspect that has generated buzz in international economic circles is the ‘China+1’ strategy concept. This was devised as an enabler to ensure decoupling occurs in existing global supply chains. The main idea behind this strategy was to ensure a credible alternative to China in terms of revenue generation, upstream & downstream production and anything else in the supply chain where China remains a critical actor.
However, that remains a very ambitious task considering that several critical technology areas are heavily dependent upon China and its industry to even function. The supply chain has been so heavily concentrated that it is hard to completely restructure the entire process without building some redundancy. For example, the rare earths industry heavily relies on China due to its stranglehold on producing and refining the minerals. Similarly, other technology areas such as Telecommunications (5G, 6G) and Electric Vehicles (EVs) completely rely on China and its domestic industry due to the international technical standards they have set. Chinese commercial giants such as Huawei and ZTE own the majority of the 5G patents in the world, deeming them indispensable to the sector.
Therefore, the newly conceived ‘China+1’ strategy might work when alternative destinations are readily available, and considerable redundancy has been infused into the supply chain. However, that is not the case for many crucial technologies that are still under the influence of China and its domestic industry.
Acknowledging International Chinese Influence
Finally, China has evolved from a rising middle power to becoming a legitimate technological power in the 21st century. It has placed itself on the highest pedestal and competes with the US to dominate critical technology areas. The Chinese state has also invested a ton of resources (financial and otherwise) in making sure that it has far-reaching influence using its domestic technology giants.
It is critical that everyone addresses the current impact of China on the global technology ecosystem. With projects like the Belt and Road Initiative (BRI) and the Digital Silk Roads, China has developed critical infrastructure in regions such as Africa and Latin America. Countries in this region have embraced, adopted and depend on Chinese technology to ensure their development objectives. Chinese firms have also managed to entrench themselves as the sole contributor and provider of technology-related goods and services in several developing nations across the globe.
The ability of China to extend its sphere of influence in the technology domain to the developing world has made it difficult to completely decouple and exclude any kind of Chinese technology firms and their products or services. Complete dissociation will deem that other countries (especially the West) would be indifferent to and apathetic to the many developing nations’ ability to use technology as a public utility good. This would receive considerable pushback considering that Chinese technology remains integral to developing nations’ growth.
While the talks have ensued and policies are being devised to facilitate the decoupling of technology supply chains, it is advisable for different countries to address the influence of China, their technology and the role of Chinese domestic tech giants in the current global technology ecosystem. Until states recognise and take cognisance of this fact, the road to decoupling the tech supply chains will remain an ambitious and arduous task.
Arjun Gargeyas is an IIC-UChicago Fellow and a Consultant at the Ministry of Electronics and Information Technology (MeitY), Government of India. Views expressed are personal.
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