The recent operation against Hezbollah in Lebanon, where hundreds of pagers — licensed from a Taiwanese company and manufactured in Hungary—were weaponized somewhere in the supply chain and detonated simultaneously, serves as a stark reminder to Democratic nations of the critical nature of supply chain security.
As China is America’s premier foreign adversary, dual-use items made in China like telecommunications equipment, drones, and software platforms like TikTok have already been proven to have nefarious use – helping the Chinese Communist Party collect data, conduct espionage, or shape the information battlefield to its advantage.
Semiconductors are another vulnerable dual use technology. Even if manufactured outside of Taiwan or China, the chip's intellectual property is still tied to those countries, vulnerable to disruption and likely to be made scarce – particularly for the auto industry. Having both the manufacturing and IP based outside of China or Taiwan for critical technology is the best way to have a secure and reliable supply chain.
Taiwan produces about 90% of the world’s most advanced semiconductors, and China’s share of the chip market is sadly growing despite aggressive U.S.-led export controls as they seek semiconductor independence through domestic production. In fact, China is pursuing a top-down made in China and delete America chip policy called Delete-A, where the A stands for America.
Even with growing diversification in chip fab locations, Taiwanese and Chinese chips and their associated IP remain at risk of disruption from China’s stated policy of retaking Taiwan. If China were to blockade or invade Taiwan, the global supply of semiconductors could be severely disrupted, potentially setting back the global economy. A Chinese takeover of Taiwanese chip companies would mean control over critical manufacturing capabilities, human capital, and valuable IP.
There are also increased security concerns as some Taiwanese manufacturers mirror their operations in China, potentially allowing Chinese chips to enter the supply chain unnoticed. This poses significant security risks if Chinese chipsets are integrated into U.S. vehicles, potentially being used to control, disable, or monitor vehicle operations and map U.S. roads –– and creating IP vulnerabilities at various parts of the value chain. For the automotive industry, this means potential failures in vehicle systems, compromised safety features, surveillance/privacy data collection, and diminished consumer trust. A proliferation of counterfeit components increases vulnerability to cyber threats, and loss of technological leadership.
Protecting both manufacturing and design IP is crucial to maintaining the integrity and innovation of the semiconductor supply chain, which in turn supports the resilience and advancement of the automotive sector. It’s why the Biden Administration and the Commerce Department proposed rulemaking around the automotive supply chain and its interactions with China.
The Biden Administration’s recently proposed rule would ban Chinese vehicles from U.S. roads as well as other vehicles containing software or components that could pose a threat to national security. This crackdown highlights growing concerns about the risks of foreign-made technologies embedded within vehicles, particularly when it comes to surveillance and data collection. This proposed ban underscores the urgent need for stronger regulations and a more secure supply chain for automotive technology, emphasizing the dual importance of securing both physical manufacturing and the underlying software and IP that powers modern vehicles.
To defend a future chip shortage, American and European manufacturers, especially automobile manufacturers, should be securing their semiconductor supply chain by not only looking to purchase chips manufactured in countries other than Taiwan and China, but also whose IP is located outside of those two countries to fully protect their consumers, their own bottom line and global security as well.
Editor’s Note: Andy Keiser is a Senior Principal at Navigators Global, a Senior Advisor to the National Security Institute and a former Senior Advisor to the House Intelligence Committee.
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