The U.S.-China tech war is no longer a trade dispute–it is a fundamental struggle for “innovation sovereignty” that is fragmenting global supply chains, weaponizing technological interdependence, and forcing every country into a new era of strategic technological alignment. This battle, fought over everything from semiconductors to data, is redrawing the map of global power and placing middle powers in a position of both vulnerability and immense leverage.
China is threatened by the fact that the most advanced chips are monopolized by firms located in its geopolitical rivals. The United States has felt likewise regarding China’s rapid advances in technology and its domination of the global rare-earths supply. Both have crucial military and civilian applications. Despite this, both remain reliant on the other, globalization having created a complicated supply chain spanning several countries for the semiconductors necessary for advanced technology.
From Tariffs to Technological Decoupling
The move to technological decoupling signals a deeper transformation in the global economy. Economic policy has become inseparable from national security, and innovation has become a domain of strategic contestation. Advanced economies increasingly treat technologies such as artificial intelligence, quantum computing, biotechnology, and semiconductors as foundational to military power and geopolitical influence. In the New Cold War, economic interdependence is no longer viewed as a benign feature of globalization but as a strategic vulnerability. It has become a weapon capable of being exploited during moments of crisis. The United States has heavily weaponized trade against other countries, including against traditional allies, while China has done the same against South Korea, Lithuania, and Australia.
At the center of this shift is the concept of innovation sovereignty. States now seek the ability to independently develop, control, and deploy critical technologies without being vulnerable to external pressure or supply-chain coercion. Among the tools used for this are strategic export controls, investment barriers, and talent restrictions.
Countries such as South Korea, Taiwan, and the Netherlands face pressure to technologically align with US-led regimes, even when full decoupling from China is economically costly or practically infeasible. ASML’s compliance with export bans on advanced lithography equipment underscores how firms and their home governments are drawn into geopolitical competition regardless of preference.
The European Union’s push for “strategic autonomy,” embodied in initiatives such as the EU Chips Act and tighter foreign investment screening, similarly reflects fears of overreliance on external suppliers and foreign capital in critical innovation ecosystems.
The Global Chokepoints: Semiconductors and Critical Minerals
Taiwan and the Netherlands are crucial chokepoints when it comes to semiconductor production. Taiwan’s TSMC produces nearly 100% advanced processor chips, while the Netherlands’ ASML produces all of the extreme ultraviolet lithography machines necessary for the production of the most advanced chips. Unfortunately for China, Taiwan is a strategic adversary that relies on the United States for defense, while the Netherlands is a member of NATO.
While American allies dominate semiconductor production, China dominates the global supply of rare-earth elements. China alone is responsible for over half of global mining and nearly 90% of refining of rare-earths. In 2022, all of the world’s heavy rare earths came from China.
In 2010, China restricted exports of rare-earth elements to Japan. While China ultimately did not extract significant concessions from Japan over this tactic, it nonetheless sent Japanese industry into a panic and demonstrated the vulnerability faced by advanced economies’ reliance on Chinese rare-earths. In the case of an actual war, China is unlikely to ship rare-earths to the United States or Japan for them to build weapons to fight China with.
In April 2025, China announced export controls on seven heavy rare-earth elements in response to Trump’s “Liberation Day” tariffs, and expanded these controls in October. While Japan reduced its dependency on Chinese rare-earths from 90% to 60%, the United States and Europe remain even more dependent at 80% and 98% respectively. Despite intents of decoupling and shifting of sourcing to Australia, they are likely to remain highly dependent on China for these materials in the upcoming years.
The United States and China have not been the only countries using trade reliance to their advantage. Perhaps having learned from its experience in 2010, Japan employed a similar strategy against South Korea in 2019 after a dispute on colonial-era reparations, restricting the export of three chemicals–fluorinated polyimide, resist and hydrogen fluoride–to South Korea. These three chemicals, of which Japan produced 70% to 90% of at the time, are necessary for the production of OLED screens and memory chips, a key part of South Korean exports.
The Crossfire and Leverage of Middle Powers
In the mid-20th century, American firms played a crucial role in developing the semiconductor industries of both Taiwan and South Korea. Taiwan’s semiconductor industry started with Texas Instruments’ construction of semiconductor assembly plants. Silicon Valley firms like Intel and Micron provided the technology for Korean companies like Samsung to enter the chipmaking industry as a way to undercut their Japanese rivals.
East Asia today is shaping up to be the most geopolitically volatile place on Earth, with possibilities of war over Taiwan and the Korean peninsula. The firms which produce the overwhelming majority of advanced chips–TSMC, Samsung, and SK Hynix–are based in Taiwan and South Korea respectively. This is proving to be a risk to the United States as China has become the primary adversary of the United States.
The semiconductor boom caused by AI is proving to be a double-edged sword for Taiwan and South Korea. First, it is proving to be a significant financial boon for both countries. Taiwanese growth has surpassed expectations and record profits for Samsung and SK Hynix are helping to carry the South Korean economy. Taiwan in particular has been using its indispensable role in chip manufacturing to encourage American protection and discourage invasion by China, which is highly reliant on advanced Taiwanese chips for China’s own gargantuan manufacturing sector. However, this has also caught the attention of the Trump administration and American policymakers.
The United States is now demanding that Taiwan and South Korea produce chips in the United States. This is particularly threatening for Taiwan, as producing advanced chips in the United States would lessen Washington’s need to protect Taiwan. Since the start of the trade war with China, the US has strong-armed both Taiwan and South Korea into constructing chip manufacturing facilities on American soil. Earlier this month, on January 14th, the United States set 25% tariffs on certain semiconductors critical to AI. On January 20th, US Commerce Secretary Howard Lutnick threatened firms with up to 100% tariffs if they did not commit to expanding production in the US. As both Taiwan and South Korea are dependent on the United States for security, it has been difficult for them to resist American demands.
The Civilian Battleground
The Tech Cold War has also been directly impacting the daily lives of consumers.
Internet platforms have long been deemed a potential national security threat by governments. China’s Great Firewall has long restricted access to sites like Google and Facebook, while Russia has more recently blocked access Western social media sites such as Instagram and YouTube following their invasion of Ukraine. Even American allies such as South Korea have restrictions on accessing North Korean government websites.
Americans have experienced only a taste of these restrictions with the debate over TikTok, now under a de jure ban in the United States. TikTok has been viewed by the US government as a potential vector for surveillance, influence operations, and narrative shaping by the Chinese government. The relatively open nature of the Internet in the West has also allowed for Russia to conduct covert influence campaigns on social media. The most direct impact of this has been on election results, with ensuing Western pushback. In 2024, the Romanian Constitutional Court made a controversial decision to cancel the results of its presidential election after far-right Călin Georgescu won the first round of voting, alleging Russian interference.
The automotive industry has long been a backbone of national power. In addition to providing a major source of employment and wealth, it has positive effects on a country’s hard power as well. In the case of a major war, auto plants can be rapidly converted to produce tanks, aircraft parts, and military vehicles.
China, after struggling to develop an indigenous automobile industry, chose to leapfrog directly into electric vehicles (EVs), to great success. China dominates the market today, producing and buying around 70% of all EVs. In 2025, the Chinese firm BYD overtook Tesla to become the largest seller of EVs. China’s success in this market has led to pushback from the US, Canada, and EU, all of which possess large automotive industries which are threatened by China. The US, Canada, and EU all imposed tariffs on Chinese EVs, with the US having a de facto ban on Chinese cars and trucks.
The West has nonetheless not formed a united bloc against Chinese EVs. Canada recently reduced tariffs on Chinese EVs from 100% to 6.1%, and with recent tensions within NATO over Trump’s desires to annex Canada and Greenland, there is the possibility for the US and EU to become geopolitical competitors as well.
