The risk environment presented by China’s semiconductor champions and their global market presence demands new and expanded lines of both offense and defense from the US government and industry. A winning – and threat informed – strategy would feature: Private sector-led investment in critical industry chains, with the US government imposing costson those who do it wrong – and providing incentives for doing it right.

On the first front, the US government needs to condition markets to penalize, not reward, exposure to the Chinese market, whether in terms of supply chain dependencies that grant Beijing leverage or research and development partnerships that grant it access to technology. To this end, the SEC should use information disclosure requirements to mandate greater corporate transparency around supply networks and partner ecosystems, and, with them, long-term risks for shareholders. More proactively, the US, its allies, and its partners should work together to develop multilateral regulations prohibiting investment in and partnerships with Chinese military- and government-tied companies and their subsidiaries – as well as strict ceilings on footprints in China for companies receiving government support. Vetting of upstream supply chains for exposure to companies linked to China’s military and surveillance systems should be enhanced and monitored by US government end users, like the Department of Defense. Those efforts can be executed under existing authorities (e.g., through robust expansion and action on Section 889 and Section 1260H listings) if enforced properly and fully. In parallel, export restrictions should similarly be expanded and enforced fully with Department of Commerce equities fully resourced and tasked with restricting technology flowing to China in critical segments of the value chain.   

Moving to the offensive, the US government should incentivize the private sector to invest in a trusted fashion, in critical industries, with particular attention to protecting against supply and investment dependencies all along the value chain. Such efforts can include tax breaks for investment and production. They should also include offtake agreements, under authorities like the Defense Production Act, and other measures that allow government to shoulder risks on behalf of the private sector – a move that comes at little cost to taxpayers, but that can incentivize US businesses to make the kind of long-term investments necessary to reinvigorate domestic industry.

By Nathan Picarsic and Emily de La Bruyère