Analysts: US, Chinese Import Restrictions Over Foreign Components ‘on the Rise’
The U.S. is likely to impose more trade controls to push Chinese chips and other components out of American technologies, which could raise costs and make managing supply chains even more challenging, technology policy analysts said this week.
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“Tariffs, import restrictions, security focused restrictions that ban the use of either Chinese or U.S. components in the other country -- all these are on the rise,” Chris Miller, nonresident senior fellow with the American Enterprise Institute, said during an event this week hosted by technology analysis firm TechInsights. “And I think they're going to be on the rise separate from any specific trend in U.S.-China negotiations or the outcome of the midterm elections.”
Miller said he doesn't believe U.S.-China supply chains are headed toward a decoupling, but he can envision a more “bifurcated system” in which “you've still got interaction in certain technology segments,” but with import bans around certain sensitive technologies, such as semiconductors. There could be “more efforts by both governments to insulate, where they can, parts of their technology stack from reliance on those [foreign] components,” he said.
But Miller also said writing those regulations, and complying with them, will likely be difficult. Some companies source “thousands of components” from supply chains that cross the Pacific Ocean, and those companies can’t easily parse which components in a given product are, for example, Chinese. “Even saying I want only a part of my tech stack to be only Chinese or only American is, at this point, an extraordinary challenge,” he said.
Miller specifically pointed to the Commerce Department’s connected vehicles rule, which introduced import restrictions for certain Chinese vehicles and related “critical systems” used in those cars (see 2501140007 and 2503240028). That rule gave rise to a debate about what qualifies as a “critical system,” Miller said, and sparked concerns among importers about the high costs of finding car parts that don’t include Chinese components.
“It's hard to say, ‘no Chinese components at all,’” he said. “You need to be pretty specific, or else you dramatically ramp up the cost.”
If the U.S. or China introduce more restrictions to weed out foreign components, “some degree of higher costs is inevitable,” Miller said.
“If we begin to duplicate supply chains, we duplicate the investments needed to produce those components,” he added. “The challenge for companies is to manage that, to mitigate that, and to prevent costs from increasing, to the extent that they can. And that's going to be hard.”
Dan Kim, the Commerce Department’s former director of strategic planning and economic security for its Chips for America program, said that exercise could be especially challenging and costly for chips. He said China is increasingly growing its legacy chip industry -- the more mature chips that don’t represent the cutting edge -- and he believes there will be “more and more pressure for every company throughout the world to source” those Chinese chips because they will be cheaper.
“Just as the Chinese might see U.S.-made AI chips to be a potential security threat in their systems, the U.S. might see AI systems that have Chinese chips in it as a security threat as well,” said Kim, chief strategy officer of TechInsights. “We are seeing both countries looking inward to say, ‘what's actually in our systems? Are we secure from the other side?’”
Kim said TechInsights has seen a rise in requests from customers looking to understand where their products’ components were made.
“It's really interesting when I get a customer coming to me and saying, ‘I'd actually like to know what's exactly in our systems.’ And it's not because the supply chain managers are not smart. It's because the supply chain is not always transparent, especially in the legacy side,” he said. “Not every chip can be accounted for, exactly where they come from, and they want to know more and more about what's in their systems, what's in their chips, where they're made.”
Kim added that companies should “expect more policy tools to be introduced that are not currently being debated” to address unwanted foreign components.
“If you're thinking about what's in your systems and threats, then yes, tariffs can help. Yes, import restrictions can help,” he said. “But it also helps to start with an understanding and transparency about what's actually in your systems. And right now, transparency rules are not the norm. And so I think it'll be something that governments will talk about more and more.”