How the new ‘tariff wars’ will affect cyber security
The US has always had an eye on national security, but under the new administration’s ‘America First’ plan, focus is shifting to a new kind of race – a race to outcompete other countries in trade, technology, and innovation.
One of its more controversial plays has been a push on tariffs - essentially a tax on imports. It’s partly a disruptive geopolitical lever. If other countries aren’t playing fair in trade, add a tax on their products. You saw that last week with threats of a 25 per cent tariff on both Mexican and Canadian imports.
But it’s not that simple. Especially when it comes to one of the most important industries of all: semi-conductors.
The US semiconductor struggle
It’s easy to forget when everything is digital that underlying it all is very physical infrastructure and supply chains. Take semiconductors. These tiny chips make everything in your life work, from your smartphone to your fridge.
And making them isn’t cheap. Building a factory can cost billions – which is why there aren’t many that do. For example, a lot of our chips come from one company: the Taiwan Semiconductor Manufacturing Company, TSMC. Their chips are assembled into much of our global consumer tech, including Apple’s iPhone.
The US – under both Biden and Trump – realize the strategic importance of semiconductors and risk of overreliance on other nations to get them. This is why it’s trying to get back in the chip-making game. In 2022, the Biden administration passed the CHIPS Act, which threw a staggering $52 billion to help boost semiconductor production in the U.S. Other countries have followed suit, including the EU in 2023, and we’re at it in UK too, although on a much smaller scale. It speaks volumes that the CHIPS Act is one of the few pieces of legislation not ripped up by the incoming U.S. administration.
But here’s the problem. Semiconductors rely on a truly global supply chain. It’s estimated that around 300 different minerals make up the modern advanced semi-conductor: cobalt, gallium arsenide, rare earth elements, and some of those minerals have no known replacement. China and other parts of South Asia, have a huge market dominance in some of these materials, and for years China has strategically invested in Africa to secure supply. It’s also shown a willingness and desire to use this position of dominance as a bargaining tool.
This makes tariffs a very risky game. Chinese mines produced 60 per cent of global rare earths in 2021; the US just 15 per cent. Between 2017 – 2020, China was the source of 78 per cent of US rare earth imports. Trade can quickly become a question of national security.
Taxing imports therefore brings certain dangers. Obviously, it can drive up prices – including on these vital materials – which hurt US companies that need those parts to stay competitive. Besides, the introduction of additional Chinese tariffs announced by Trump last month could be just the opening shots in a wider tariff war. China responded immediately introducing a 10 per cent tariff of several rare mentals, including indium and tellurium which is used for 5G fiber optics and solar panels. So, there is a reasonable chance that China might decide restrictions on semiconductor materials could be one way to retaliate.
UK chip designer ARM, owned by Japanese SoftBank, had up to now licensed chip blueprints for Apple and Nvidia. This week they announced a bold move into chip building, as part of SoftBank’s AI infrastructure expansion plans. This will see them design and build CPU chips for next generation AI data center servers, with Meta as the first customer. When it comes to the production of these chips, expect this to be outsourced also to TSMC, which risks being caught up in the complex supply chain chip tariff crossfire.
DeepSeek; when the squeeze on chips backfires…
The US has been trying to squeeze the Chinese on semiconductor chips for a while. Nvidia was banned from exporting its chips to China in 2022. And the US department of commerce recently ordered TSMC to stop exporting its AI chips to China too.
But this too might have inadvertently back-fired, and serves as a good example of how tariffs and restrictions can lead to unexpected outcomes. And not all of them good.
The US squeeze has forced China to work toward self-sufficiency in semiconductor production, including upping its efforts to control the parts of the supply chain. And although they still trail the US in terms of chip design and production, they are currently filing more semiconductor patents than anyone else – even the US.
As a result of having far fewer semiconductors, Chinese engineers and designers have been forced to find creating ways to maximize their efficiency. Necessity, goes the saying, is the mother of invention. It’s also the mother of DeepSeek’s R1 model, which made the news this month (you can read a deep dive on it here). Although not the only new player, it performed much better than expected considering the processors it was trained on. And that, I suspect, was the direct result of the various restrictions on chip exports to China. The chip shortage led to clever ways of training them, such as ‘chained learning’ – and the ability to simultaneously analyze and communicate. (There’s another question here about how it collects personal data and the security implications of that – I’ll write about that another time).
Advanced chips = cyber edge
I’ve been fascinated for years now about the relationship between software and hardware – and how geo-politics can affect both. And there’s no doubt that control of advanced semiconductors provides a significant strategic cyber advantage to those in the driving seat. Advanced chips aren’t just cutting-edge tech, I see them as the ammunition of modern cyber warfare. The race for digital nation-state supremacy, the new Cold War, isn’t just about innovation, it’s about control.
The US is fighting to keep its technological lead, as China and others close the gap. They know that chip dependence is a strategic weakness. Whoever can leverage advanced chips, and access to the world’s rare minerals, holds the strategic advantage to cyber dominance. Tariffs and export controls is one way to do it. But always beware of the law of unintended consequences.
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