Defining The Reality Of Decoupling Technology Supply Chains

Defining The Reality Of Decoupling Technology Supply Chains

During the Covid pandemic, the West, especially the U.S., has adopted aggressive policies designed to undermine the role of its rival in key technology domains. Still, this has been less the case in the last few months. The plan and roadmap for accomplishing such a monumental task have yet to be outlined.

National policies and initiatives taken by different nations follow a similar trajectory with similar decoupling goals. Established technological powers such as the U.S. and rising tech giants such as India adhere to at least three strategies for the intended’ decoupling’ to start.

It was emphasized that dependency would be reduced, particularly in technology areas. The need for redundancy in supply chains was discussed at many multilateral forums.

Countries began looking for alternatives to preserve their supply chains under protectionist policies that promoted self-reliance. In addition, it pushed the domestic technology sector as the dependency reduction discussion gained steam.

Apart from being globally competitive, the state also hoped to gain leverage from the development. Significant industrial policies also contributed to the industrial boom in the U.S. and Europe, including the CHIPS and Science Act and the Chips Act.

Industrial policy was re-emphasized as targeted technology sectors. Recently, competitors have also strived to undercut one another in technological fields. Technology and globalization have made the technology sector no longer a zero-sum game between nation-states.

Objections of reducing rivals’ global competitiveness in the same domain are intrinsically linked to maintaining one’s tech industry. A network of alliances has evolved, looking to secure and dominate technology supply chains due to this geopolitical and strategic contest.

It is worth paying attention to how long it might take to decouple existing technology supply chains. It will be challenging to dissociate China from its markets and influence shortly when China plays a pivotal role in the existing global trade ecosystem.

Acknowledging International Chinese Influence

Chinese demand for technology goods and services could be a factor behind any delay in decoupling efforts. Private sector technology firms, including those from U.S., Japan, and South Korea, continue to generate massive revenues in the country.

A recently signed law restricts the conduct of private companies with China and their domestic companies. As a result, companies that rely on Chinese markets for yearly revenue responded with frustration and exasperation.

Chinese electronic goods exports have increased yearly despite its growing chip industry. It is still a world leader in technology imports. The country’s imports continue to rise with its growing domestic industry. Those are not the only benefits.

The price of technology goods (components and finished products) is subsidized in several countries by Chinese imports, including India and other European nations. In such critical areas, decoupling from global technology supply chains remains a long-term vision for China’s domestic market.

One of the key elements of the ‘China+1’ strategy concept generating buzz in international economic circles is the concept of ‘one nation, one strategy. To decouple existing global supply chains, devised this approach.

This strategy was developed to ensure a credible alternative to China to generate revenue, provide upstream and downstream production, and any other activity in the supply chain.

It remains a highly ambitious task considering several critical technologies depend heavily on China and its industry. Due to the concentration of the supply chain, a complete restructure will require some redundancy.

The international technical standards set by the Chinese have also contributed to other technology areas, such as telecommunications (5G, 6G) and electric vehicles (E.V.s).

Most 5G patents are owned by Chinese companies such as Huawei and ZTE. The ‘China+1’ strategy could work if alternative destinations are readily available and supply chains are layered with significant redundancy.

Nevertheless, China and its domestic industry still control many vital technologies. China is now recognized as a rising middle power and a legitimate technological power. Currently, it competes with the U.S. for technological dominance.

As mentioned above, the Chinese state has invested many resources (financial and otherwise) to ensure that its domestic technology giants have a vast influence. Global technology ecosystems must deal with the current impact of China. Developing countries in this region have adopted Chinese technology and rely on it to achieve their development goals.

Chinese firms dominate the technology-related goods and services market in many emerging nations worldwide. With China extending its technological influence to the developing world, it is difficult to decouple and exclude Chinese technology firms and their products completely.

When the Western world dissociates itself from the developing nations’ use of technology, it will seem indifferent and apathetic to the development of those nations. It would be resisted by many since Chinese technology is a crucial factor in the growth of developing countries.

The talks have commenced, and policies are being developed to facilitate the decoupling of technology supply chains. Still, different countries must address the global technology ecosystem, including China’s influence, technology, and domestic tech giants. States must realize and consider this fact to decouple tech supply chains.