An SMIC sign at an exhibition booth. Photo: AFP / dyc / Imaginechina

By targeting Semiconductor Manufacturing International Corporation, the US has used the nuclear option. Unlike Huawei or ByteDance, SMIC is foundational for China. From self-driving cars to artificial intelligence, China’s future depends on the success of SMIC (and its domestic chip industry). By taking action against SMIC, Washington has attacked the heart of China.

Now, it’s war over chips. 

Except this won’t just take place between the US and China. 

Of the many implications that come with sanctioning SMIC, one is that other nations will be dragged into the tech war.

For China to procure chips, it can turn to any of three nations: South Korea, Japan and Israel. These countries represent China’s only real route to accessing critical chip technology and equipment, especially as Europe aligns with US foreign policy.

This means America’s closest allies will have to play a balancing act. Do they align with the US and ignore China? Or do they try to please both parties?

The latter is most likely considering China has been pumping billions of dollars into these countries for years. This may translate into Israeli universities indirectly suppling chip technology to China. Or firms like Samsung and Sony using “third party” nations, such as Saudi Arabia or Italy, to sell chips to China.

A separate test will be whether officials in Washington stay quiet if this happens. If they do, it will be a subtle indication that the US does not want to take the tech war further. But if they speak up, it will be a sign the US is willing to restrict China’s access to technology even more.

Another, equally important, implication is that a new iron curtain is emerging for technology companies – specifically those offering critical technologies like chips. Certain regions of the world, dominated by Chinese influence, may become “off limits” for Western firms. This will jeopardize the business models of many companies, as they are forced to operate along geopolitical fault lines for the first time.

Of course, this is only one side of the coin. 

The other side is China’s response.

Initially, China may have resisted taking action, hedging its bets on the outcome of next month’s US presidential election. But unlike targeting TikTok or WeChat, which could be remedied by a new US administration, targeting SMIC is a permanent shift in US-China relations.

By taking action against China’s biggest domestic chip maker, the US has forced a rude awakening in Beijing. Officials, and executives, now realize they must disconnect from US technology and ecosystems as fast as possible – or face destruction. China knows that to become a global superpower, its companies and economy can’t operate under siege. 

All of this means China’s response will involve both long-term and short-term strategies. In the long term, China will accelerate its tech decoupling. In the short term, Beijing has dozens of “nuclear options” at its fingertips. 

Some of them are well known, for example restricting exports of rare-earth minerals. But there are also more creative strategies Beijing may employ. 

One of them is to force local subsidiaries to become independent. 

To understand what this may look like, examine the current feud between Arm and Arm China. Arm, based in the UK, fired the head of Arm China. Except he has refused to leave and continues to run the Chinese subsidiary. This shows the lack of control technology companies have over their Chinese ventures.

And this is a weak spot that Beijing may target. Could China quietly encourage local subsidiaries to become fully independent? To procure chips, China could target subsidiaries of Intel, IBM, AMD or Nvidia, forcing them to become to become 100% Chinese owned. The US and European governments may have little power beyond loud diplomatic talk. Are executives in these firms prepared for such a possibility? 

Or China might go beyond this. It may target the most iconic company in the world, Apple, but not in a way most expect. Instead of outright banning Apple, China may issue an ultimatum: Build chips for China or face a ban.

At a time when Apple may be betting on its chip capabilities to give it an edge, those same capabilities may put it in the middle of the tech war. This means, in the geopolitics of technology, the decisions that technology firms make are as important as the decisions governments make.

Conclusion

Until now, the tech war has been largely one-sided. It has been the US targeting Chinese technology firms. China has not responded. Whether China has been waiting for the US election, or quietly redesigning its entire foreign policy, the time when Beijing was quiet is coming to an end. Targeting SMIC has reset the US-China relationship in a way few countries and companies realize. 

Now the ball is in China’s court. How far will it go? But be assured, whatever China’s response is, Beijing will seek to inflict the same pain on the US (and its allies) as has been inflicted on its interests.

The time for diplomacy is over. As the drums of war beat louder, for the first time, it’s not just geography (such as the South China Sea) that’s driving tensions, but also technologies that nations are betting on to reconfigure their geopolitical power – and drive a new future for themselves.

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Abishur Prakash

Abishur Prakash is an authority on the geopolitics of technology. He is a geopolitical futurist at the Center for Innovating the Future, a strategy consulting firm focused on the future of business and geopolitics. He is also the author of four books, including his latest, The Age of Killer Robots.