Can Trump Prevent China From Weaponizing The Electronics Supply Chain?

China has an acute monopoly over the world's electronics export market with 63% occupancy in the smartphone market and 72% in computers market. With Trump returning to the White House , the world is looking up to the US on how they will reshape the policies to turn the global electronic supply chain, highlighted in report titled as ‘Rebalancing Trade With China Requires Diverse Electronic Supply Chain’ by Chris Miller, Author & Non Resident Senior Fellow, American Enterprise Institute. 

The centre stage has been given to the USA and China because the former one is the biggest buyer of the electronic components while the other one is producing it in the largest number. 

In this digital era, where machines power the world, overdependence on a single country poses significant risks to global stability and security, stressed by Miller. This does not mean, western countries and the USA have never tried to get over with China’s dominance in the electronics segment but could not match China's massive infrastructure investment and public policies. 

Miller’s paper also mentioned that Chinese firms are developing advanced capabilities as subsidised Chinese companies are offering below-market prices, enabling them to capture an increasingly larger share of the global market.

When the Trump administration is discussing imposing a 10% tariff on China’s imports, it is necessary to be mindful that they possess 70 % of rare earth minerals to produce electronic goods. Mentioned by Miller’s paper, recently, China has imposed restrictions on exporting materials like gallium and germanium to Japan, which are needed in chip making over a territorial conflict. 

According to a journal published by the United States International Trade Commission, large multinational companies (MNCs) regularly invest upwards of 20 percent of their annual profits in research and development (R&D) budgets, but still it will not match up China’s ability to provide below market prices. 

According to Miller’s paper, Internationalised supply chains can be stabilised when all countries will come together and will rely on each other.

The paper also discussed that strengthening and investing in electronic assembly industries in Southeast Asia, India and Latin America will create viable options for world electronics demand. Apart from this, Miller also suggested USA to have adequate component supply from Non-Asian countries as moving goods across the Pacific would become much harder during a military crisis. 

Miller also stressed that the Trump administration should not only impose tariffs on final goods from China but also impose tariffs on China-made electronic components imported in systems from third countries.

With abundance of rare earth minerals and favourable industrial policies, China has great command in the electronics supply chain market but as the demand intensifies and China’s approach can be weaponized, it is imperative for the world to come together and seek a feasible alternative to ensure supply chain resilience and reduce overdependence.