The US defense industry is attempting to regear itself in preparation for potential large-scale military conflicts, waking up from a post-Cold War investment hiatus during which counterinsurgency missions topped the Pentagon's agenda. Simmering tension in the Taiwan Strait and evolution in defense technology is also testing Washington's ability to bolster supply chain resilience while reinforcing military resilience in the Indo-Pacific region. Against this backdrop, we will see how the US seeks to strike a delicate balance between re-shoring and ally-shoring.
Chipmakers factoring in wartime supply chain disruptions
On April 25, Project 2019 Institute, a US think tank founded by former US Assistant Secretary of Defence Randall Schriver, and the US-Taiwan Business Council held a panel discussion on the potential economic impact for the US of a semiconductor supply chain disruption involving Taiwan.
According to Richard Thurston, a participant and a former TSMC senior vice president and general counsel who retired in 2014, the panel discussed many risk factors. Among them was the potential of war. "We looked at the key industry sectors and what impact would degrees of loss due to risk elements have on the US and Taiwan economies," Thurston told DIGITIMES Asia. According to him, the discussion also touched on many facets, including the competition between Taiwan's ruling and opposition parties.
Patrick Wilson, currently MediaTek's vice president of governmental relations, was also invited to the discussion. Though Wilson was eventually unable to partake due to a scheduling conflict, the MediaTek VP indicated to DIGITIMES Asia that the chipmaker's focus on serving customers means that it has to prepare for "any interruptions or problems."
"Our customers in China, the US and elsewhere would be disappointed if we weren't focused on being as prepared as we can be for any future crisis," said Wilson. "As we have learned over the last three years of global pandemic, you have to stay very close to your customers and understand their worries to keep up with the challenges."
An AUKUS-like framework involving Taiwan?
To offset the risks of a potential war across the Taiwan Strait, Washington's chip supply resilience efforts brought TSMC to set up a 5nm fab in the state of Arizona, with 3nm process technology planned to be introduced in 2026. Though the plan drew criticisms of weakening and marginalizing Taiwan's economic viability, thus inadvertently delivering to China one of its goals, the strained capacity of the domestic arms industry, the needs to shore up allies' defense in the Indo-Pacific, and by extension securing US interests in the region has also led Washington to foster regional security frameworks, recently exemplified by AUKUS, that transcend military cooperation into the realms of technology cooperation.
AUKUS, for example, saw the US sharing nuclear propulsion technology with Australia to be used in its future submarines, in addition to trilateral cooperation between the US, UK, and Australia on hypersonic weapon development and other efforts to improve joint capabilities and interoperability in AI, cybersecurity, and quantum technologies.
Though a regional framework like the so-called "Chip 4" is slowly brewing, it remains to be seen if it would pave the way for an AUKUS-like formation involving the US and Taiwan. Nevertheless, defense technology cooperation between the two countries is underway. As reported by Nikkei Asia in early April, delegates from around 25 US defense contractors are planning to visit Taiwan in May to discuss the joint production of drones and ammunition. The event would mark the first large group of US envoys focused on the defense industry to visit Taiwan since 2019, but is also an indicator that US defense contractors are "struggling to keep up with obligations at home and abroad," according to Nikkei Asia.
Space - the decisive frontier in need of greater defense cooperation
Talking to DIGITIMES Asia, a Taiwan-based drone and satellite module supplier that has made it into the international arms supply chain indicated that the Ukraine war has certainly boosted the demand for drone defense as well as a need to develop Starlink-like capabilities, and some US distributors have sought to acquire anti-drone solutions from them. Another Taiwan-based defense contractor specializing in RF solutions remains unsure if the upcoming visit from the US will deal with the satellite sector.
Nonetheless, Ukraine's experience has already brought Taiwan to recognize the importance of satellite internet constellations during armed conflict. Since last August, Taiwan's Ministry of Digital Affairs has initiated a project leveraging emerging technologies to strengthen communication network resilience during times of emergency or war. Speaking to DIGITIMES Asia, Audrey Tang, the Minister of Digital Affairs, explained that the plan includes satellite communications, but will also involve other technologies such as decentralized communications.
Referring to the satellite communication capability, Tang said that the ministry is conducting proof-of-concept (POC) trials to enhance cooperation with providers. "The locations of POC trials and partners involved will be revealed gradually after applications have been reviewed and selected projects have been determined," said the minister, who also indicated that how this communication system may be integrated into existing systems is still under discussion.
At a recent hearing before the US-China Economic and Security Review Commission, Kevin Pollpeter, Senior Research Scientist at the Center for Naval Analysis, highlighted the role of space in US-China military competition. In his testimony, Pollpeter pointed out that the Chinese military has recognized that long-range power projection, especially missiles, requires space-based command, control, communications computers, intelligence, surveillance, and reconnaissance (C4ISR) capabilities.
With more than 500 operational satellites in orbit, China already has the second-largest fleet of satellites in orbit behind the US, said Pollpeter. Above all, he drew attention to an emerging "US-China reconnaissance-strike competition" involving missiles and space technologies as missile power replaces air power as the determining factor in warfare.
As the recent chip shortage elevates semiconductor supply chain to a national security issue, driving home the issue of reshoring key US manufacturing capacities and capabilities, the capacity gap also makes ally-shoring an inevitable strategy to sustain US commitment to its allies and foreign policy goals as warfare quickly evolves. Alley-shoring has long been a terminology featured high on Washington's supply chain strategy, but curiously amiss in its Taiwan narratives. Now, all eyes are on the region.
