Geopolitics Isn’t Killing Global Supply Chains – It’s Powering Them
Global supply chains (GSCs) – which account for around 70 percent of international trade – are often referred to as the backbone of the world economy. As tensions rise between major powers – especially the United States and China – many commentators fear for the future of GSCs, and hence, the world economy. Such projections overlook how geopolitical rivalries have stimulated the development of advanced technologies, which, in turn, enabled the rise and ongoing transformation of global supply chains.
A close look at the US-led development of technology during the Cold War shows that it enabled the formation and expansion of many contemporary global supply chains. China has made efforts to catch-up to US technological development, and in response, the US has been deploying strategies to curb China’s tech rise amid a new geopolitical rivalry.
Beyond Borders: Technology Drives Supply Chains
Much of the current debate focuses on where supply chains are located – whether companies should “re-shore” production (bringing manufacturing back to a company’s home country) or rely on “friend-shoring” (moving manufacturing to friendly countries). But just as critical, and far less discussed, is the role of advanced technology in shaping how supply chain’s function.
Transnational corporations (TNCs) depend on sophisticated Information and Communication Technologies (ICTs) to manage vast interconnected production networks. These tools enable real-time data sharing, enforce standards across suppliers, and reduce costs. They also help spread high-productivity techniques throughout a company’s supply base.
Importantly, ICTs allow TNCs to control production costs and dictate prices paid to suppliers. This explains a key fact about the proliferation of global supply chains: a small number of, mostly US, TNCs dominate world trade and have concentrated income at the top of the world economy. But ICTs aren’t just business tools – they’re also central to national security.
Dual-use Technologies: Business Meets Defense
ICTs are classic dual-use technologies. They serve both commercial and military purposes. Their development has been shaped by geopolitical rivalries, starting with the Cold War competition between the US and the Soviet Union, and now with China.
After World War II, the US aimed to build a capitalist world order in its own image. Free trade – or at least freer than the empire-based systems that came before – was a key pillar of this order. US firms, supported by the state, expanded globally and became dominant players.
US defense planners saw technological superiority as vital to national security. In 1957, the Soviet Union’s launched the Sputnik satellite – suggesting technological parity with the US. In response, the US created the Defense Advanced Research Projects Agency (DARPA) the following year to drive innovation. The agency’s work led to foundational breakthroughs. These included the development of radar, computers, integrated circuits, semiconductors, and most famously, the internet. The Economist calls DARPA “the agency that changed the modern world.”
DARPA remains active today, funding cutting-edge research in areas like artificial intelligence (AI). AI is transforming supply chains by improving forecasting, logistics, and responsiveness. But the race to lead in AI is about more than business – it’s geopolitical. Such innovations have come about through policy deliberately designed to secure American dominance.
These technologies – from the internet to AI – have not just strengthened the military. They have also allowed US firms to outsource production while maintaining control over quality, standards, and pricing, even among nominally independent suppliers.
By the 1980s, globalization was in full swing. US companies combined high-tech oversight with low-cost labour, especially in China. By the 2010s, Walmart, the world’s largest retailer, sourced 70 percent of its products from China. US firms benefited from China’s manufacturing power, while China gained access to advanced technologies.
DeepSeek and the Rise of Chinese AI
In the context of multiple crises – from the 2008 global financial collapse to contemporary wars and environmental disasters – AI is being touted by experts as key to making supply chains resilient to external shocks.
But just as geopolitical rivalries stimulated the establishment of the internet and other key technologies, so too are they influencing the AI race. The emergence of DeepSeek, a Chinese AI rival to US-based ChatGPT, highlights such geopolitical dynamics. DeepSeek’s rise was fuelled by China’s push for domestic chip innovation – a direct response to geopolitically motivated US export restrictions. It’s part of a broader strategy to challenge American tech dominance.
There is little coincidence, perhaps, that the emergence of DeepSeek – open source, produced more cheaply and using fewer chips than ChatGPT – was hailed as AI’s “Sputnik” moment. That is, a development that will accelerate state-directed R&D across AI and many related technologies.
China’s ambitions go back decades. Since the late 1970s, under Deng Xiaoping, the country has worked to join the global economy. Initially a low-cost production hub, China gradually shifted toward technology development and transfer, often nudging foreign firms to collaborate.
In the early years, US leaders welcomed China’s integration. But by the 2010s, China’s tech progress began to worry Washington. Under President Obama, the US launched a “pivot to Asia” aimed at containing China’s rise.
Unlike many countries in the Global South, China has strong central economic coordination. This has enabled long-term tech development – often with help from American firms eager to tap into China’s labour market, even though the US state is increasingly berating such firms for allowing China to obtain their ideas and technologies.
US companies like Intel, IBM, General Electric, and Advanced Micro Devices have invested heavily in China. Intel alone has backed 15 semiconductor startups, 16 AI ventures, and dozens more in virtual reality, electric vehicles, and cloud services – holding stakes in 43 Chinese tech firms.
China’s Strategic Tech Push
In 2023, President Xi Jinping emphasized the importance of “integrated national strategies and strategic capabilities” in China’s quest for global power. That includes major investments in space technology, AI, and quantum computing – all aimed at boosting economic and military strength. China’s speedy development of electric and autonomous vehicles, robotics, and battery technologies are thanks, in part, to its rapid tech development.
Just like US military expenditure, China’s military spending increases effective demand for new technologies. Under Xi, China’s military spending more than doubled between 2012 and 2021. The country now has the largest military in Asia, though its defense budget remains about one-third that of the US. China’s rise to the tech frontier poses a dual threat to American dominance economically and militarily.
Washington’s Response: Containment and Confrontation
The US has responded with increasing aggression. A senior official at the Center for Strategic and International Studies described the Biden administration’s approach as “actively strangling large segments of the Chinese technology industry – strangling with an intent to kill.” Under President Trump, these efforts have intensified.
Yes, geopolitical tensions are rising. But framing this as a clash between geopolitics and the existence of global supply chains misses the key elements of this moment.
In truth, geopolitical competition has fuelled the development of the very technologies that power global supply chains – from information and communication technologies and the internet to AI and advanced chip manufacturing. The continued and further development of such, and perhaps novel, technologies will in all probability contribute to the evolution and change of geopolitical and economic dynamics. •
This article first published on the LSE – USAPP website.
