U.S. Foreign Policy and the Reshaping of Asian Tech Supply Chains: Capital Reallocation and Geopolitical Risks

The U.S.-China semiconductor rivalry has become a defining feature of global tech supply chains, reshaping capital flows, reshoring strategies, and geopolitical risk profiles. Over the past three years, U.S. foreign policy has pivoted sharply to counter China's technological ascent, with export controls, tariffs, and domestic subsidies creating a fragmented yet dynamic landscape. For investors, the implications are profound: capital is reallocating toward secure geographies, while geopolitical risks are amplifying volatility in sectors reliant on Asian supply chains.

The U.S. Policy Pivot: Controlling Chokepoints and Reshoring Capacity

The Biden administration's 2022 CHIPS and Science Act, coupled with stringent export restrictions on advanced semiconductors and lithography equipment, has redefined the rules of engagement. These measures aim to preserve U.S. technological dominance by limiting China's access to critical tools for chip production. According to a report by the Atlantic Council, the U.S. strategy—dubbed “small yard, high fence”—focuses on controlling key chokepoints, such as ASML's EUV lithography machines and advanced AI chips like Nvidia's A100 and H100United States–China semiconductor standoff: A supply chain under stress^[1].

The Trump administration's 2025 Section 232 investigation into semiconductors further escalated this trend, signaling potential tariffs on electronics and chips to reduce U.S. reliance on ChinaTrump Trade War Complicated By Chinese Tech^[2]. This has spurred a wave of reshoring and friend-shoring. For instance, TSMC, Intel, and Samsung have committed over $100 billion collectively to expand U.S. manufacturing, while Apple and Nvidia have shifted portions of production to North AmericaUnited States–China semiconductor standoff: A supply chain under stress^[1]. Yet, as of 2025, over 80% of iPhones sold in the U.S. are still manufactured in China, underscoring the persistence of entrenched supply chainsTrump Trade War Complicated By Chinese Tech^[2].

China's Response: Leapfrogging and Loopholes

China's push for self-reliance has accelerated under U.S. pressure. Firms like Huawei and SMIC are investing heavily in domestic R&D, while startups such as DeepSeek are developing AI models that require less computational powerHow Chip Restrictions Are Reshaping The Tech Landscape^[3]. However, loopholes in U.S. policies—such as cloud computing services—have allowed Chinese entities, including those with military ties, to access advanced computing power through platforms like Amazon Web Services and Oracle CloudHow Chip Restrictions Are Reshaping The Tech Landscape^[3].

Meanwhile, China's dominance in rare earth processing and its rapid expansion in mature-node chip production pose a long-term threat to U.S. and allied supply chains. As noted in a 2024 FPRI analysis, this capability could enable China to bypass U.S. restrictions and dominate foundational chip manufacturingBreaking the Circuit: US-China Semiconductor Controls^[4].

ASEAN's Dilemma: Caught Between Geopolitical Tides

ASEAN nations, traditionally reliant on downstream assembly, now face a dual challenge. U.S. export restrictions limit their access to advanced semiconductors, hindering their ability to move up the value chainUS restriction is chipping away ASEAN’s semiconductor future^[5]. To remain competitive, countries like Vietnam and Malaysia must adopt stringent security measures to position themselves as “secure partners” for U.S. and European firms. Yet, this requires balancing political neutrality with the demands of global allies—a precarious tightropeUS restriction is chipping away ASEAN’s semiconductor future^[5].

Geopolitical Risks and Investment Shifts

The U.S.-China competition has elevated geopolitical risks across industries. According to the Federal Reserve's 2025 report, sectors like electronics and fabricated metals are particularly vulnerable to supply chain disruptions, while agriculture and pharmaceuticals may benefit from localized productionThe Fed - Measuring Geopolitical Risk Exposure Across Industries^[6]. BlackRock's Geopolitical Risk Dashboard ranks U.S.-China strategic competition—particularly over Taiwan and the South China Sea—as a top-tier risk, alongside technology decouplingGeopolitical Risk Dashboard | BlackRock Investment^[7].

Investors are responding by diversifying geographically. A 2025 SP Global analysis highlights a shift in capital toward Southeast Asia and Africa, where firms seek to circumvent U.S. controls while leveraging lower labor costsSemiconductor Supply Chain Disruption: Unpacking the US-China Trade Conflict^[8]. However, this diversification is not without challenges. Smaller firms face financial and logistical constraints, while climate-related risks and policy volatility in emerging markets add layers of complexitySemiconductor Supply Chain Disruption: Unpacking the US-China Trade Conflict^[8].

Strategic Implications for Investors

For investors, the key takeaway is the need to balance exposure to high-growth, secure geographies with hedging against geopolitical volatility. The U.S. and its allies (South Korea, Taiwan, Japan) remain critical for advanced manufacturing, but overreliance on any single region carries risks. Conversely, China's push for self-reliance could yield long-term opportunities in sectors like HBM chips and automotive techGeopolitics and the changing landscape of global value chains^[9].

The semiconductor industry's evolution is not just a technological race but a geopolitical contest. As governments and firms navigate this landscape, the winners will be those who prioritize resilience—diversifying supply chains, investing in R&D, and aligning with strategic partners. For now, the U.S. policy pivot has created a fragmented but fertile ground for innovation, albeit at the cost of heightened uncertainty.