Geopolitical Risks and Supply Chain Resilience: Navigating the New Era of Chinese Tech Exports

The U.S.-China tech rivalry has reached a critical inflection point, with geopolitical risks reshaping global supply chains and investment strategies. At the heart of this transformation lies the Pentagon's designation of DJI, the world's largest drone manufacturer, as a “Chinese military company”—a legal and regulatory battle that underscores the broader tensions between national security imperatives and commercial interests. As of September 2025, a federal court has upheld the Pentagon's decision, reinforcing its authority to label foreign entities as national security threats under the 2021 National Defense Authorization ActChina’s 2025 Drone Export Crackdown: DJI Grounded in the West …^[1]. This ruling, coupled with China's aggressive export controls and Western firms' “Anything But China” (ABC) strategy, is redefining the landscape of tech exports and supply chain resilience.

The DJI Case: A Microcosm of U.S.-China Tech Tensions

DJI's legal defeat in its challenge to the Pentagon's designation highlights the U.S. government's willingness to prioritize geopolitical concerns over market access. The court ruled that DJI's status as a National Enterprise Technology Center in China—granting it access to state subsidies and tax benefits—constituted a contribution to the Chinese military-industrial complexPentagon Can Call DJI A Chinese Military Company, Court Rule^[5]. While the evidence of direct Communist Party ownership was deemed incomplete, the decision affirmed the Pentagon's broad discretion in assessing dual-use technologies. This has cascading implications: DJI now faces a December 23, 2025, deadline for a federal security review, with failure to complete the process triggering an automatic ban under the FCC's Covered ListDJI Loses Major Pentagon Lawsuit In Sweeping Defeat^[4].

The stakes extend beyond DJI. The U.S. has introduced the “Unleashing American Drone Dominance” Executive Order, which accelerates domestic drone innovation and promotes the “Blue UAS” list of approved manufacturers, explicitly excluding Chinese firmsDrone Executive Order 2025: Impact on DJI and Domestic Industry^[3]. These measures reflect a strategic pivot toward self-reliance, driven by fears of espionage and supply chain vulnerabilities. For investors, the DJI case illustrates how regulatory actions can swiftly disrupt market dynamics, even for dominant players.

China's Export Controls and the Bifurcated Global Drone Market

China's 2025 drone export crackdown further complicates the geopolitical calculus. Effective September 1, 2024, the country banned the export of civilian drones with military applications, such as high-end infrared imaging and precision navigation systems, to Western marketsChina’s 2025 Drone Export Crackdown: DJI Grounded in the West …^[1]. Simultaneously, it continued supplying Russian buyers through intermediaries and joint ventures, creating a bifurcated global market. This policy shift has forced countries like Ukraine to ramp up domestic drone production under initiatives like the “Army of Drones,” while U.S. lawmakers have intensified calls for “China-free” alternativesWestern Technology Giants Pivot Away From China^[2].

The export controls also signal a broader strategy of economic coercion. By blacklisting 11 American drone companies and restricting component exports, China is retaliating against U.S. semiconductor export bans and trade restrictionsChina’s 2025 Drone Export Crackdown: DJI Grounded in the West …^[1]. For investors, this underscores the fragility of cross-border tech dependencies and the need for diversified supply chains.

The ABC Strategy: Western Firms Diversify Manufacturing

In response to escalating tensions, Western tech firms are accelerating the “Anything But China” strategy, shifting production to Southeast Asia, India, and Mexico. According to a report by TrendForce, companies like Advanced Energy Industries have closed final assembly plants in China, relocating to the Philippines and Mexico to meet customer demands for non-China-sourced productsChina’s 2025 Drone Export Crackdown: DJI Grounded in the West …^[1]. The U.S. CHIPS Act has further incentivized domestic semiconductor production, prohibiting firms from expanding manufacturing in China for the next decadeDrone Executive Order 2025: Impact on DJI and Domestic Industry^[3].

Countries like Malaysia and Vietnam are emerging as key beneficiaries. Intel, Infineon, and Micron have invested heavily in Malaysia's semiconductor sector, while Vietnam's electronics industry has seen growth in drone and AI component productionChina’s 2025 Drone Export Crackdown: DJI Grounded in the West …^[1]. However, this shift is not without challenges. Higher labor costs, logistical complexities, and the entrenched role of Chinese manufacturing in global supply chains make a complete decoupling unlikelyWestern Technology Giants Pivot Away From China^[2].

Chinese Tech Giants Go Global: A Strategic Countermove

While Western firms pivot away from China, Chinese tech companies are expanding their overseas footprint. Alibaba Cloud and Tencent Cloud, for instance, are investing $53 billion in AI and cloud infrastructure across Southeast Asia, with new data centers in Malaysia, Indonesia, and the PhilippinesChina’s 2025 Drone Export Crackdown: DJI Grounded in the West …^[1]. These investments are driven by both economic and geopolitical factors: as U.S. export controls tighten, Chinese firms are positioning themselves as critical partners for regions seeking to bypass Western-dominated supply chainsWestern Technology Giants Pivot Away From China^[2].

This globalisation of Chinese tech infrastructure presents both risks and opportunities. For investors, it highlights the potential for growth in emerging markets but also raises concerns about data sovereignty and regulatory friction.

Investment Implications and the Path Forward

The interplay of these trends demands a nuanced approach to investment. For sectors like drones and semiconductors, supply chain resilience is no longer optional—it is a survival imperative. Investors should prioritize companies with diversified manufacturing bases and robust compliance frameworks. For example, firms leveraging AI to optimize supply chain logistics (as outlined in the U.S. Executive OrderDrone Executive Order 2025: Impact on DJI and Domestic Industry^[3]) may gain a competitive edge.

Conversely, overreliance on single markets—whether China or the U.S.—poses significant risks. The DJI case demonstrates how regulatory actions can swiftly erode market access, while China's export controls reveal the vulnerability of centralized supply chains.

Conclusion

The U.S.-China tech rivalry is no longer confined to trade wars—it is a battle for the future of global supply chains. As the DJI-Pentagon dispute and China's export controls illustrate, geopolitical risks are increasingly embedded in commercial operations. For investors, the path forward lies in balancing strategic diversification with agility, navigating a landscape where national security and market forces are inextricably linked.