U.S.–China Tech Rivalry: Semiconductors, AI, and Strategic Espionage

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): The Good Men Project

Publication Date (yyyy/mm/dd): 2025/08/16

Irina Tsukerman is a human rights and national security attorney based in New York and Connecticut. She earned her Bachelor of Arts in National and Intercultural Studies and Middle East Studies from Fordham University in 2006, followed by a Juris Doctor from Fordham University School of Law in 2009. She operates a boutique national security law practice. She serves as President of Scarab Rising, Inc., a media and security strategic advisory firm. Additionally, she is the Editor-in-Chief of The Washington Outsider, which focuses on foreign policy, geopolitics, security, and human rights. She is actively involved in several professional organizations, including the American Bar Association’s Energy, Environment, and Science and Technology Sections, where she serves as Program Vice Chair in the Oil and Gas Committee. She is also a member of the New York City Bar Association. She serves on the Middle East and North Africa Affairs Committee and affiliates with the Foreign and Comparative Law Committee. 

In this wide-ranging conversation, Scott Douglas Jacobsen and Irina Tsukerman discuss the evolving U.S.–China tech rivalry. They explore semiconductor geopolitics, rare earth supply chains, AI integration, and strategic industrial policy. Tsukerman explains China’s dominance in rare earth refinement, the shortcomings of the CHIPS Act, and concerns over industrial espionage. The discussion highlights Middle Eastern AI adoption, BRICS collaboration, and growing visa restrictions impacting international researchers. With mutual distrust intensifying, both countries engage in surveillance precautions and economic retaliation. Despite conflict over advanced technologies, cooperation remains possible in low-grade chips and less-strategic raw materials.

Interview conducted August 1.

Scott Douglas Jacobsen: Today, we are here once again with the insightful New York attorney, founder of Scarab Rising and The Washington Outsider, and also co-host of the excellent Good Men Project feature called the Everywhere Insiderswith me. Today, we are going to talk about semiconductor geopolitics and the evolving U.S.–China tech policy landscape.

So, I was listening to Fareed Zakaria — a sharp American political commentator — discuss rare earth minerals. He noted that it is not that rare earth minerals are rare, but that the refining process is complex and environmentally taxing, which makes the final usable product hard to obtain. That was a subtle point I had not considered before — a genuinely educational moment. Does that kind of insight play into this broader issue?

Irina Tsukerman: Yes — absolutely, though it is nuanced. First, let us clarify: rare earth elements (REEs) refer to a group of 17 chemically similar elements. While many of them are relatively abundant in the Earth’s crust, they are rarely found in concentrated, economically viable forms, and their extraction and refinement involve complex, hazardous, and often environmentally damaging processes. So while Zakaria is right that the refining process is a significant bottleneck, some REEs are indeed geologically scarce, and not all countries have either the deposits or the infrastructure to handle them.

China currently dominates this space, accounting for over 60% of global rare earth mining output and around 85–90% of global rare earth refining capacity, as of recent years. That gives China massive leverage, because many other countries with deposits — including the U.S. — have not invested adequately in mining or refining. Environmental regulations, cost, and lack of domestic industrial policy led countries like the U.S. to outsource this entire supply chain to China. As a result, the U.S. lacks the industrial ecosystem and trained workforce needed to scale domestic production or refinement rapidly.

So yes, this is central to the semiconductor and broader tech struggle. While the U.S. still leads in semiconductor design and advanced chip manufacturing (especially via allies like Taiwan’s TSMC), China is catching up rapidly in some areas, dominant in others (like materials processing and supply chains), and strategically using its control over rare earths and critical minerals as economic leverage.

Jacobsen: So is this industrial warfare — like strong-arming the early phases of the supply chain?

Tsukerman: Exactly. Think of it this way: the U.S. is strong in innovation and R&D, especially in chips, AI, and advanced computing. However, China, by controlling key inputs — like rare earths, gallium, and graphite — can constrain U.S. and allied manufacturing capacity from the ground up. This is why the U.S. has launched initiatives like the CHIPS and Science Act, and why there is a push to diversify rare earth supply chains — from countries like Australia, Canada, and some African nations. There are alternatives and recycling efforts underway, but none are immediate fixes.

Jacobsen: What about economic pressure — sanctions, bans, or trade controls — aimed at countries that support China’s tech dominance?

Tsukerman: The U.S. has tried several levers: export controls on advanced chips and chip-making equipment to China (especially targeting companies like SMIC), restrictions on U.S. investment in specific Chinese tech sectors (under review), and blocking Chinese firms with military or surveillance ties. Moreover, yes, Washington has also pressured allies and third-party countries — from Japan to the Netherlands — to limit high-tech exports to China, particularly in semiconductor manufacturing equipment (ASML, for example).

However, China has responded in kind. It imposed export controls on gallium and germanium, both critical to semiconductors and EVs. It is also threatened to limit exports of graphite, a key component in battery production. So, it is a tit-for-tat economic and industrial standoff — not always visible in headline-grabbing tariffs, but deeply felt in supply chain disruptions and long-term strategic positioning.

The CHIPS Act was intended not only to bolster domestic semiconductor manufacturing in the U.S., but also to regulate and prevent third-party countries from circumventing U.S. export controls, particularly those targeting China. However, this enforcement has not been fully effective for several reasons.

First, some countries are challenging to monitor or influence, especially if they lack strong compliance frameworks or strategic alignment with U.S. policies. We have to remain constantly vigilant to ensure no smuggling occurs — and, of course, some smuggling does occur. Second, it is not always the countries that are the biggest problem. Often, it is private companies operating within or across those countries that are the key actors. These may not be government entities at all — they can be intermediaries or facilitators, what you might even call modern-day privateers or profiteers, making money off of rerouting sensitive components.

Sometimes, companies do not carry out sufficient due diligence, and as a result, they unknowingly work with illegitimate intermediaries who smuggle components to China or its strategic partners. We are seeing a combination of scenarios: countries thriving on black-market operations, companies deliberately bypassing restrictions, and mercenary third-party actors exploiting legal and logistical loopholes. The more restrictions are imposed — without a corresponding increase in enforcement capacity — the more opportunities there are for smuggling, contraband, and circumvention. These illicit flows adapt quickly to pressure and find new iterations constantly.

Jacobsen: Let me raise a broader point — between the United States and China, is there any serious third competitor emerging? Not necessarily a single country — maybe a bloc, like the EU, Arab League, or others?

Tsukerman: That is a good question. We are starting to see BRICS — particularly its expanded format — position itself as a potential tech collaboration bloc. While it has not been especially successful in de-dollarization or in undermining Western economic dominance, it has made strides in exclusive tech exchanges among its member states — exchanges that deliberately exclude the West.

For instance, India, China, Russia, and others in BRICS are engaging in joint R&D efforts — not just in semiconductors, but also in quantum computing, AI, and advanced manufacturing. Much of this is still in the early to mid stages, and while not all of it is groundbreaking yet, some of the quantum research is quite concerning from a security and strategic standpoint.

Meanwhile, in the Middle East, countries like Saudi Arabia have shown strong interest in tapping into Chinese expertise to develop their own domestic semiconductor and AI sectors. Part of their motivation for seeking expanded BRICS membership was precisely this: to bypass Western dependency and gain access to non-Western tech pipelines. Saudi Arabia’s actual status within BRICS remains ambiguous — there are conflicting reports on whether it formally joined or just participated as an observer. However, their interest stemmed from a desire to diversify their strategic partnerships.

Jacobsen: So while not a full-on third superpower, we are looking at emerging coalitions with potential?

Tsukerman: And on the Western side, we are seeing a cohesive tech alliance taking shape — led by the U.S., Japan, the Netherlands, South Korea, and Taiwan. This informal bloc is collaborating on semiconductor supply chains, chip manufacturing equipment, and joint R&D, particularly as a response to China’s industrial policies. Together, they represent the core of the global advanced chip ecosystem — and this cooperation is increasingly strategic, not just commercial.

Jacobsen: But Donald Trump — being focused as he is on domestic production and trade deficits — has just imposed a 20% tariff on Taiwanese semiconductors.

Tsukerman: That is one piece of it. The other part is that he has pushed to bring semiconductor manufacturing fully into the United States, and he has also attempted to dismantle or undermine key provisions of the CHIPS Act. However, overall, none of this is working out well so far.

First of all, you simply cannot produce all semiconductors domestically — the U.S. does not have the workforce capacity to do that at scale. Even if you import highly skilled workers from Taiwan, India, or elsewhere, it defeats the very purpose of the push for “domestic manufacturing,” which is supposed to be about creating jobs for Americans. If you have to rely on foreign labour, then the logical conclusion would be: why not just manufacture where it is cheaper and more efficient?

So far, the results have been underwhelming. The new 20% tariff means that semiconductors imported from Taiwan — which are essential and already expensive — will now cost significantly more. The intention, presumably, is to incentivize domestic production, but we simply do not have enough STEM-trained engineers to make that happen overnight.

Yes, some of that workforce could be trained over time — maybe within a year or eighteen months — but that still requires significant investment in education, training programs, and infrastructure. The companies that rely on these technologies would need to commit resources to upskilling workers. Moreover, for more advanced engineering roles, you’re looking at timelines of several years.

Jacobsen: So we’re not seeing a real plan?

Tsukerman: Exactly. I’m not hearing a clear roadmap from policymakers. There’s talk about wanting to create domestic capacity and reduce reliance on Taiwan. Still, there are no specific goals, no public projections about how many jobs will be created, how many fabs will be operational, or what milestones we’re targeting in the next year or two.

All we’re hearing is vague language — “we want to reduce dependence,” “we want to bring manufacturing home” — but no execution strategy. And the irony is, the U.S. is nowhere near self-sufficiency when it comes to semiconductors. It still depends on joint production, foreign supply chains, and alliances, particularly with Taiwan, South Korea, the Netherlands, and Japan.

So imposing tariffs on one of your most critical and trusted suppliers, like Taiwan, could be seen as counterproductive — a kind of “cutting off your nose to spite your face” move.

Jacobsen: At the end of World War II, according to Chomsky’s reporting, the United States controlled about half the world’s productive capacity — essentially half of global GDP. I don’t know if he was using that precise metric, but it seems broadly accurate. Today, the U.S. likely accounts for about a quarter of global GDP. The European Union is nearing the end of another quarter.

China likely accounts for approximately another quarter of global GDP. So, compared to the post–World War II landscape, we’ve gone from a mostly unipolar world — where the U.S. held about half of global output — to a roughly tripolar world, in terms of annual wealth generation, with the U.S., China, and the European Union each making up substantial shares.

GDP isn’t a perfect measure. There are more sophisticated ways to assess influence or capability. But for the sake of argument, let’s treat it as a loose proxy for technological development, both annual progress and cumulative advancement. It’s like technology is paying dividends on earlier investments.

Looking at it that way, it seems clear that no country or bloc holds exclusive dominance over technological development anymore. So this current U.S.–China competition — what does it represent in the broader geopolitical context, especially over a medium-term time horizon, say 10 to 20 years?

Tsukerman: At its core, this isn’t just a trade war or a tariff skirmish — it’s a strategic competition over control of foundational technologies, particularly semiconductors, which are essential across both civilian industries and the defence sector. We’re talking about everything from AI-guided missile systems to next-gen computing platforms.

Parallel to that is the quantum race. China has publicly claimed to be leading in quantum computing, but so far, there has been no independently verifiable evidence supporting those claims. So I’m personally very skeptical. We’re still waiting to see whether those advances are fundamental or just propaganda.

This all plays into narratives on both sides. There’s the joke about “Make China Great Again,” and then the American metaphor about the U.S. economy being a vast ocean — that even a storm can’t sink. In many ways, these ideas mirror each other: China asserting its rise, the U.S. asserting its resilience.

Jacobsen: Right — and as you explained to me before, China’s rise has been heavily informed by decades of intellectual property that was either co-developed with the West or outright stolen.

Tsukerman: Exactly. That’s a massive part of the story. Over time, China has built up an enormous base of technical knowledge, some of it acquired through legal joint ventures, some via cyber espionage, and some through academic and commercial partnerships that lacked proper safeguards.

Now, what we’re seeing is China trying to leapfrog certain stages of technological development. For example, there are multiple trajectories in chip development. One primary path has focused on miniaturization — essentially, packing more transistors into smaller chips. That’s the principle behind Moore’s Law, which held for decades that computing power would double roughly every two years as chip components shrank.

Jacobsen: But isn’t there a debate now about Moore’s Law being obsolete? I’ve heard people talk about scaling laws instead.

Tsukerman: Yes — it’s an ongoing discussion. Some say Moore’s Law has reached its physical limits, especially at sub-5-nanometer nodes. But others argue there’s still room for innovation, particularly with advanced lithography and new materials. There’s also active R&D aimed at pushing Moore’s Law further.

That said, China is also exploring alternative models of computing. The West, for a long time, was so laser-focused on Moore’s Law that it didn’t fully explore other avenues — like neuromorphic computing, photonics, or architecture-level innovation. China is experimenting with these areas in parallel, in part because it has to — it can’t currently match the U.S. in leading-edge chip production. But it’s catching up, and in some cases, it’s innovating in less conventional ways.

That said, there’s more to this than just AI chips, and more to AI itself than just semiconductors. While global attention is fixed mainly on the U.S. and China due to defence applications, cutting-edge technology, and the green transition — where semiconductors are essential for EVs, smart grids, and more — several Middle Eastern countries are pursuing significantly different AI strategies.

In particular, nations like the United Arab Emirates have been focusing on AI integration across daily civilian life, from education and medical equipment to automation in public services, entertainment, and administrative processes. These are not necessarily the most militarily advanced applications, but they’re influential in shaping a future society. And in this area, the U.S. is falling behind.

China is arguably ahead of the U.S. as well, especially when it comes to early-stage AI education. They’re introducing basic AI literacy to children at a young age. Meanwhile, in the U.S., there’s still concern about screen time, digital overexposure, and other cultural hesitations. In my opinion, that battle is already over — and if American children aren’ttaught to use and build with technology early, they’ll fall far behind their counterparts in both China and parts of the Middle East.

In the UAE, for example, there’s a system-wide push to integrate AI into everyday infrastructure and social functions. It’snot about cutting-edge defence or quantum applications, but rather pragmatic, high-impact AI use in schools, hospitals, transport, public safety, and more. And it’s working. These applications aren’t threatening or dystopian — they’re just making everyday life more efficient and responsive.

The U.S. lags in this area for several reasons. First, it’s a much larger and more decentralized country, which makes implementation at scale far more complex. Second, there’s significant political division and debate over technology, ethics, surveillance, and job displacement — issues that slow down policy and adoption. The UAE, on the other hand, is an authoritarian state. It doesn’t face the same electoral or bureaucratic hurdles. It also benefits from higher levels of public trust in government, at least culturally, and from a younger population, which is generally more adaptable and receptive to change.

In the U.S., public discourse around AI is still largely framed by anxiety, fear of job loss, existential threats, and ethical dilemmas. Meanwhile, countries like the UAE are adopting the mindset of: “Let’s implement first, then refine later.” And so far, that approach is delivering results.

Jacobsen: So they’re outpacing the U.S. in non-defence, non-military AI use cases?

Tsukerman: Exactly. Not in advanced defence or green tech, but in civil integration of AI, they’re well ahead — and they have the resources and political flexibility to scale rapidly. I believe China will start to incorporate more of these approaches, too. However, China faces its structural issues: a population that’s not only far larger than the U.S. but also significantly older, which makes wide-scale tech adaptation more difficult in certain areas.

There’s a major demographic crisis in China. Despite the country’s vast industrial and technological capacity, it remains overall a lower-income country per capita compared to the U.S. or much of Europe. So, they face significant internal challenges — not just economic and demographic, but also institutional — that shape how they engage with technology and security policy.

When we talk about technological espionage, the conversation often focuses on China as the aggressor, conducting cyber theft, IP infringement, and infiltration of foreign research institutions. But it’s important to remember that there’s also a standard protocol of legitimate scientific collaboration, where experts across borders share knowledge through joint research. That coexistence of open cooperation and covert espionage creates strategic ambiguity that countries like China have used to their advantage.

Jacobsen: What about national security concerns inside China itself? I recall a story about Tesla cars being banned in certain sensitive zones — political or military — because the Chinese government feared the CIA could use the onboard camera systems for surveillance. It raises the question: Does China worry that the U.S. might use the same tactics against it, just as China has used them abroad?

Tsukerman: Yes, absolutely — China is deeply concerned about that possibility. And it’s not surprising, given how proficient they are at using those tactics themselves. Just to clarify a key difference: the U.S. intelligence community traditionally does not engage in industrial espionage to benefit purely private companies. That’s a line that is generally respected, although, of course, private U.S. companies have occasionally engaged in industrial espionage against each other, which leads to scandals from time to time.

Where U.S. intelligence does engage is in matters involving government-backed technologies, national security infrastructure, or military-adjacent innovations. The complication with China is that almost every major company has some link to the state, whether it’s the Chinese Communist Party (CCP), the PLA, or a state regulatory body. It’s hard to find a single major Chinese tech firm that operates with zero government affiliation. So, by U.S. intelligence logic, those entities would technically fall under the category of fair targets.

But how much espionage is carried out — and at what level — is a matter of strategy. I suspect the U.S. draws a distinction based on proximity to the Chinese government: the more directly controlled or funded the company is, the more it’s likely to be watched. But if it operates more like a genuinely private firm with minimal government ties, it’sprobably less likely to be actively targeted, at least not in a formal, sanctioned capacity.

And as for Tesla, I doubt U.S. intelligence would try to use Elon Musk’s vehicles for covert ops in China. Musk is already known to be extremely difficult to collaborate with — even on comparatively neutral matters, like providing satellite communications to Ukraine. So the idea of using Tesla as a surveillance conduit in China sounds far-fetched and impractical.

Jacobsen: Still, that doesn’t mean China isn’t taking those concerns seriously, right?

Tsukerman: Exactly. They’re taking it very seriously — in part because they understand these tactics well, having deployed them extensively themselves.

Take, for instance, the growing body of evidence and investigations in the U.S., U.K., and across Europe showing that certain Chinese-manufactured technologies — from cars to drones to consumer electronics — have arrived with built-in surveillance hardware or software. These aren’t conspiracy theories anymore. Even European governments — typically slower to act — have been alarmed by what’s been discovered.

China has now turned the tables. After the U.S. recently eased some restrictions on the export of certain chips to China, Chinese officials responded by suggesting that those chips might be compromised, potentially embedded with spying components. So now, they’re scrutinizing U.S. tech imports, blocklisting some, and implementing new cybersecurity reviews and data protection requirements. It’s a classic mirroring response — and it’s becoming a defining feature of this techno-security standoff.

Yeah, they’ve started inspecting newly arrived NVIDIA chips for embedded surveillance components. I have no idea what surveillance hardware would actually look like inside a chip, or how you’d even determine whether something was present that wasn’t supposed to be there. But this is what they’re doing — and it’s not just talk. It’s a real, documented effort.

Jacobsen: I mean, logically speaking, wouldn’t China just assume that if U.S. spies were somehow embedding surveillance components, they wouldn’t put them in a clearly marked or easily discoverable place? Wouldn’t they expect China to inspect obvious entry points and instead hide surveillance elsewhere, somewhere unexpected?

Tsukerman: 100%. That’s precisely why I find some of this a bit amusing. It’s almost like a game of espionage theatre — everyone suspects everyone, but neither side knows where to look or what exactly they’ll find. Still, China takes it seriously because it’s what they would do, so they assume others operate the same way.

Jacobsen: Final question: where are China and the U.S. not fighting when it comes to chips, semiconductors, and rare earths? Is there any room for mutual benefit or strategic restraint?

Tsukerman: Actually, yes — there are still areas of non-conflict in the tech space. Specifically, when it comes to less advanced chips — low to mid-grade semiconductors that are widely used in consumer electronics, appliances, and industrial systems — the U.S. has not imposed significant export restrictions. There are a couple of reasons for that:

1. China already manufactures many of these chips on its own so that restrictions wouldn’t have much effect.
2. These chips are not strategically sensitive, so the U.S. doesn’t view them as a national security threat.

Similarly, China hasn’t restricted exports of all rare earth elements, only certain strategic or scarce ones, like gallium, germanium, and potentially graphite. The U.S. still has access to other, less sensitive rare earths. So it’s not a total embargo — the conflict is targeted toward high-priority materials and high-performance chips.

That said, the overall trajectory of cooperation is negative. For instance, the U.S. State Department has floated the idea of revoking visas for certain Chinese students, particularly those studying in sensitive tech fields like AI, quantum computing, or advanced manufacturing. While I haven’t seen confirmed cases of mass student expulsions purely based on nationality, the policy direction is clear.

There have also been concerns that Chinese professors teaching or conducting research in the U.S. — especially in STEM areas — may come under increasing visa scrutiny. So far, I’ve only heard of student expulsions in connection with political protests (such as the Hamas demonstrations), not purely due to Chinese citizenship. But that may change.

Likewise, I haven’t seen mass removals of Chinese researchers from U.S. companies — yet. However, the process of obtaining research or work visas is becoming increasingly expensive, time-consuming, and restrictive, particularly in light of ongoing reviews of tech-sector access.

China, for its part, has been trying to recruit Western researchers — especially from universities that lost funding under the Trump administration — while simultaneously increasing its scrutiny of foreign nationals, particularly in sensitive R&D spaces. It’s a balancing act: they want Western talent but remain wary of Western influence.

Jacobsen: That’s the end. Thank you for your time, Irina.

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