The Limitations of Liberal Interdependence in Strategic Technologies: The Case Study of the U.S.–China Chip War

Abstract

This paper analyses the limitations of liberal interdependence theory in explaining the state’s behaviour in strategic technology sectors, using the U.S.-China semiconductor conflict as a case study. Semiconductors are incorporated in highly integrated global value chains (GVCs), with the United States generating over 48 percent of the world's chip design revenues, TSMC in Taiwan manufacturing 90 percent of advanced logic chip designs less than seven nanometers, and China supplying over 70 percent of global assembly, testing, and packaging, and importing more than USD 400 billion of chips each year. Despite such profound interdependence, the United States imposed export controls on Huawei and other Chinese companies in 2022, which threatens to cost the domestic companies billions of dollars annually. On the other hand, China has invested more than USD 150 billion since 2014 in the chip sector. These changes indicate the breakdown of the liberal assumptions of mutual vulnerability, the market's rationality, symmetry, and the separability of economic security in strategic areas. The results highlight the fact that economic integration does not necessarily limit strategic behaviour, which provides theoretical and policy implications for the governance of semiconductors and new high-tech sectors.