Semiconductor Grey-Zone Warfare
By Rakotoarimanga Tinah | 8 December 2025
Mathew Schwartz/Unsplash
Summary
The semiconductor supply chain remains exposed to grey-zone competition as the US–China strategic rivalry accelerates, with export controls, AI-driven demand and concentrated fabrication capacity creating new leverage points
Export-control regimes centred on Electronic Design Automation (EDA) and advanced chips generate parallel procurement routes and intensify cybersecurity risks
AI adoption across industries amplifies the value of advanced chips, increasing incentives for covert acquisition, influence operations and supply-chain interference
Context
The US–China technological rivalry has intensified across 2024–2025, with advanced semiconductors operating as a central determinant of strategic capability. Access to leading-edge compute has become integral to military modernisation and the scaling of frontier AI systems, driving both states to harden their positions across design, tooling and fabrication ecosystems.
Export controls have shifted from targeted restrictions to a structural instrument of foreign policy. Measures covering advanced chips, manufacturing tools and design architectures now shape firm behaviour across the global supply chain, altering investment decisions, procurement strategies and cross-border partnerships. EDA tools function as a primary chokepoint: without access to US-controlled design software, the capacity to develop competitive chips is severely constrained. Current regulations extend beyond accelerators and advanced nodes to include manufacturing IP and specialised components for AI training.
Despite these constraints, domestic capacity expansion continues within China through subsidies, licensing circumvention and partnerships with secondary suppliers. At the same time, the rapid adoption of AI accelerates demand for specialised accelerators, increasing pressure on both regulated and grey-market acquisition channels. These dynamics contribute to a competitive environment marked by reciprocal restrictions, adaptive procurement behaviour and growing reliance on indirect means of technological advancement.
The broader landscape reflects a gradual shift toward an AI chip cold war, where influence over firms producing high-value accelerators serves both operational objectives and geopolitical signalling. Control of critical hardware has become a lever for shaping rivals’ trajectories, managing escalation and securing advantage within an increasingly fragmented technological order.
Implications
Tightened controls on high-end Graphics Processing Units (GPUs), accelerators and EDA tools have pushed firms to widen the space between what is formally allowed and what they actually need. The pressure is predictable: when the regulatory net tightens, companies turn to intermediaries, layered procurement structures and offshore distributors to keep their pipelines open.
The surge in AI demand only sharpens this tension. The distance between authorised supply and real operational requirements encourages actors to cultivate quieter, less transparent routes to secure restricted compute and design capabilities. And as these parallel channels expand, they do more than compensate for constraints. They redraw the map of dependencies, expose firms to sharper sanction risks, and shift who ultimately holds the levers of control in an increasingly contested supply chain.
The race for high-performance chips has turned design data, foundry workflows and component-level IP into strategic assets in their own right. As access constraints tighten, these pockets of knowledge become natural targets for cyber operators looking to sidestep export regimes or accelerate their own domestic programmes.
Rising AI demand compounds the problem. Capability gaps persist, tooling remains uneven, and the dependence on foreign ecosystems pushes actors toward more aggressive forms of extraction. Cyber intrusions and supply-chain compromises become the quickest way to close structural deficits. But each breach carries a wider cost: operational disruption, the steady leakage of intellectual capital, and a slow, cumulative erosion of competitive advantage.
Control over EDA software, high-end accelerators and the licensing regimes wrapped around them has become a durable source of strategic leverage. By limiting access to design tools and advanced training hardware, states can subtly steer a competitor’s technological trajectory, slowing capability development and locking in long-term dependencies.
Those on the receiving end rarely stay passive. They diversify where they can, stockpile when possible, accelerate domestic R&D, and seek partners that sit just outside the main enforcement perimeter. Each of these moves is a form of counter-signalling, feeding a cycle in which restrictions and adaptations answer one another in a steady, calibrated escalation.
As control tightens around EDA tools and advanced accelerators, the cost of access rises sharply for China. And that widening gap, however quietly it grows, reinforces the US advantage across the core layers of the semiconductor value chain.
Global attempts to broaden fabrication and design capacity keep colliding with the same structural walls: enormous upfront costs, multi-year build timelines, scarce specialised labour, and a persistent dependence on imported tooling. These constraints slow any effort to loosen exposure to dominant producers or to construct fully insulated, nationally anchored supply chains.
At the same time, demand for AI-related compute is rising far faster than new capacity can be built. That mismatch locks many states back into the established ecosystems they were hoping to escape. Those with only partial supply chains remain exposed to chokepoints in lithography, advanced logic and EDA, vulnerabilities that translate into uneven resilience and widening asymmetries between semiconductor powers.
Taken together, these dynamics grant the actors who control critical tools a quiet but durable advantage. They can steer the pace of technological competition, and modulate escalation, without ever crossing into open confrontation.
Forecast
Short-term (Now - 3 months)
Increased cyber intrusions will likely target EDA firms, GPU suppliers and design ecosystems as export controls tighten.
There is a realistic possibility that the growth of procurement networks using offshore distributors to acquire restricted accelerators.
Medium and Long-term (>3 months)
Highly likely that the intensification of monitoring mechanisms by states seeking greater insight into chip logistics and AI-related exports.
Rapid diversification of fabrication nodes is unlikely, given structural barriers and tooling constraints.
Likely that grey-zone activity like industrial espionage, regulatory pressure, and covert procurement remains a stable feature of semiconductor competition.
Realistic possibility that the continued fragmentation of supply-chain governance as the US and China consolidating rival semiconductor ecosystems.
