Supply Chain War with Chris Miller (NYT Best-Selling Author of Chip War)

Speaker A: Welcome to the Exeger Exchange. I'm Kit Conklin. This is where you'll hear unfiltered conversations with the people shaping the global economy. The policymakers writing the rules, the experts. The world turns to the executives whose decisions move markets and nations. And today, we're getting into one of the most consequential supply chain fights of our time. From the chips inside our cars to the rare earth magnets powering our economy, supply chains have become the new battleground for global competition. And few people see this landscape more clearly than today's guests. Dr. Chris Miller. He's a professor of international history at Tufts University and a New York Times bestselling author of Chip Ward. And today, we're talking AI export controls, smart cars as intelligence collection platforms, and how Beijing, Brussels, and Washington are racing to weaponize and defend the supply chains that run modern life. Let's get to it. Chris, thanks so much for joining us. There's a lot that we can talk about, but I want to dive into. The first time that you and I met. It was a couple of years ago. The China Select Committee was just starting. We didn't really know exactly what we were going to do. When the committee started, there was a whole bunch of stuff on the national security side, on the economic security side, on the human rights side. But you really helped us dial in and focus on this issue, uh, related to AI tech, competition and semiconductors. That was a long time ago. What's changed since 2023? What's working? What's not?

Speaker B: Well, I think the biggest change is just that the, uh, entirety of the US Society, and really the entire globe is focused on AI in a way that was just picking up steam in 2023. And that's been coupled with the realization that the supply chains that feed into AI are really critical infrastructure for any modern economy. And you see this in industry with different supply chain bottlenecks gumming up. The construction of data centers are slowing down the manufacturing of chips. But you also see it at a geopolitical level where both the US And China and other countries are trying to make sure they've got access to the technologies that they need to enable AI systems.

Speaker A: Yeah, and you had a great quote. Um, I think you testified with the China Select Committee, with the Skydio, uh, CEO, and we were dealing with drones and chips and drones back then. And that issue is front page news with the Iran conflict and the Ukraine conflict today. But you had this great, uh, quote I remember, and I'll read it. Whether it's toys or Tractors, whether it's ships or drones, whether it's military systems or automobiles, we rely more and more on foundational chips to achieve these absolutely critical functions. I mean chips are everywhere. And the supply chain bottlenecks that you mentioned, um, they haven't gone away. What do you see as the next big challenge facing industry and policymakers on some of those choke points?

Speaker B: I think the key difficulty with chip supply chains is that they're the most complex of any supply chain that exists. They have the most parts crossing the largest number of national borders. And so companies and governments really struggle to gain visibility into how they actually work. I myself have spent a decade trying to understand the chip supply chain and I'm still learning new things on a regular, uh, basis. I felt like I understood it and, and I learned there's something critical, uh, and supplied by a single company and this or that country. And so that, that visibility into uh, supply chains is both critical for companies, but also for governments trying to make sense of it. And what's key, I think, is that as technology advances, supply chains get more complex inevitably so because you need to source more capabilities and more materials and more intellectual property from different providers. And so anyone who hopes that the supply chain problem is going to go away is getting absolutely backward. It's going to get harder over time

Speaker A: and it's not going to get any easier for things like cars either. Right. So the model three of 100 years ago doesn't look very similar to a Tesla that's driving around with, with full self driving right now. Uh, there's a lot more sensors, there's a lot more information that's coming, um, into the vehicle, around the vehicle. And I wanted to talk about smart cars and get your take on a recent testimony that you did, um, with Congress, talking about some of the risks and challenges associated with that. A lot of people know you obviously for semiconductors, but explain a little bit more about why we should be thinking about cars and the supply chains related to those vehicles.

Speaker B: I think most people don't really think about all of the data that modern cars are gathering. A typical car will have sensors on the inside of the car, the outside of the car, cameras, audio sensors, lidars, ultrasound sensors, radars, temperature sensors, tire pressure sensors. And any one of these sensors might not be all that sensitive. You probably don't care that much if you're uh, tire pressure data is per se, but when your tire pressure is correlated with your GPS data and that is tracked alongside of the camera data inside of your car, suddenly you can get A really detailed picture of an individual person's life. And if you are a manufacturer of thousands or millions of cars and they're driving past critical infrastructure on a regular basis, suddenly you've got a lot of camera information as to what's happening. And that's why you've seen actually starting with China, which over the last couple of years has been imposing bans on where Teslas can and can't drive within China. Uh, but since then, a number of other governments beginning to take seriously the question of auto supply chains. And I think the US Government is just in the early stages of waking up to the potential security concerns that, uh, will arise as more and more cars are, um, full of more and more sensors collecting more and more data and increasingly making decisions about turn left or turn right on their own.

Speaker A: It reminds me of a, uh, drone swarm in Ukraine where you have hundreds and hundreds of drones that are operating independently. What happens in a world where all vehicles connected to one manufacturer from an adversary country, for example, turn on at the same time and start operating as a swarm? That's a very different style of warfare, don't you think?

Speaker B: Yeah, and I think anyone who thinks, uh, this sounds like science fiction hasn't been reading the news. I think it's striking. You look at the media reports about how the Israelis were able to so, um, in such a detailed fashion, track the movements of Iranian leadership. Well, it's reported that they hacked into the traffic camera monitoring systems in Tehran. And if they're doing it, the Russians are doing it, the Chinese are doing it, everyone's, uh, doing it, or at least trying, uh, to. And that means we've got to take infrastructure that we didn't think of as critical, but increasingly is semi autonomous, increasingly is full of sensors, increasingly is transmitting data. Take seriously the security risks that accompany

Speaker A: this and to make it very real. During your testimony you, uh, quoted a study in Norway that found that a Chinese made NIO vehicle was transmitting 90% of the data on that vehicle back to China and 70% of those transmissions were encrypted. That's an incredible statistic. I mean, this is a real risk. Um, what do you see as the policy solution for some of these interconnected, uh, supply chain issues where it's not export controls, it's not a, uh, CFIUS style foreign investment screening issue. It's a, there's not really many authorities to address something like this. Or do you have different thoughts?

Speaker B: I think we have seen the US Government take steps using the Commerce Department's ICTS authority to Say for really critical nodes in a vehicle, like the communications equipment on and off vehicle, or the software that defines the autonomous driving systems. Those can't be from certain countries. Above all from China. Uh, I think also we're going to see increasing focus on what are the rules governing data transfer. Can you send the camera data on your car or your fleet of a million cars to China? I, uh, think is going to be an important question. But I also think that companies are going to face more pressure to be clear with their customers as to what the data governance is for all of the different sensors on their cars. And I was struck doing the research in advance of my congressional testimony that you mentioned how hard it is to figure out for any given car what actually is the, uh, governance standard for a given type of data on that car. Companies themselves aren't very transparent. And you know, I worry that it's partly because companies only have limited visibility into this sensor, that sensor, and uh, what it's actually doing with its data.

Speaker A: It reminds me of the COVID era when there were chip restrictions, uh, chip slowdowns that caused entire automobile lines to shut down for extended months. Right. I mean, that had a real impact on the economy and the average consumer trying to go out and buy a vehicle. Those are real supply chain choke points. And that was just a disruption due to Covid. That wasn't an economic attack, that wasn't warfare. But do you think that companies are better positioned now to have that visibility or to at least understand where those risks are? Not just for the interconnected piece? I think that's going to take a bit more time. It's going to take more maturity by brands and companies and even regulators and governments to figure out what to do with that data, how to control that data. But there's other pieces of smart cars that uh, are still choke points. Things like the Nixperia chip restrictions and rare earth magnets and critical minerals. How should we, uh, think about that?

Speaker B: I think those are good examples of, uh, data points that suggest we're not as prepared as we should be. The fact that China's, uh, controls on the export of next period chips caused auto factories to face delays from Europe to Japan to India. The fact that China's rare earth restrictions from last year had similarly disruptive effects suggest that most companies are not ready. Um, and I think it's particularly striking when it comes, for example, to rare earth magnets. You could read once a month in the Wall Street Journal over the last decade, China monopolizes rare earth magnet production. And you could watch China's imposition of export controls on critical minerals over the past couple of years on an escalating basis. And it's pretty striking that a lot of companies didn't take it seriously.

Speaker A: It's remarkable to me that no one predicted that in the private sector. Uh, Beijing is very clear when it comes to some of their policymaking decisions. It's not a black box. And so, um, it's, it's evident that rare earth magnets and critical minerals were going to be a chokehold at some point. It was just a matter of when they would be weaponized. And that gets to another point that I wanted to talk to you about, Chris, which is U.S. uh, China Tech competition. You can't have a conversation about, about that issue without talking export controls. And last week was a big week for US Export controls. Actually the last month or so has been a big, uh, a big time for US Export controls. The House Foreign Affairs Committee marked up over 20 bills related to new restrictions or new authorities or new capabilities for the US Government to go out and increase the strength of the US Export control regime. Um, I'm not going to quiz you on all 20 of those bills, but one of them was pretty interesting. It's called the Full AI Stack Export Promotion act. And despite its wonky weird name, I think it hits at a very critical issue for policymakers and for industry. And I want to get your take on it. The law says, quote, it is the policy of the United States to drive adoption of the US Full AI stack by allies and partners. It continues, uh, and says the U.S. needs to, quote, prevent Chinese influence and elicit foreign adversary access to the US Full AI stack deployed abroad. There's an obvious tension, Chris, between those two. How do you export more and stop illicit activity from happening all at once in order to secure the chip supply chains that are driving those autonomous vehicles or driving some of those interconnected Internet of Things style, uh, uh, infrastructure that you just mentioned.

Speaker B: I think there's been a debate in Washington over the last 18 months and in some ways it stretches further back about which segment of the stack or which level do you have the most leverage in? We always knew that, um, if you control the chip making equipment, you would limit China's ability to access chips. But of course you cause problems for the companies that make chip making equipment. If you control the chips, you, uh, cause problems for companies that make chips. But you limit China's ability to train and uh, especially to deploy bigger and better AI models. And so there's been a debate where do you have the most leverage in the technology stack? And I think the Trump administration came in, uh, much more focused on, uh, the idea of exporting chips with the hope that that would create, uh, Chinese reliance on the US Chip, but also model ecosystem. And I think you've seen a shift over the last six months towards a view more prominent in Congress that in fact, no, you're better off controlling the chip layer to keep China dependent on US compute, both for training models but also, uh, for deploying them. And so there's a sort of debate underway when you use the phrase AI stack. It's used in different, uh, ways, some people focusing on the chip layer, some on the model layer. I think the other key, uh, takeaway I have from this is that everyone in Washington is supportive of the idea of exporting something. The question is, what do you want to export? Are you going to export the tools that make the chips, the chips themselves or the finished services? Finished, uh, AI apps. And that's where we've seen a lot of back and forth between different folks in the administration and uh, between Congress and the administration as to what's the right way to think about, uh, controlling the production process so that when you export, you're exporting something where you've already de, risked the security concerns around it,

Speaker A: and that's just exporting. We still have loopholes for the AI tech stack domestically where foreign companies can register a subsidiary in Delaware and operate a model, um, out of Tennessee on a Data center using GPUs that would be subject to export controls if they were, uh, sent abroad. So there's still not just on the export control side, but there's still gaps across the economic security world when it comes to the full AI tech stack. But I think the most contentious issue perhaps in D.C. right now on export control policy is the Chip Security act, which, uh, you can do a much better job than I can in explaining. But essentially what it would mandate is that, uh, certain categories of chips that are exported abroad would have the ability to essentially ping Washington and say that that chip has not been illegally moved physically to China or Russia or Iran or North Korea or other similar, uh, countries. What are your thoughts on something like that?

Speaker B: Well, I think in some ways the Chip Security act is a reflection of a broader trend across industry, which is that as systems are increasingly connected, they're sending information, uh, back on how they're operating, on whether their temperature is correct, on uh, whether there are any deficiencies in the system, and also on their location. And so today cars track their locations and tractors track their locations and chip making equipment tracks its location. And so there's in some ways a natural extension to impose a similar requirement on big AI servers uh, as well, um, but it hasn't been done before and that's creating uh, pushback uh, to some degree. Now it is true that existing AI chips can uh, optionally send telemetry information back uh, to the center, so information about how well they're operating if there are any problems. But location uh, is an optional feature you can turn on rather than a requirement in the system. And so the debate is really whether government should mandate a system of required uh, uh, information sharing. Uh, and if it were to do that, would that create a disincentive to buy American ships? Now you know, I think one of the key dynamics here is um, for most AI chips there's not an alternative to American ships, which is why we see China smuggling them in at such a large ah, scale. But I would say that this is uh, one of the more um, widely debated and perhaps even controversial pieces of export control legislation precisely because it does push the um, the compliance burden further, uh, on the companies themselves.

Speaker A: And I don't know if it necessarily solves everything either. Just because a chip is located in a third country that's not Russia or China or Iran, doesn't necessarily mean that the compute and the downstream uh, impacts of having access to that chip are negated just by location alone. You could have a data center full of GPUs in Kuala Lumpur or Singapore and have a Russian state owned military company operating on top of that without other layers of restrictions on that computer. Do you think that it's a natural evolution in the policy world where eventually we will get to something like Chip Security act, maybe not that bill itself, and then eventually we'll have uh, some sort of rider or contingency on AI exports where there's a bilateral agreement between that foreign capital and Washington, where some of these other sorts of restrictions would come into place.

Speaker B: I do think that increased regulation of the data centers in which chips are placed in is likely for exactly the reason that you lay out. And I think there's different ways it could happen. One would be to say you can only sell an advanced chip to an approved data center operator. And the good news is that most of the companies that are operating AI data centers are US firms anyway, so they're already subject to US uh regulation. Uh, um, but of course that is a further extension of the uh, regulatory arm, uh, of the export control apparatus. And so there's going to be debates around pros and cons to it. I think there's also a debate being had right now in Washington of to what extent it's a good or bad thing to have Chinese firms uh, using or maybe even to some degree locked in, uh, to American cloud ecosystem. You know, locked is probably too strong of a word, but relying on um, there are certainly some pros as well as cons from a national security perspective. And so there's a, a, um, reasonable discussion to be had around what's the right balance to strike there as well. I mean, I sometimes like to imagine what's the debate like in Beijing about their tech companies building or renting access to data centers in Malaysia to buy American chips. That's not exactly what Xi Jinping had in mind when he thought about self sufficiency for his tech sector. And so I think there's a really interesting uh, debate being played out right now around striking the right balance there.

Speaker A: I didn't see that in the new five year plan that just came out, so I think you're spot on. I do think though that the broader issue here is that supply chain sovereignty, supply chain security, supply chain warfare, it's not going away. The last year has proven time and time again that supply chains are being bifurcated, they're being split. The global ecosystem is changing. Supply chains were built for efficiency and for speed. And now security and resilience are being incorporated across a broader swath of products. Not just critical infrastructure products and things like chips, but things like helium in Qatar. Going offline, that's going to influence the downstream ability for semiconductor companies in South Korea to manufacture chips. There's a whole bunch of third, fourth, fifth order effects, um, within the supply chain that companies and policymakers are now starting to address. And as always, you were thinking about this issue well before it was in the news. You wrote last year in the Financial Times that quote, Beijing, Brussels and Washington are all searching for the most efficient and asymmetric ways to gum up their adversary supply chains. First, I love the fact that you use the word gum up. I love that. It's awesome. Explain a little bit more about what you think is going to happen over the next year or two.

Speaker B: The reason it's intensified is precisely because of this expansion of the competition across different supply chains. And the key is that, you know, some people look at supply chain conflict and suggest the solution is to make supply chain simpler. But again, that's just not going to happen, um, because technology won't allow it because uh, economics makes it impossible, but we do see all of the world's key governments, not just Beijing and Washington, but the Europeans, the Japanese, um, they're all looking at supply chains as a source of vulnerability, but also strategic advantage. And asking themselves the question, what leverage can I gain from my position in supply chains and what leverage over me can my adversaries gain? And what we've seen, uh, repeatedly over the last couple of years is that supply chains have been weaponized by all of these countries to achieve their goals. And they're all right now studying supply chains, trying to understand the chemicals industry and understand the electronics industry and find choke points that we don't yet know exist so that they're ready when it's time to pull out the next card in their relations, uh, with their competitors. And so I think this politicization of supply chains is here to stay, uh, alongside the reality that we're going to rely on complicated supply chains that cross national borders for as long as we can see into the future.

Speaker A: It's like supply chain zero days, where 10 years ago, 20 years ago, in the cyber security world, zero days. And they still continue, obviously with mythos and other, uh, uh, news constantly hitting us about cyber attacks. That zero day exploits are, uh, always going to be a huge risk and a huge vulnerability. But as we learn more about supply chains, as companies, uh, and governments invest in understanding that resilience and figuring out where their supply chains go and what the interconnections are and where the risks are and how to build that resilience, inevitably there's going to become opportunities for governments to identify where there's vulnerabilities that can be exploited, both from an offense and a defense perspective. Do you think we're in that era right now or do you think it's a little bit later? From, from what?

Speaker B: No, I think that that is the era we're already living in. But I think the one nuance is that for a lot of these powerful supply chain choke points, they weren't exactly a surprise. It's true that most people weren't paying attention, but whether it's rare earths or foundational semiconductors or certain types of critical chemicals, uh, if you look carefully, you could have identified, and often people did identify them years in advance. So the challenge isn't always finding them. It's finding them and then knowing what to do about it and having the political will and the, uh, commitment to take action around them. And to me that's the key. It's coupling the knowledge that they exist with the knowledge of. Okay, what do I do next?

Speaker A: I could talk to you about all of these issues all day long, but I want to end with one question. You're obviously a New York Times bestselling author, so what's your favorite book that you've recently read?

Speaker B: Well, on this exact topic, uh, a book called Choke Points by my friend Eddie Fishman. I, uh, think was required reading even before, uh, the Iran war broke out, but is particularly relevant, uh, right now. So I'd strongly recommend that to all your listeners.

Speaker A: Awesome. Thanks, Chris, for joining us.

Speaker B: Thanks for having me.

Speaker A: That's it for this episode. Huge thanks to Chris for joining the conversation and for the reminder that the choke points shaping our future are already in plain sight, assuming you know where to look. If Today gave you a front row seat to how policy actually works and how it gets made, do us a favor, subscribe, share it with someone who needs to hear it, and we'll see you next time with another unfiltered conversation with the experts, moving markets and nations. I'm Kit Conklin. Thanks for listening.