Geopolitical Risks and IP Protection in the Semiconductor Industry

What you’ll learn:

• Impact of trade wars, tariffs, and sanctions on state-sponsored cyberattacks.
• Legal issues and supply-chain vulnerabilities.
• Technological nationalism.
• Protecting IP in a geopolitical landscape.

This is Part 2 in a series of articles on cybersecurity and the semiconductor industry. Click here for Part 1.

Valued in the trillions, the semiconductor industry is a cornerstone of modern technology. It powers everything from smartphones to supercomputers, making it critical to both economic and technological advancement.

The industry’s importance also has placed semiconductors at the center of geopolitical tensions, especially between major powers like the United States and China. Over recent years, these tensions have escalated through trade wars, sanctions, and tariffs, leading to increased risks of cyberattacks and intellectual-property (IP) theft.

As nations seek to protect and assert their technological dominance, cyber-espionage activities have grown common, with companies in the semiconductor industry frequently targeted for their valuable IP. 

A complex relationship exists between geopolitical factors and cyberthreats. Given that they are such a high-value target in the global competition for economic and technological leadership, the semiconductor companies face significant risks. What steps can companies take to protect their intellectual assets which are the wellspring of their innovation and differentiation?

Trade Wars and Tariffs

The U.S.-China trade war, for example, has had a profound effect on the semiconductor industry.

In 2015, the United States and China reached an agreement aimed at reducing cyber-espionage and IP theft. Both nations agreed not to engage in or support the cyber-enabled theft of trade secrets for commercial gain. They also set up ways to share information and collaborate on cybercrime investigations.

Initially, the agreement seemed to help reduce cyberattacks. However, over time, some believe that China's cyber activities resumed, leading to continuing tensions between the two countries.

The United States in 2018 imposed tariffs on Chinese technology products, including semiconductors. As the trade war heated up, the U.S. also introduced export controls that restricted the sale of advanced semiconductor technologies to China. These controls aimed to prevent China from gaining access to technologies crucial for military and advanced computing applications.

Cybersecurity firms and U.S. intelligence agencies reported that, in retaliation, China escalated its cyber-espionage activities. U.S. semiconductor companies were targeted to obtain the technology it could no longer access legally due to the tariffs and export restrictions.

In 2019, Chinese state-sponsored hackers targeted a Dutch leading supplier of machines used in semiconductor manufacturing that were restricted from sale to China due to U.S. export controls. The cyberattacks tried to circumvent the ban and accelerate China’s domestic chip production.

The U.S. imposition of tariffs and export controls on semiconductor equipment sold to China also resulted in an immediate increase in cyberattacks against U.S. semiconductor firms. Chinese state-sponsored hacking groups, such as APT10 (also known as Cloud Hopper), targeted U.S. companies involved in the production of semiconductor equipment, with the goal of stealing trade secrets related to manufacturing processes and designs.

APT10’s cyber-espionage campaign, which ramped up after the imposition of tariffs, was part of China's broader strategy to acquire sensitive technologies through illegal means. The cyberattacks focused on companies that were involved in the production of critical semiconductor equipment, which had become restricted by U.S. tariffs.

A large Chinese technology company was also directly impacted by U.S. tariffs and sanctions. The United States imposed sanctions, severely restricting the company’s ability to procure advanced semiconductor technologies from U.S. companies. Chinese state-sponsored hackers then targeted U.S. and European companies involved in semiconductor production, again aiming to steal IP that could help the Chinese company acquire the technology they could no longer purchase.

Escalating Sanctions and Cyberattacks

In October 2022, the U.S. government expanded its restrictions on the export of advanced semiconductor technology to China, imposing tariffs and export controls on multiple companies. These sanctions were supposed to limit China’s access to cutting-edge semiconductor technologies and equipment, in attempts to slow down China's development of artificial intelligence (AI), quantum computing, and other technologies that had possible military applications.

In response, Chinese state-sponsored hacking groups, such as APT41, stepped up their cyberattacks on U.S. semiconductor companies. APT41 is known for its cyber-espionage activities, particularly in response to geopolitical tensions.

Following the 2022 tariffs, APT41 launched a series of cyberattacks on U.S. semiconductor firms, trying to steal IP related to chip designs and production techniques. These cyberattacks also were part of China's broader strategy to overcome the U.S. export restrictions by acquiring sensitive technology.

Legal Issues and Supply-Chain Vulnerabilities

Another major risk to the semiconductor industry is its dependence on global supply chains, particularly those engaging companies in Taiwan, which is home to some of the most advanced semiconductor manufacturers. Rising tensions between the U.S. and China over Taiwan have made the semiconductor companies located there key targets for cyberattacks.

In 2023, a Taiwanese company was hit by a ransomware attack that interrupted its operations. This incident occurred amid increasing geopolitical tensions over Taiwan, with Chinese hackers trying to access the company’s cutting-edge manufacturing techniques.

The COVID-19 pandemic also highlighted the fragility of dependencies across global supply chains. Factory shutdowns and shipment delays during the pandemic underscored the risk that geopolitical tensions or natural disasters could disrupt semiconductor production, impacting industries worldwide.

Technological Nationalism

In response to these challenges, many countries are working to build their domestic semiconductor industries. This drive for self-sufficiency has intensified global competition for resources, talent, and IP.

China, for example, has made technological independence a priority. Through initiatives like "Made in China 2025," China is investing heavily in domestic chip production and innovation, aiming to reduce its reliance on foreign technology, particularly from the United States. This effort is crucial for maintaining its economic and technological competitiveness.

However, this push for technological nationalism has ignited a new form of arms race. Not only are countries racing for breakthroughs in semiconductor technology, but they’re also competing for the expertise and IP that can give them an edge in the global market. This has contributed to a growing talent gap, with estimates suggesting a shortage of about 1 million skilled semiconductor workers worldwide by 2030. This shortage could slow innovation and hamper new semiconductor facility construction.

Targeting by Chinese Hackers Post-Tariffs

After the United States imposed tariffs and restrictions on semiconductor technologies sold to China in 2019, Chinese hacking groups, including APT10 and APT41, focused their efforts on stealing chip designs. The goal was to reduce China’s reliance on foreign semiconductors.

The cyberattacks targeted sensitive information related to the design and manufacturing of next-generation processors, particularly those used in AI and high-performance computing applications.

Similarly, a large Chinese semiconductor foundry was accused of attempting to steal DRAM technology from a U.S. chipmaker after facing U.S. sanctions. This case highlights how trade restrictions can push companies and governments toward cyber-espionage to access the technologies they’re restricted from obtaining.

Protecting IP in a Geopolitical Landscape

Political decisions, like sanctions and export controls, have significant implications for the semiconductor industry. While these measures aim to limit rivals’ access to advanced technologies, they often provoke cyber-espionage as nation-states seek to obtain what they can no longer access legally.

Given the clear connection between political decisions and cyberattacks, semiconductor companies need proactive strategies to protect their IP:

• Engage with governments: Companies should work with governments and international organizations to push for stronger sanctions against IP theft and cyber-espionage. Diplomatic agreements, like the 2015 U.S.-China cyber pact, can help reduce cyberattacks driven by geopolitical tensions.
• Enhance cybersecurity: Firms should invest in advanced threat detection and response systems. Adopting zero-trust security models, encrypting data, and using AI-driven security tools can help prevent data breaches.
• Strengthen supply-chain resilience: Companies should diversify their supply chains and reduce reliance on vulnerable regions. Creating more flexible and robust supply chains will help minimize the impact of geopolitical tensions on operations.

IP Theft and Espionage

In the semiconductor industry, IP is more than just a competitive advantage—it’s the key to innovation. The complex designs and trade secrets that power semiconductor manufacturing are invaluable, and they’ve become prime targets in this time of rising geopolitical tensions.

The surge in cyberattacks following the imposition of tariffs and export controls underscores the direct link between political decisions and IP theft. When countries like China face increasing restrictions on their access to advanced semiconductor technologies, they often turn to cyber-espionage as a means of acquiring the IP necessary to compete globally.

The semiconductor industry is at the center of the global technological race, making it a frequent target for cyberattacks and IP theft. As geopolitical competition heats up, companies must be vigilant in protecting their intellectual assets. By engaging with governments, strengthening cybersecurity, and building resilient supply chains, semiconductor firms can better deal with and respond to the challenges posed by the current geopolitical landscape.