U.S. drone makers are expanding cooperation with Taiwanese companies to reduce their reliance on Chinese-made components. As Washington steps up efforts to exclude China from defense supply chains for products such as military drones, South Korea's defense industry faces pressure to respond quickly.
The Wall Street Journal reported on the 13th that U.S. defense startups are tapping Taiwan's manufacturing capacity to build drone production systems that do not depend on Chinese parts.
Taiwan's government plans to invest more than $7 billion in developing its drone and unmanned weapons industry by 2032. At least 13 drone-related cooperation agreements have been signed between U.S. and Taiwanese companies since September last year.
CSBC Corporation, Taiwan's largest shipbuilder, is working with U.S. firm HavocAI on unmanned surface vessels, while U.S. defense company Anduril is pursuing joint development of cruise missiles with Taiwan. The aim is to combine U.S. artificial intelligence and autonomous navigation technology with Taiwan's semiconductor and electronic component manufacturing capabilities. The interests of both sides align: the U.S. wants to reduce the risk of Chinese parts supplies being cut off, while Taiwan wants to strengthen asymmetric capabilities to counter Chinese military threats.
The U.S. has recently tightened rules on Chinese-made components and critical materials in defense supply chains. It has restricted the use of certain Chinese equipment in military drones while requiring defense contractors to verify the origin of parts and secure alternative suppliers.
The shift is expected to affect South Korea's defense industry as well. Korean companies seeking to enter the U.S. defense market face growing pressure to determine how much Chinese material and components their products contain and to restructure supply chains to meet U.S. procurement requirements.
Procurement costs could rise as companies replace Chinese parts, but the change could also expand opportunities for Korean semiconductor, battery and electronic component makers to join new U.S. defense supply chains.
Some see an opening for Korean companies to broaden their presence in the U.S. defense market, as the exclusion of Chinese parts has in some cases left U.S. weapons without accompanying equipment. According to the South China Morning Post, Taiwan's military recently took delivery of 291 Altius-600M loitering munitions from Anduril but did not receive chargers with them. The charging equipment originally contained Chinese-made parts and therefore failed to meet supply chain standards excluding China. Taiwan's military identified the problem after the drones were delivered and asked the U.S. side to procure replacement chargers.
The case shows that U.S. restrictions on Chinese content in defense supply chains are affecting not only drone airframes but also peripheral equipment such as chargers. Under the National Defense Authorization Act, the U.S. is tightening measures limiting military procurement of batteries linked to China and other adversary nations. That has raised the importance of Korean battery makers able to meet the requirements.
Washington's efforts to move away from China are affecting supply chain management not only for finished batteries but also for key materials such as cathode and anode materials and separators.
Korean batteries and materials are drawing attention despite higher production costs than Chinese products because securing supply chains that satisfy U.S. defense procurement rules has become critical. As expanded U.S. military drone production converges with tighter rules on Chinese parts, analysts say new export opportunities could open for Korea's battery industry.