The Supply Chain Battlefield: How AI Chips Turned Neutral Nations into Strategic Targets


How Malaysia and Thailand Became Frontline States in the U.S.–China AI Chip War

By Kaliandra Multiguna Group
July 2025

It began with a quiet draft inside the U.S. Commerce Department—an internal policy shift, unannounced but deeply consequential. The focus of the new restriction was not China, at least not directly. It was two Southeast Asian nations long considered stable trade partners in the global semiconductor supply chain: Malaysia and Thailand.

According to a Bloomberg report, the United States is now preparing to impose tighter restrictions on the export of advanced AI chips to these countries. The stated concern is that both are being used as indirect channels—strategic “side doors”—through which China acquires U.S.-made AI hardware despite direct bans.

This policy, still under review, has quietly shaken capitals in Kuala Lumpur and Bangkok, and sent tremors across the global tech, logistics, and manufacturing ecosystem.

The True Nature of the Conflict

At first glance, this may seem like a minor adjustment in export policy. In reality, it marks a critical evolution in the U.S.–China tech rivalry. For Washington, AI chips are not just economic assets—they are strategic enablers of military, surveillance, and intelligence dominance. The Biden administration, continuing a hardline stance from the Trump era, sees the free movement of high-performance chips into Chinese hands as a national security threat.

But China has been adapting. In recent years, Chinese buyers have increasingly turned to third-party countries in Southeast Asia to procure the hardware they can no longer buy directly. And that’s where Malaysia and Thailand enter the story—not as collaborators, but as participants by infrastructure.

Both countries play a central role in the global semiconductor supply chain. Malaysia hosts major facilities for chip testing, packaging, and logistics. Thailand, in turn, is emerging as a key hub for electronics assembly and shipping. These are not rogue nations. They are deeply embedded in the global trade system. Yet in the eyes of U.S. regulators, their neutrality may now be strategically risky.

Economic Partners, Strategic Liabilities

Malaysia and Thailand are not passive players in the semiconductor world. They are key links in the supply chain that connects silicon wafers from the United States, South Korea, Japan, and Taiwan to the devices, platforms, and AI models that run across the world.

For decades, both nations have positioned themselves as non-aligned yet economically open. Their value has been in their reliability—low political risk, high operational capacity, and strategic access to global markets. Yet this same openness now makes them vulnerable to geopolitical pressure.

If the U.S. proceeds with its export control plans, it could:

  • Undermine billions of dollars in foreign direct investment (FDI) committed to chip-related infrastructure.

  • Force local governments to recalibrate their neutrality, choosing between the U.S. and China.

  • Trigger retaliatory trade measures or diplomatic tensions.

  • Introduce uncertainty across AI supply chains just as global demand peaks.

From Washington’s perspective, these measures are defensive. From Kuala Lumpur and Bangkok’s view, they are punitive—and perhaps, even coercive.

The Broader AI Economy at Risk

Beyond national politics, this move has profound implications for the global AI economy.

AI innovation today depends on access to cutting-edge chips, particularly GPUs designed for large-scale data processing. These chips are already in short supply. Any policy that further constrains their movement—whether through direct bans or geopolitical side effects—can create systemic bottlenecks.

Companies training large language models, building autonomous systems, or developing real-time intelligence platforms could face skyrocketing costs, longer development timelines, and unpredictable delivery cycles.

This is not just a U.S.–China problem. It is a global market shock in the making.

China’s Strategic Response

Historically, U.S. export controls have pushed China to accelerate self-reliance. Each new ban has prompted waves of domestic R&D investment, state-backed fab construction, and aggressive tech acquisition across Asia, Africa, and Latin America.

Restricting sales to Malaysia and Thailand will likely be interpreted in Beijing as yet another signal that the U.S. seeks full-spectrum dominance over the global chip supply chain. The Chinese response will not be diplomatic—it will be economic, structural, and long-term.

Rather than isolating China, these restrictions may ultimately encourage the formation of parallel tech alliances, especially within the BRICS framework or other emerging non-Western coalitions.

A New Strategic Theater: Southeast Asia

What’s happening now signals something deeper: Southeast Asia is no longer a neutral trade corridor. It is a strategic theater in a new form of global competition.

Malaysia and Thailand, like Indonesia and Vietnam, are no longer just cost-effective manufacturing bases. They are data logistics hubs, chip processing centers, and AI infrastructure enablers. The decisions made in their parliaments and policy councils over the next few months could influence:

  • The speed of AI innovation

  • The structure of the next-generation supply chain

  • The global balance of technological power

The era of passive participation is over. These countries now face pressure not just to trade—but to choose.

Conclusion: The Fight Has Moved Downstream

For the first time in decades, supply chain logistics, customs protocols, and export licenses in Southeast Asia may become instruments of great power rivalry.

The U.S. is no longer merely banning technology. It is trying to reshape the global architecture of technological influence—controlling not just where chips are made, but where they move, who uses them, and what futures they power.

Malaysia and Thailand, until recently seen as peripheral actors, now find themselves on the frontline of a global transformation—one where every shipment, every partnership, and every port becomes part of the next great contest for intelligence, influence, and industrial power.

Whether they comply, resist, or innovate around these pressures, one thing is clear: the age of neutrality is ending.