The US-China Tech Rivalry's Expansion into Robotics and Drones and Supply Chain Realignment: Strategies for Middle Powers

Executive Summary

The US-China tech rivalry, previously centered on semiconductors, 5G, and AI, is expanding into robotics and drones following Washington's announcement of regulations and tariffs on foreign-made systems in July and August 2026. However, China has already achieved economies of scale, with over 3.28 million registered drones and vertical integration from batteries to finished products. US attempts to block individual markets are proving counterproductive, prompting Chinese firms to reroute exports to third markets like Europe. The paradox that past US technology investments have fueled the growth of Chinese companies, as seen with Unitree's robotic dogs, suggests the limits of a semiconductor-style control model. South Korea requires a balanced strategy that avoids full-scale alignment with either side. It should focus on supplying intermediate goods like batteries and electronic components and on leading standardization efforts through cooperation with the US, Japan, and Taiwan, while guiding the conflict toward a manageable resolution.

I. Analysis of the Current Situation

US-China Tech Rivalry Accelerates Drone and Robot Supply Chain Realignment

1. Background and Developments

In July and August 2026, the United States tightened regulations on advanced foreign-made robotic systems [1]. During the same period, it announced high tariffs on imported drones and related components [1]. Both measures were justified on national security grounds [1]. The drone tariffs are set to take effect in September, with additional component tariffs to be implemented in 2027 [1]. These moves are part of a broader trend in which the US-China tech rivalry, once focused on semiconductors, 5G, and artificial intelligence, is expanding into the robotics and drone sectors [3][6].

By the time the regulations were announced, China's capacity to respond was already substantial. Centered in Shenzhen, China's robotics industry saw the number of registered drones surpass 3,287,000 in 2026, a year dubbed the first for the commercialization of the low-altitude economy [2]. The market is projected to grow from approximately 1.5 trillion yuan in 2025 to 3.5 trillion yuan by 2035 [2]. Humanoid and quadruped robotics companies led by Unitree have secured capital by listing on the Hong Kong Stock Exchange [17]. Notably, reports that Unitree's robotic dog design was largely derived from technological innovations funded by the US military suggest that US efforts to contain China have, paradoxically, aided Chinese firms' technological accumulation [11].

2. Current Situation

US import restrictions are being circumvented in unexpected ways. Nikkei Asia, part of the Nikkei group, reported that as US regulations on Chinese robots tightened, Chinese robotic lawnmower companies pivoted to the European market [4]. LDRobot (under the brand Anthbot) listed on the Hong Kong Stock Exchange in May to secure funds for its European expansion [4]. An industry insider warned that the de facto US import ban would result in a "no-win situation" [4]. This indicates that the US strategy of blocking individual markets is failing to neutralize China's economies of scale and is instead prompting a redirection of exports to third markets.

The 2nd Humanoid Robot Games, held in Beijing from August 22 to 26, 2026, demonstrated the rapid progress of Chinese robotics technology to both domestic and international audiences [13]. Taiwan's DigiTimes described the event as a "reality check" for Taiwanese industry [13]. The same outlet reported that the emergence of Chinese dexterous-hand robot manufacturers at the World Robot Conference (WRC) 2026 has clarified a three-way competition over the technological trajectory of humanoid robots [7]. Taiwan is leveraging its semiconductor strengths to meet the demand for multi-modal sensing in robotics [19].

In Japan, Mitsubishi Heavy Industries and NEC have agreed to collaborate on developing domestically produced defense drones and AI-based command and control systems [9]. This reflects a move by Japan's defense industry to combine its precision manufacturing capabilities with the security domain. Honda and Nissan are expanding the use of AI robots on their automotive production lines, seeking to form a Japanese auto alliance to counter emerging US and Chinese electric vehicle makers [16]. Some forecasts suggest that 20% of the world's humanoid robots will be deployed in auto factories by 2027 [16].

In the battery sector, the position of South Korean companies is becoming more prominent. SNE Research analyzed that in the drone and UAM battery market, China is developing its own standards (proprietary safety protocols compared to ISO 46950) and drone-specific systems that differ from EV batteries [2]. The Carnegie Endowment for International Peace noted that South Korea, Japan, and Europe are all mentioned in the context of international competition to disrupt the monopoly in battery manufacturing [8]. This signifies that South Korea is already identified as a key player in discussions on diversifying battery supply chains.

3. Key Actors and Positions

The United States is using tariffs and import regulations on national security grounds, but even domestic assessments suggest their effectiveness is limited [1][4]. The Brookings Institution concluded that the gap between the US and China has actually widened following a series of AI summits in the summer of 2026 [10]. A US defense-related media outlet self-critically covered the paradox of how the country's defense technology investments have unintentionally supported the growth of competitor nations' companies [11].

China is promoting the low-altitude economy as a national strategy, combining the designation of new key national industries with the整備 of infrastructure and safety regulations [2]. The Global Times maintained an optimistic view of its domestic industry, reporting that despite a post-IPO stock price correction for Unitree, industry experts emphasize its "long-term growth potential" [17]. The same outlet is also using the global spread of its technology as a foreign policy narrative, highlighting how Chinese-made agricultural drones are supporting precision farming in many African countries [18].

Japan is pursuing a strategy of linking its precision manufacturing and robotics technology to the competitiveness of its defense and automotive industries [9][16]. Taiwan is extending its semiconductor capabilities to meet robotics sensing demands, while also perceiving the rapid growth of China's robotics industry as a threat on both security and industrial fronts [13][19]. South Korea has established a position in discussions on drone and UAM supply chain realignment based on its battery technology, but it is still largely treated as an object of observation within the international competitive landscape rather than an actor with its own independent strategy [2][8].

4. Summary of Key Issues

The first issue is whether US tariff and regulatory measures can produce a genuine decoupling effect. The case of Chinese robots being rerouted to Europe for export demonstrates the limits of a blockade by a single country [4]. This directly raises questions about the effectiveness of supply chain realignment for key items in the domains of trade and economic security.

The second issue is the feasibility of a diversified supply chain linking the US, Japan, South Korea, and Taiwan. While the potential combination of Japan's precision manufacturing, South Korea's batteries and electronics, and Taiwan's semiconductors is discussed, these efforts currently remain at the level of individual national industrial policies. To evolve into an integrated allied supply chain, it would require the institutional foundation of multilateral export control cooperation, as pointed out by SIPRI [12].

The third issue is the potential for military application of robot and drone technology. The development of an AI command and control system by Mitsubishi Heavy Industries and NEC [9] and the controversy over the US military technology origins of Unitree's robotic dog [11] highlight the security implications of dual-use technologies. However, the current focus is on industrial and supply chain competition, with military applications remaining a secondary topic of discussion.

The fourth issue is the competitiveness gap in AI itself. While the robotics and drone competition is centered on physical hardware, it is underpinned by a gap in AI software capabilities. Analysis suggesting that China is gaining prominence in AI video generation by leveraging its short-form video ecosystem and low-cost structure indicates that the US-China competition is unfolding on multiple layers, separate from the hardware supply chain race [14]. For middle powers like South Korea, it is necessary to monitor not only strategies for integrating into the hardware supply chain but also how the AI software competitiveness gap will affect the future distribution of value-added in the robotics industry.

II. In-Depth Analysis

US-China Tech Rivalry Accelerates Drone and Robot Supply Chain Realignment — In-Depth Analysis

1. Analysis of Root Causes

The tightening of US regulations on robots and drones is a logical extension of its semiconductor export controls. Since 2018, the US Department of Commerce has progressively expanded its list of regulated items, starting with advanced semiconductors and manufacturing equipment [6]. In 2022 alone, it placed 33 Chinese companies, research institutes, and universities on its Unverified List and added export restrictions on advanced semiconductor and computer manufacturers [6]. Robots and drones represent the next stage in this expansion. The problem is that the industrial structures of semiconductors and robotics are fundamentally different. The semiconductor industry has irreplaceable bottleneck technologies, like extreme ultraviolet (EUV) lithography equipment, concentrated in a few companies, making controls immediately effective. In contrast, robots and drones have relatively low barriers to entry in assembly, and China has already secured overwhelming volume and price competitiveness at the finished product stage [2]. The sheer market scale, with over 3.28 million registered drones in the low-altitude economy, has created a structure that is difficult to disrupt with US-style blockades of individual markets [2].

A more fundamental problem is the paradox that US containment efforts have contributed to China's path of technological accumulation. Testimonies from former defense technology officials and researchers indicate that Unitree's robotic dog design was derived from research funded by the US military [11], showing a different dynamic from Cold War-era technology transfer controls. When regulations are introduced after foundational technologies, accumulated through open-source research ecosystems and international academic exchange, have already proliferated, the effectiveness of controls is limited from the outset. This casts doubt on the very premise that the success of US technology controls in the semiconductor sector can be replicated in other industries.

2. Structural Context

Economic Structure: China's drone and robotics industry has grown on the back of vertical integration with adjacent industries like batteries and electronic components. The Carnegie Endowment for International Peace analyzes that the monopolistic position China has built in battery manufacturing is translating into geopolitical competitiveness across all 21st-century advanced industries, including robotics and drones [8]. As SNE Research points out, drone batteries require separate design optimization distinct from EV battery systems [2]. China has dominated both markets simultaneously, achieving dual economies of scale. This differs from the semiconductor industry, where South Korea, Taiwan, and Japan have specialized roles in memory, foundry, and precision equipment, respectively. In the robot and drone supply chain, China has achieved vertical integration from batteries to finished products within a single country, which increases the difficulty of the US-led diversification strategy.

Political and Institutional Structure: US trade policy employs a dual strategy of pursuing tariffs and regulations on national security grounds while simultaneously promoting supply chain realignment among allies. However, SIPRI points out that this multilateral cooperation on export controls is becoming vulnerable to China's countermeasures. This is illustrated by cases where China used its control over critical mineral supplies as leverage against US tariffs and export controls, and applied similar pressure in response to Japanese remarks suggesting possible intervention in the Taiwan Strait [12]. Thus, the robotics and drone regulations are not confined to a bilateral US-China dynamic but are situated within a multilateral conflict structure where allies like Japan and South Korea are also exposed as targets of Chinese retaliation.

Security Structure: The dual-use nature of robot and drone technology complicates the issue. The collaboration between Mitsubishi Heavy Industries and NEC on domestic defense drones and AI command and control systems is an example of Japan directly converting its precision manufacturing capabilities for defense purposes [9]. This shows that the realignment of the robot and drone supply chain is not merely an industrial policy issue but is directly linked to the regional military balance. As seen in the case of agricultural drone distribution in Africa [18], China is also using robots and drones as a tool to expand its diplomatic influence in civilian and development sectors. This creates a situation where US security-justified regulations and China's combined industrial-diplomatic strategy clash on different levels.

3. Comparison with Historical Precedents and Similar Cases

The most direct comparison is the experience with semiconductor and 5G controls since the late 2010s. An EAI Issue Briefing noted that "the hegemonic competition between the United States and China is the most important topic in 21st-century world politics," and that "advanced technologies such as semiconductors and 5G telecommunications equipment are receiving attention" [3]. At that time, the US achieved considerable success by cutting off semiconductor supplies to Huawei, which was possible because cutting-edge micro-fabrication technology was extremely concentrated in a few companies (TSMC, ASML), creating a bottleneck. However, such a bottleneck does not exist for robots and drones. The situation is structurally more similar to the solar panel industry, where China maintained its market share through production in Southeast Asia despite US anti-dumping tariffs. The shift of Chinese robotic lawnmower companies to the European market, as reported by Nikkei Asia, confirms that this circumvention pattern is being repeated in the robotics sector [4].

Another precedent is the US-China conflict over rare earth elements. The case of China using export controls on critical minerals as a retaliatory tool against the US and Japan suggests that similar vulnerabilities exist in the supply chains for raw materials needed for robot and drone components (motors, sensors, battery materials) [12]. Recent findings that the US is heavily dependent on Chinese-made active pharmaceutical ingredients for its pharmaceutical supply chain illustrate a general pattern where dependence on China for intermediate goods and materials has been neglected while the US focuses on regulating advanced finished products [15]. It is highly likely that tariffs on finished robots and drones alone will not resolve the dependency structure at the component and material levels.

4. Key Variables Shaping Future Developments

The first variable is whether the design of US regulations will extend beyond tariffs on finished products to the component and material stages. The key will be whether the component tariffs scheduled for 2027 are designed with enough precision to target China's lower-tier supply chains [1]. Unless the regulations evolve into a multi-layered system covering equipment and software, similar to semiconductor controls, it will be difficult to prevent the circumvention of finished product exports.

The second variable is whether trilateral supply chain cooperation among the US, South Korea, and Japan materializes. While the potential exists to combine Japan's precision manufacturing and robotics, South Korea's battery and electronics capabilities, and Taiwan's semiconductor and sensing technologies [19], current efforts like the Mitsubishi-NEC defense drone collaboration [9] and Taiwan's response to multi-modal sensor demand [19] are proceeding at the individual national level. A multilateral platform to coordinate these into a regional supply chain is absent. Without follow-up policy coordination on trade and economic security, these efforts are likely to remain fragmented national responses.

The third variable is how quickly China's technological maturity moves beyond low-cost finished products into high-value-added areas. The competition in dexterous-hand robot technology revealed at the World Robot Conference in Beijing [7] and the sense of crisis instilled in Taiwanese industry by the 2nd Humanoid Robot Games [13] suggest that China is closing the gap not only in economies of scale but also in the speed of technological advancement. If this pace is maintained, the very timeline targeted by the US diversification strategy could become meaningless.

The fourth variable is the point of convergence between AI technology and robot hardware. The assessment from Taiwanese industry that physical AI is driving demand for robot sensing [19] and the expansion of AI robot adoption on Honda and Nissan's production lines [16] show that the robotics and drone competition is evolving beyond simple manufacturing into a contest combined with AI algorithms and data. As this convergence deepens, the issue of robot and drone supply chain realignment could be elevated from a subordinate variable of the AI tech rivalry to a central battleground.