The US Department of Commerce announced that any semiconductor chips made with equipment built by American companies cannot be sold to Huawei without prior approval and licensing from the DOC. This new regulation is unprecedented and in violation of normal sales contracts between the buyer and seller of such equipment. And it is difficult to know if the DOC has any legal ground to stand on. In effect, requiring a license in order to sell to Huawei is to threaten the supply of semiconductors to the Chinese company.
The 10 major semiconductor manufacturing equipment (SME) companies in the world:
1. Samsung (SK)
2. Intel (US)
3. Taiwan Semiconductor (TW)
4. SK Hynix (SK)
5. Micron Technology (US)
6. Broadcom (US)
7. Qualcomm (US)
8. Texas Instruments (US)
9. Toshiba (Jap)
10. Nvidia (US)
Chip designs by fabless companies, made by independent foundries such as TSMC and then sold to gadget makers such as Apple and Huawei. Advances in chip design take advantage of advances in semiconductor-manufacturing equipment that are then incorporated into new end-uses and novel applications. Each step on the chain goads the next to stretch and attain the next level of technological advances.
Digital currency, autonomous driving and applications on the drawing board based on artificial intelligence are all waiting for the introduction of the next generation of semiconductor devices.
Trump’s dirty tricks
TSMC agree to locate a fab in Arizona in exchange for the goodwill the company would be allowed to protect its business with Huawei. Just the day after TSMC signed the agreement to invest $12 billion and build a fab in Arizona, the DOC made the announcement that could force TSMC to stop selling to Huawei. Less than two weeks earlier, the DOC also gave Huawei a head fake by signaling that American companies would be allowed to participate in organizations along with Huawei to set industry standards for 5G.
The US has remained the world’s leader and biggest supplier of semiconductors and China has been America’s largest customer. In 2018, the US sold 36% of the US semiconductor chips to China. When China buy less from the US, the trade surplus will shrink. Lower sales mean less profit and less money to spend on R&D, and that will erode America’s leadership.
Chip suppliers in Japan and South Korea will be happy to fill the void left by the US, and China will be more determined than ever to invest in the development of semiconductor technology that will break the dependence on the US.
The short-term outcome is lose-lose, but the long-term consequences will be disastrous for both sides. The virtuous circle where everybody gains will be replaced by vicious competition and market fragmentation.
China’s retaliation will be directed to where it would cause most pain, soybeans and Boeing aircraft and more. Such as Sands China, owned by Adelson, Trump’s supporter.
The long-term driver of Asian growth is China’s emergence as a tech superpower. Certain members of the US Congress along with Trump seem to think that China desperately needs to send students to the US to steal American technology. They probably don’t know that China is already first in the world in supercomputing, quantum computing, 5G telecommunications, hypersonic weaponry, civil engineering, high-speed rail, electric vehicles, self-driving cars and buses, along with myriad other disciplines.