A massive piece of news hit the wires yesterday afternoon Asian time. It transpired that TSMC, Taiwan Semiconductor Manufacturing Co, has halted new orders from Huawei, responding to tighter export controls imposed by the White House. It comes down to a nuclear option of sorts and carries the handwriting of trade hawk Peter Navarro, further limiting Huawei’s access to crucial chip supplies and probably pursuing the destruction of the company altogether.
The decision was preceded by the US Commerce Department’s decision that all non-US chip producers using American equipment and intellectual property would have to apply for licences before shipping chips to the Chinese company, which will come into effect in September. In other words, Donald Trump must have been persuaded to launch the economic war with China even ahead of the US elections. And boy, a declaration of war this constitutes.
Despite the fact that Huawei has stockpiled whatever chips they could get their hands on, the company still relies heavily on TSMC on either side of its business – networking technology and mobile phones. If the trade ban is to be followed to the dot and no compromise be found, this could really hamper Huawei’s business and China’s ambitions to roll out 5G domestically and in other parts of the world, most importantly in Europe.
TSMC for its part is clearly between a rock and a hard place. The announcement to build a new 12 billion dollar plant in Arizona might have been an attempt to veer off being drawn into this war, but it might equally have been its management’s sense that global supply chains will inevitably be altered going forward. Huawei may be the number 2 customer accounting for 15-20% of sales, but the Taiwanese themselves are reliant on US firms like LAM and Applied Materials for chip-making equipment.
We are way beyond the posturing phase that this space thought would carry us post the elections and into 2021. The presumption was that Trump needed China to avoid a total collapse of the US economy and retain some credibility with regards to the business pedigree that the president has always been sporting. Apparently, the hawks prevailed, and if China retaliates which is to be assumed, we will be looking at the prospect of a disproportional collapse of the global technology trade.
What this means is suffering. The conflict hasn’t started there and will not stop there. Countermeasures can and are likely to hit the US semiconductor bellwethers, Apple, Boeing, and maybe all other traits of US business in China. We can also probably kiss the January trade deal good-bye. And most importantly, Beijing will be even more incentivised to throw all resources at becoming technologically self-sufficient. These measures may slow China down, they will not hold it up.
Until now, maybe, Washington’s belligerent rhetoric could have been digested and categorised as battle cries in an ugly election campaign. No more. The Beijing leadership itself has been grappling with credibility issues and simply can no longer afford to be beaten up like this in public. As Huawei stated, the conflict around the company and its 5G leadership has nothing to do with security issues. It is America’s desperate attempt to protect its tech hegemony.
As a lifelong Americanophile, it is disheartening to witness Washington spending every effort to contain and hold back the progress of a declared strategic competitor, instead of picking up the gauntlet and being out there leading the charge to retain its crown. Why on earth are White House advisors pondering over how to destroy Huawei if they should devise America’s own national strategy on a key technology like 5G and others?
TSMC might operate with one hand tied down, but who is daring enough to bet against the dragon here? It’s a race against time, and the hawks think they can make it over the finishing line first. But will China really be pushed back into a corner Washington wants it to be in? I don’t think so. There are always workarounds. China is in a position today to flex its own muscles with its partners. Who doesn’t want to be in the good books with the largest consumer market the world has to offer?
How many hundreds of thousands of STEM students does China produce a year? How many millions will that be in 10 years time? How many US-educated Chinese will leave, or even be forced to leave, their diaspora and return to the Middle Kingdom? It’s not so hard to do the numbers, and they are revealing. So, how is it that the Navarros of this world believe they can safeguard America’s tech and semiconductor leadership, and persuade the president to jump on their bandwagon?
Maybe it comes down to something much more deep-rooted than tech. There has been a tradition of yellow peril, as my professor friend once casually called it. This is not just about Huawei. It is a rejection of China that has had a 100+ year history. Weren’t the Chinese always working too hard, for a lot less than anyone else in the world? Remember how the US unions took issue with that in the 90s. Now it is Huawei and the ingrained fear of being outrun by a much more focussed player.
Also, it finally has transpired among the paranoid that the tradition of the unipolar power is in material danger. It may not be existential for America as such, but the fear of losing to China seems to be overriding everything else. It looks like one of the chapters of a sad story. Eventually, China will command tech autonomy. There will be a second internet. And just imagine China were to develop the Covid-19 vaccine first and made it a public good to the world, as Xi said in his speech to WHO yesterday… The concept of America of the past 75 years would be finished.
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