10 thoughts on “U.S. Government Attempts to Strangle Huawei; China-U.S. Trade War likely to Accelerate into HYPER-DRIVE mode”

1. A few comments-
   1. ALL chip manufacturing factories irrespective of their geographies use at least some equipment that is supplied by American companies. If the US government position to ban all chips, which are manufactured using its companies’ equipment, prevails then Huawei will soon be out of business! BUT, this will also cause revenue losses worth tens of billions to the US chip & equipment manufacturers.
   2. IMO, the proposed AZ TSMC facility is likely to be on a technical par with several TSMC facilities in Taiwan, but, relatively small compared to the total TSMC capacity. Therefore the proposed US ban would be meaningful only if all TSMC factories are affected.
   3. This US salvo or threat is not going to remain unanswered by China. The trade imbalance between the two countries is heavily tilted toward China but China imports from US are over $120B. Additionally, a good deal of US imports from China disproportionately benefit the high profile, US brand companies, like Apple.

2. From Lightreading: IAIN MORRIS, International Editor 5/18/2020

   Huawei’s current priority is to “seek survival,” said a top executive at the Chinese equipment maker, after the US government announced tough new measures that will block its access to critical suppliers of components for consumer and network products.

   Guo Ping, one of the equipment vendor’s rotating chairmen, said his business was not self-reliant despite the huge increase it made in research and development spending last year. “Huawei is capable of designing some products and ICs [integrated circuits] but is not capable of doing a lot of things. Therefore, currently the priority for Huawei is to seek survival,” he told an audience of analysts and reporters during a briefing from China today.

   The remarks came just days after the US government said it would close loopholes in its export controls by restricting Huawei’s ability to buy any components made with US technology.

   That marks an apparent escalation of the campaign against the Chinese vendor by the Trump government, which has so far sought to restrict Huawei’s access to US products.

   Under the new rules, Huawei would be unable to buy components from non-US firms that rely on US technology in their manufacturing processes, including Taiwanese semiconductor giant TSMC.

   “We must amend our rules exploited by Huawei and HiSilicon [Huawei’s chipmaking subsidiary] and prevent US technologies from enabling malign activities contrary to US national security and foreign policy interests,” said US Commerce Secretary Wilbur Ross in a statement.

   The blockade against shipments from TSMC, which makes semiconductors at the behest of other firms, could be devastating to Huawei, according to several industry analysts.

   In a recent article for Seeking Alpha, Robert Castellano, the president of market research firm The Information Network, estimated that Huawei was responsible for about 15% of TSMC’s $34.6 billion in annual revenues, making it the Taiwanese company’s biggest customer after Apple.

   In a lengthy statement issued today, Huawei said its business would “inevitably be affected” by the changes to US regulations, while also warning of the impact on networks that use Huawei equipment and the consequences for US interests.

   “This new rule will impact the expansion, maintenance and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries,” said Huawei’s statement. “In the long run, this will damage the trust and collaboration within the global semiconductor industry which many industries depend on, increasing conflict and loss within these industries … Ultimately, this will harm US interests.”

   Guo said US sanctions so far had wiped about $12 billion off Huawei’s sales last year, when it reported about $123 billion in revenues, and that securing contracts had become more difficult as a result of the US campaign.

   Year-on-year sales growth at the Chinese vendor, described as a security threat and trade cheat by US opponents, slowed to just 1.4% for the first three months of 2020, to about 182.2 billion Chinese yuan ($25.6 billion), after growing 39% in the year-earlier quarter. Net profit was down about RMB1.1 billion ($150 million), to RMB13.3 billion ($1.9 billion).

   The company has responded by investing an even bigger sum in research and development spending, which soared 30% last year, to RMB131.7 billion ($18.5 billion). To amass inventory, it also spent a whopping $18.7 billion on US components, 70% more than in 2019, as it took advantage of loopholes in US regulations to continue trading.

   Using the sort of colorful metaphors that have become a feature of Huawei’s public statements, Guo said Huawei was currently like a plane riddled with bullet holes. “Patching up the holes has been the priority over the past year. We are confident in continuing to fly with the plane.”

   Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.
   US moves have sparked fears of retaliation by China’s government, whose Ministry of Commerce was today reported to have said it is ready to set up its own “unreliable entity list,” restricting US companies such as Apple, Cisco and Qualcomm.

   That report comes a few weeks after Eric Xu, another of Huawei’s rotating chairmen, warned that China’s government would respond if the US tried cutting Huawei off from TSMC.

   “The Chinese government will not stand by and watch Huawei get slaughtered on the chopping board and they may also take some counter measures,” he said, suggesting that authorities might seek to ban the use in China of 5G chips and smart devices provided by US firms. “This type of destructive ripple effect on the global industry would be astonishing.”

   Earlier today, TSMC was said to have halted all new orders from Huawei in response to the latest US measures.

   On Friday, the Taiwanese semiconductor firm announced plans for a $12 billion manufacturing plant in Arizona following talks with the US government.

   Earl Lum, an analyst with EJL Wireless Research, previously told Light Reading that blocking Huawei’s access to TSMC would turn the current trade war into a far worse conflict. “If you start messing with TSMC, whatever trade war is going on right now will escalate substantially,” he said. “I don’t see a positive outcome of that at all.”

   China’s government could retaliate by targeting companies outside the technology sector. One option would be to make further cutbacks to the purchase of US agricultural products, hurting US farmers in the Trump heartlands of the Midwest.

   As a long-term strategy, it could also devalue the yuan in an attempt to boost Chinese exports and cripple rival producers.

   https://www.lightreading.com/asia/huawei-seeking-survival-after-us-escalates-offensive/d/d-id/759706?

   1. Huawei has slammed the Trump administration’s move to restrict its access to global semiconductor supplies that use US equipment, IP or software. In a strongly-worded statement, the Chinese telecommunications giant described the US Commerce Department’s decision to amend the longstanding foreign-produced direct product rule as “arbitrary and pernicious,” adding that the US government’s “discriminatory” actions could undermine a number of global industries as well as the trust international companies place in US technology and supply chains. “Ultimately, this will harm US interests,” claimed the Huawei spokesman.

3. Huawei issue is intimately related to the TSMC deal to build in AZ, and both are related to 5G deployment. It’s a hairball of complexity, but clearly motivated to bring back entire supply chains for 2 reasons:
   1. National security
   2. Serious problems operating Just in Time supply chains when there is any disruption. Duh!

   1. Taiwan Semiconductor Manufacturing (TSMC) has stopped taking new orders from Huawei, the Nikkei Asian Review reported, with sources saying the move comes after the US government confirmed its intent to restrict the Chinese’s company’s use of US tech and software for the design and manufacture of its semiconductors abroad. The sources said company is halting new orders to comply with the latest export control regulation, but that orders already in production, and those taken before the new ban, will continue, as long as the chips can be shipped before mid-September.

4. This article was superb in all aspects of how it was organized and written. There have been many “back up actions” taken by the United States government against Huawei. All initiated by the Trump administration- not Congress which supposedly makes laws for the U.S.

   What will the repercussions be like? China has already reacted as article states, but will there be full scale retaliations against American companies like Qualcomm, Apple, Intel, Broadcom, Boeing, etc?

   Also, how can this U.S. Commerce Dept order be enforced against foreign semiconductor foundries (e.g. Taiwan’s TMSC, Korea’s Samsung, China’s SMIC) that are making chips for HiSilicon (Huawei’s semiconductor subsidiary which is 1 of the top 10 global semiconductor companies)? Those foundries are NOT doing business in the U.S. even though they use semiconductor equipment from U.S. companies (e.g. Applied Materials, KLA Tencor, LAM Research, etc).

   Bravo to the author, who always backs up the main points of the story with research and supportive facts plus analyst opinions.

   We’ll all have to stay tuned to see if the U.S.-China trade war escalates as the author presumes it will.

5. Back in 2014 or 2015, Huawei was deployed across the US by major telecom carriers. Their price was very competitive, and the amount of transport bandwidth it offered back then was unsurpassed. We’re talking 100Gb and 400Gb services wavelengths traveling across the country on a single fiber, where the previous highest transmission rate was limited to 40Gb.

   Think about how many fibers are in a single cable going cross country. 96 count, 144 count typical on metro rings.

   The problem was, the US government restricted Huawei network equipment so that it would not be installed in any US Military base/data center. The reason given was that there were 2 circuit cards in certain Huawei transport nodes whose purpose was not published by the vendor.

   Unfortunately, even after these restrictions were set by the US government, large telecommunications firms were installing them in military bases across the US.

   It freaked me out back then, and only now is it coming to light in the press as a side headline.

6. China retaliation:

   China is prepared to take “forceful countermeasures” against Apple and Qualcomm following US trade restrictions against Huawei – escalating US-China trade tensions.

   The proposed countermeasures include launching “endless investigations” against the US firms, placing the companies on a list of “unreliable entities,” and subjecting them to legal scrutiny under China’s anti-monopoly law.

   These developments will push US-China trade tensions to new heights, instigating a bifurcation in smartphone vendor supply chains. Now that it has been cut off from TSMC in addition to US-based suppliers, Huawei will effectively need to remake its supply chain using China-aligned vendors. This will be a huge undertaking — Huawei purchased $18.7 billion from US suppliers in 2019, and presently it lacks fully viable China-based substitutes.

   The top contender at the moment appears to be China-based Semiconductor Manufacturing International Corporation (SMIC) — just this week, SMIC received a $2.3 billion investment from the Chinese government to support the development of more advanced manufacturing capabilities, and Huawei selected SMIC to manufacture its lower-tier Kirin 710A chips. But SMIC is much smaller than TSMC, and has yet to develop the 5nm manufacturing capabilities required to produce the most advanced chips for flagship smartphones, according to The Verge.

   The decoupling of supply chains would push countries to restrict access to their markets based on US-China alignment. The placement of manufacturing facilities has been a significant bargaining chip for smartphone vendors looking to gain access to the world’s largest markets. In India, for instance, Apple and Samsung opened manufacturing facilities to unlock more favorable market access, including lower tariffs. As Huawei looks to develop an independent smartphone supply chain, it will likely leverage manufacturing opportunities to establish more favorable access to consumer markets.

   If smartphone supply chains continue to divide in response to the escalation of US-China trade tensions, then access to consumer markets could become increasingly dependent on the manufacturing alignment of that country. This would significantly diminish the target markets for the top global smartphone vendors, sequestering Apple and Samsung from the likes of Huawei, Xiaomi, and vivo.

   https://www.businessinsider.com/apple-qualcomm-in-china-crosshairs-as-trade-tensions-soar-2020-5?IR=T&utm_medium=email&utm_term=BII_Daily&utm_source=Triggermail&utm_campaign=BII%2520Weekender%25202020.5.22%2520-%2520Daily

7. UK reportedly planning to phase out Huawei equipment from its 5G networks
   Members of Parliament pushed for the Chinese telcom’s tech to be removed from UK networks by 2023

   UK Prime Minister Boris Johnson is apparently preparing to phase out the use of Huawei equipment from the UK’s 5G networks, the Financial Times reported. Citing national security concerns, members of the UK’s Conservative party have pushed for Huawei technology to be removed from the UK’s 5G infrastructure and the rest of its telecom network by 2023.

   The Trump administration has banned government use of Huawei’s technology, and the president signed an executive order last May blocking US companies from buying foreign-made telecommunications equipment that may pose national security risks. The order doesn’t single out any one company, but is viewed as a way to exclude Chinese firms like ZTE and Huawei from doing business in the US. Last week, Trump extended the ban through May 2021.

   The US has argued that Huawei could build backdoors into network infrastructure, ostensibly to aid spying efforts by the Chinese government, a charge Huawei has repeatedly denied.

   https://www.theverge.com/2020/5/23/21268397/uk-phase-out-huawei-boris-johnson-trump-5g

8. U.S.-China Trade War Background:
   As recently as September, Apple planned to use cheaper chips from China’s Yangtze Memory Technology for iPhones sold locally. But Apple had to quickly reverse course after the U.S. unloaded its ultimate weapon against China’s technology ambitions.

   Until then, the U.S. had moved to block access to key technologies for hundreds of entities on a case-by-case basis. Export bans targeted firms or research centers linked to China’s military. Also those engaged in surveillance of the Muslim Uyghur population or charged with violating export rules or intellectual property theft.

   Yet those restrictions were too porous to seriously blunt China’s technological progress. That may explain why Beijing resisted the urge to retaliate.

   “Technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce,” President Xi Jinping said in a May 2021 address.

   China looked likely to prevail, according to a December 2021 review from Harvard’s Belfer Center for Science and International Affairs. In key 21st century technologies, such as AI, semiconductors, quantum computing and green energy, the authors concluded that China “had already become No. 1” in some areas. And it was on a path to overtake the U.S. within a decade in others — unless something major changed. And something major did change starting last September.

   In a Sept. 16 speech, National Security Advisor Jake Sullivan said U.S. export controls previously aimed to maintain technology leadership — staying “only a couple of generations ahead” of geopolitical rivals — but didn’t strive for dominance.

   “That is not the strategic environment we are in today,” Sullivan said. Instead, he said, the U.S. faces a competitor willing to devote nearly limitless resources to achieving leadership in technologies that can act as “force multipliers.” The new goal must be to “maintain as large of a lead as possible.”

   The Biden administration in September blocked sales of high-end AI chips from Nvidia and AMD to Chinese companies. Then on Oct. 7, the U.S. announced sweeping export rules aimed at blocking China’s chip progress at every chokepoint.

   The rules don’t just establish a presumption of denial for Chinese purchases of the most advanced AI chips. They also deny China the software to design those chips and the equipment to produce them. They also cut off the key components that go into high-level chip equipment and access to the world’s most advanced chip fabrication facilities. Lastly, the rules aim to deprive the Chinese chip industry of brain power. They require a license for any U.S. citizen, resident or firm to contribute to advanced semiconductor production in China.

   The export rules set the floor for chip equipment exports above the 14-nanometer production achieved by China’s largest chipmaker, SMIC, as early as 2019. As the industry strives to make ever-smaller circuits, which translate to faster and more power-efficient semiconductors, the U.S. aims to degrade China’s semiconductor capability. When the U.S. first restricted exports to the state-owned SMIC in 2020, it allowed equipment sales above 10 nanometers.

   Taiwan Semiconductor (TSM) recently celebrated the start of mass production using its 3-nanometer technology. TSMC is building a 3nm fab in Arizona as part of a $40 billion investment.

   Allies Join U.S.-China Trade War Over Tech:
   Success of the U.S. export controls depends on the cooperation of key allies. News on that front has been largely positive. Taiwan, Japan and Netherlands are largely acceding to U.S. wishes. Netherlands is home to ASML (ASML), the only supplier of extreme ultraviolet lithography equipment needed for the most-advanced chips. In fact, ASML has agreed to go further. It’s also restricting exports of deep ultraviolet lithography equipment. That gear reportedly let SMIC achieve 7-nanometer production.

   South Korea, though seeking assurances about its chipmakers’ ongoing investments in China, also appears to be on board.

   In a March speech to Chinese businesses, Xi blasted the U.S. policy of “all-round containment, containment and suppression on our country, bringing unprecedented severe challenges to our development.”

   French President Emmanuel Macron, fresh from a China trip with a delegation including CEOs from Airbus (EADSY) and Alstom, voiced his own frustration with U.S. strategy and the presumption that Europe will fall in line. “Is it in our interest to accelerate (a crisis) on Taiwan? No,” Macron was quoted as saying.

   Carnegie Endowment for International Peace fellow Matt Sheehan had cautioned that America’s “strongly zero sum approach” to confront China on technology might not be popular.

   That approach “isn’t equally compelling to countries that don’t see themselves as locked in a battle to be the one dominant global superpower.”

   Yet Macron’s criticisms have been an outlier in the escalating U.S.-China trade war. In a March 30 speech, European Commission President Ursula von der Leyen painted a picture of “a China that is becoming more repressive at home and more assertive abroad.”

   Xi has maintained his “no limits” friendship with Russian President Vladimir Putin, imposed control over Hong Kong and signaled that Taiwan’s turn may come sooner than later. All that has built support for America’s escalation of the technological cold war with China.

   China-Taiwan Flashpoint:
   Some analysts believe Biden is taking a calculated gamble. The bet is that slowing China’s technology progress in the intermediate term is worth the risk that China’s semiconductor sector will emerge stronger and self-sufficient in the long run.

   Yet near-term concerns are preeminent. Taiwan boasts 90% of the manufacturing capacity for the world’s most advanced chips, a 2021 Boston Consulting Group study estimated. The U.S. has embarked on a major expansion of semiconductor production to de-risk its supply chain. That includes $52 billion in subsidies from the 2022 Chips Act. Europe and South Korea are making similar efforts.

   That may not be Biden’s only gamble. As the U.S. essentially weaponizes Taiwan’s advanced chipmaking, might Beijing try to assert its will over Taiwan by force?

   That’s an almost unimaginable scenario, one that seems certain to plunge the global economy into chaos.

   Yet China is “seriously” considering an economic blockade of Taiwan, with the idea of “winning the war without an actual fight,” deputy foreign minister Roy Chun Lee told Bloomberg this week. However, a blockade could easily escalate into military confrontation, he said.

   Early this year, a scenario only moderately less explosive briefly seemed like a real risk. The U.S. aired intelligence suggesting China might begin arming Russia to try and help Putin finish off Ukraine.

   Both U.S. and European officials warned Beijing that crossing that “red line” would bring serious reprisals.

   China Flexes Its Economic Power:
   Yet, for now, Xi is showing no inclination to cross red lines as he prioritizes China’s economic strength, undercutting America where he can.

   China scored a PR coup of sorts in March, seemingly filling the vacuum left by U.S.-Saudi frictions, when it brought together Iran and Saudi Arabia as they restored diplomatic relations. Then, claiming neutrality in the Russia-Ukraine conflict, Xi paid a visit to Putin to discuss China’s peace plan.

   Although Kyiv sees the plan as a nonstarter, Macron, on his Beijing visit, credited Xi for a serious peace effort. And that wasn’t Macron’s only gift. Airbus announced plans for a second assembly line near Beijing as the European aerospace giant supplants Boeing (BA) amid heightened U.S.-China trade and geopolitical tensions.

   Beijing is seizing every opportunity to use its economic might to drive a wedge between the U.S. and its allies.

   U.S.-China Trade War Complicates Battery Charge:
   A few days after the Airbus news, Tesla (TSLA) CEO Elon Musk tweeted that the company will break ground this year on a new Shanghai factory that will produce 10,000 Megapack battery units to meet growing energy storage demand.

   Meanwhile, Ford (F) has reached a deal with China-owned Contemporary Amperex Technology, also known as CATL, to produce lithium ferrous phosphate EV batteries at a new factory in Michigan. Tesla reportedly has had similar discussions with CATL. Yet the Ford-CATL partnership has drawn fire from U.S. lawmakers angry that a Chinese firm might benefit, if only indirectly, from Inflation Reduction Act subsidies. Beijing, for its part, reportedly plans to scrutinize the deal out of concern Ford will gain access to sensitive technologies.

   The Ford-CATL partnership is “a symbol of how difficult it is for the United States to balance the interests of private industry with the desire to reduce dependence on Chinese technologies,” wrote Council on Foreign Relations researcher Seaton Huang.

   China Considering Restricting Exports:
   China world tradeAs the federal government puts up hundreds of billions of dollars in subsidies to accelerate the build-out of a U.S.-centric supply chain, Beijing may be mulling ways to disrupt things. China is considering restricting exports of technology and equipment for making photovoltaic cells for large solar panels.

   Micron, which is building a $20 billion chip factory in New York, recently warned about the impact of a ban on Chinese exports of rare earths.

   The U.S. is working to diversify its rare earth supply. MP Materials (MP), a major rare earths miner via its Mountain Pass, Calif., complex, has long shipped its unseparated bulk concentrate to China for processing. But it’s beginning to separate the rare earths it mines. The next step is completing a Texas manufacturing facility that will produce enough magnets to power 500,000 EVs per year. General Motors (GM) is a strategic partner.

   U.S.-China Relations Tense, Economies Intertwined:
   In rare earths and solar, the U.S. has the capacity to diversify away from China, analysts say. But the process may be a multiyear one with high costs.

   Five years after former President Donald Trump launched his China trade war, the world’s two biggest economies are still very much intertwined. Two-way U.S.-China trade, including Hong Kong, hit a record $725 billion in 2022, up 2.5% from 2018.

   That’s not to say there’s no decoupling. Trade in semiconductors and Boeing jets has tumbled. Agricultural exports to China have surged, but that’s thanks to food inflation.

   Over the same period, U.S.-Vietnam trade exploded by $80 billion to $139 billion. China’s exports to Vietnam, however, more than doubled over the past five years, note Carnegie Endowment fellows Yukon Huang and Genevieve Slosberg. Much of the growth in exports to Vietnam came in areas like computer accessories and telecom equipment, where Chinese exports to the U.S. fell.

   The implication: “China may be exporting less to the United States directly, but it is now indirectly exporting more.”

   https://www.investors.com/news/u-s-china-trade-war-over-technology-heats-up-what-it-means-for-apple-micron-tesla/

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