U.S. plans to restrict access of critical components into the hands of Huawei as the trade war with China intensifies, and the battle for the future of 5G technology is waged. Largely, U.S. has many tools through two vital companies in the world of microelectronics: Cadence and Synopsys. More than 99% of the leading chip designers depend on these firms. Without them, it will be hard for Huawei to make its own microchips (to overcome the bans) in ways that foundries can manufacture them effectively. If U.S. blocks Huawei, call that move extremely “severe” but not “existential”, yet, because China will respond. Simply, China can block Chinese factories from offering “labour components” for American firms like Apple, Dell, HP, etc. If that happens, iPhone may be off market!
From Fortune summary: The White House has intensified its campaign against Huawei. President Trump signed an executive order Wednesday that effectively blocks Huawei from the U.S. market. The Trump administration then added the Chinese telco to its “entity list.” As an “entity,” Huawei is unable to purchase components from U.S. companies without approval from Washington. Huawei says it has already stockpiled supplies and eventually will be able to replace U.S. tech with its own. Analysts are skeptical.
The Trump administration officially added Huawei to a trade blacklist on Thursday, enacting restrictions that will make it difficult for the tech giant to do business with American firms, in its latest broadside against the company that U.S. officials have labeled a threat to national security.
The head of Huawei’s HiSilicon chip division on Friday shrugged off concerns about disruptions to supply, saying it has long been preparing for this kind of “extreme scenario”.
Huawei will aim to be technologically “self-reliant” going forward, He Tingbo said in a letter to staff.
This is a tough one at all levels – “The Trump administration on Thursday officially added China’s Huawei Technologies Co Ltd to a trade blacklist, immediately enacting restrictions that will make it extremely difficult for the telecom giant to do business with U.S. companies.”
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But China does have a game move available: if you restrict it from component supplies because of the “entity list”, companies like Apple, maker of iPhone, may pay the penalties. Other moves are explained here:
“If Beijing were not to stand in the way of a 3-5% depreciation in the renminbi, fears would grow that the stuttering Chinese economy was exporting deflation to the rest of world, and global markets—and the U.S. stock market in particular—would likely take fright,” Chen writes, arguing that a “sharp correction” in the U.S. markets could convince Trump that making a swift deal is in his best political interest.
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Beijing could subject U.S. companies operating within China to administrative punishments, such as conducting arbitrary audits, enforcing stricter regulations, or slow-walking approvals of necessary permits and licenses. The approach is a nod to the advantage China has over the U.S. when it comes to China-based American businesses. “Operations of U.S. companies in China are a significant portion of the economic revenue that the U.S. as a whole derives from China, but the sales of companies operating abroad isn’t as significant a portion of China’s economic revenues from the U.S. Those mainly come from goods exports,” Anderson says.
Yet, as this happens, countries like Vietnam will benefit as U.S. companies move production from China to avoid the China-US trade paralysis.
As U.S. racks up pressure on China, smaller Asian countries like Vietnam will benefit. Yes, companies will move factories to those other locations to avoid the tariffs imposed on China-made products. There is a huge dislocation taking place in Asia right now. Can Africa benefit? Maybe Ethiopia which has been positioning itself for moments like this
This is going to be a long fight because even those American companies which will restrict supplies to Huawei, most of them use Chinese labour to make their products. This trade war is not asymmetric and that is why it will end at parity – DRAW. Yes, draw because U.S. companies will lose revenue also. CNN puts it at $11 billion.
This week’s escalation of the US campaign against Huawei has rattled investors. Shares in Qualcomm, whose sales to Huawei account for less than 10% of its revenue, closed down 4% on Thursday in New York. Huawei sales make up 15% of optical maker Lumentum’s(LITE) revenue. Its stock plummeted nearly 12%. Shares in other US chipmakers that supply to Huawei — including Qorvo (QRVO), Skyworks Solutions (SWKS), and Xilinx (XLNX) — also ended the day in the red.
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Both the US and China are playing chess, they know that no side can claim outright win without severe scars and dislocations in its economy, so it’s about gaining more points before final agreement is reached.
Trump saw many things he felt that it was ridiculous to continue to allow them to play out that way, that’s why I like the ‘table shaking’, especially when you have considerable negotiation power. China doesn’t respect anyone, so you must go toe-to-toe with them, if you want to get anything.
The good thing is that when the chess game ends, other smart nations will learn few things from it, so that whenever you are negotiating bilateral or multilateral trade deals, you open your eyes very well.
Most times African nations look lost and clueless on the world stage, with everything appearing so great in their eyes. Trump is teaching everyone who cares to listen that anywhere you have some advantage, always stand your ground and pursue a favourable deal, it doesn’t matter if your partner is frowning face…
The global economy has been so convoluted and entangled to the extent that both the US and China know that none of them can just get all they wish for, it’s all about scoring more points than the other person!
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