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The China's 60% Defense of Trade War

Over the weekend, the Chinese government summoned representatives for several Western technology companies, warning them not to honor U.S. restrictions from working with Huawei, the Chinese communications equipment company. Also over the weekend, it emerged that the White House’s acting budget director asked the administration to delay implementation of the Huawei ban after rural telephone companies and other businesses complained of the harm it would cause.(Fortune newsletter).

More broadly, the warnings also seemed to be an attempt to forestall a fast breakup of the sophisticated supply chains that connect China’s economy to the rest of the world. Production of a vast array of electronic components and chemicals, along with the assembly of electronic products, makes the country a cornerstone of the operations of many of the world’s largest multinational companies.

As the trade relationship between the United States and China has broken down, fears have risen in China that major companies will seek to move production elsewhere to avoid longer-term risks. In the meetings this week, Chinese officials explicitly warned companies that any move to pull production from China that seemed to go beyond standard diversification for security purposes could lead to punishment, according to the two people.

About 60 percent of all semiconductors sold are connected in some way to China’s supply chain, the consulting firm KPMG estimates.

If anyone tells you that either China or U.S. is winning this trade war, show him a bridge you want to sell.