It is coming together: China will have to make a call on Apple or even Microsoft as the U.S. continues to cage Huawei. The U.S. government has closed the loophole which has allowed Huawei to get chip supplies for its business. As that happens, the rumored interest from Microsoft and Twitter for TikTok has now included Oracle, the enterprise software giant. The U.S. had ordered TikTok’s owner, ByteDance, to sell the app in 90 days from Aug. 14.
The Trump’s administration has announced further ‘semiconductor restriction’ that has added nails to Huawei’s coffin.
On Monday, the US Bureau of Industry and Security (BIS) in the Department of Commerce announced that the embattled Chinese company and its non-US affiliates on the Entity List have been restricted access to items produced domestically and abroad from US technology and software.
In addition, BIS added another 38 Huawei affiliates to the Entity List, which imposes a license requirement for all items subject to the Export Administration Regulations (EAR) and modified four existing Huawei Entity List entries.
The question now is for how long would China wait before it returns fire. China has options but China would also be smart to just chill as the risk is very high for the country. If it retaliates, the US could wipe out the values of all Chinese listed companies in the country, causing massive wealth destruction for Chinese. I personally do think that is the destination for Trump if he wins reelection.
How would China respond? Ban Microsoft Windows or Apple iPhone? Not really because those would be own-goals to China. For every Windows sold, China makes money because the machines which power Windows are largely assembled in China for Dell, HP, Lenovo and others. Of course, despite the latest re-localization, China remains the lab for assembling Apple products. I think China will just chill – it has met an unpredictable American leader that cannot be modeled by any communist party algorithm. That would be wisdom because any nonsense move, Trump can delist all Chinese companies in Wall Street!
My prediction is that China will not do anything but just hope that Trump loses the election; it needs the U.S. more than the U.S. needs it. Yes, if the U.S. extends the Huawei ban to all Chinese technology firms, the sector will freeze in China and the country would not want that. Cadence and Synopsys control the global market for advanced CAD tools for analog chip design at more than 99%, especially for high end chip designs. While Mentor, Magma and others register on the chart, Cadence is the leader. Interestingly, the top five players are Americans. The implication is that this U.S.-China confrontation is asymmetric at the core technology layer.