The US-China Trade-Tech War Escalates

On Friday, May 15, Trump launched his strongest attack yet against China's tech industry, as his Commerce Department declared that non-U.S. companies using U.S. technology to supply Huawei must get a license for that technology to do so.

The U.S. attack is aimed at controlling the supply from Taiwan's TSMC of advanced semiconductor custom chips that Huawei designs for its network equipment and smartphones, which Huawei is the number one and two producer, respectively, in the world.

Huawei is TSMC's second largest customer, after Apple (AAPL). TSMC is the leading-edge semiconductor foundry in the world. It uses equipment and software from several U.S. companies, which is the basis of the Commerce Department order. According to NAR, TSMC has stopped taking new orders from Huawei.

Trump is still trying to weigh his trade deal with Xi against the continued push by the hawks in his administration and in the media, both right and left, to completely de-couple from China under the guise of the COVID-19 crisis. So, perhaps cooler heads might still prevail on the Commerce Department order; there may be loopholes and workarounds. [Update: here and here.]

In justifying their order against Huawei, Trump officials trotted out their same, but still unsubstantiated, claim from a year ago: that its lead in 5G poses a threat to U.S. national security. Some U.S. allies did not buy into this claim back then when the U.S. first attacked Huawei with bans on technology, such as Android software.

Huawei has been stocking up on key semiconductors since then, but China, unlike Japan, South Korea, and Taiwan when they moved up the industrial value chains decades ago, has yet to successfully address its glaring strategic vulnerability on most advanced wafer fabs after many years of trying. Global Foundries recently shut down its China wafer fab, according to SCMP.

Presumably, Trump now believes that his relentless China-bashing on COVID-19, which he has dragged the WHO into and the Democrats' acquiescence in it, has made the U.S. political environment more conducive to such unsubstantiated fear-mongering about Huawei. Pompeo has also made unproven allegations about the coronavirus coming from a Wuhan lab, as shown in my May 9 article.

Also on May 15, TSMC announced, under U.S. pressure, that it would build a $12 billion wafer fab in Arizona, ostensibly to better ensure the supply chain of chips critical to national security. The fab will be smaller than TSMC's main ones in Taiwan, and a step behind in process technology when completed.

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