The US cutting off Huawei from advanced semiconductors will have consequences far beyond economic damage, bad enough as that will be. Tech companies all over the world will have to pick a side.
The Trump administration was quick to throw a bucket of cold water on sparks of hope that US-Chinese trade tensions might simmer down in these trying times. After all, it wasn’t unreasonable to assume a quid-pro-quo deal had been hammered out when TSMC announced its intention to build an advanced fab on American soil. The US would have its domestic semiconductor manufacturing base strengthened, while the Taiwanese foundry would be allowed to keep supplying Chinese companies. Less than half a day later, however, the US Commerce Department unveiled new rules that require any chipmaker using US technology to obtain a license before supplying Huawei and affiliates.
This doesn’t feel like a game of high-stakes chip poker anymore. The US isn’t bluffing to force concessions – it’s hell-bent on stopping the Chinese technological advancement in its tracks. Expect more of this, with or without Trump at the helm. The concerns in the US over China’s rise on the world stage as well as reliance on Asia for strategic technologies reach far beyond hawkish Republicanism. Tellingly, the Democrats have been silent on it, which in the current polarized political climate is the same as support. And these days, Trump trades blows with presidential candidate Joe Biden about who is too soft on China.
The repercussions of this cannot be overstated. China likely will retaliate, throwing the world’s technology industry into disarray, worsening an already unprecedented recession looming in the wake of the corona pandemic. In parallel, the world’s tech supply chain will be reshaped radically.
To see how that will pan out, we only need to look at TSMC. Ever since president Trump fired the first shots in the US trade war with China, “everyone’s foundry” kept supplying both sides. But faced with being cut off from indispensable semiconductor equipment and IC design software, TSMC was forced out of neutrality. It chose the US: apart from building its first advanced fab outside Taiwan, the company reportedly will also stop making chips for Huawei.
Sooner or later, tech companies all over the world will face the same choice. Or, if they’re lucky, it will be made for them, as we’ve seen with ASML. The equipment maker can still hide behind the Dutch government’s back, pointing out that the decision of whether or not to ship an EUV scanner to SMIC is out of its hands. But if the US succeeds in carving out China from the tech supply chain, it will affect ASML as well. Anything that disrupts that highly globalized and intertwined semiconductor supply chain has an effect on the Veldhoven behemoth.
One could argue, as CEO Peter Wennink did, that ASML will sell its scanners one way or another because the demand for chips is a given. But is it, really, apart from worldwide recessions? Major American semiconductor and tech companies rely on China for a large chunk of their revenue. Losing this market is bad enough, but long-term, it could slow down tech innovation, which drives ASML’s sales.
NXP’s situation is direr. The company is strongly focused on the Chinese market and has established a number of joint ventures with Chinese companies. The new rules will already be a headache, a full-blown cold tech war could tear the chipmaker apart.
None of this is inevitable, of course. Faced with the huge fallout on both sides, there’s a chance the measures will be backpedaled. The frustrating part is that we Europeans have no sway in this. All we do can do is stand on the sidelines and pray. It’s a look into our future: the rules-based trade system being replaced by two national-interest driven juggernauts following their own rules. Let it be a wake-up call.