Total decoupling

On 5/2020, Trump virtually banned companies supplied chips to Huawei. Huawei’s chips are made by Taiwan’s TSMC, which reportedly stops taking orders from Huawei. It is a big blow to Huawei.

Trump also stops ASML, a Dutch company, to supply advanced chip maker machines to China. So far, Dutch turned down the export permit. This is more than unfriendly act that China will counter act and it will hurt Trump’s reelection.

Trump treats Huawei’s products a security risk. It is debatable. It will hurt Huawei in the short term, but it will hurt us in the long term. It is similar to stop Huawei’s 5G network, that we have no benefits. Verizon still have to pay royalty to Huawei’s 5G patents. If not, China would stop paying royalties to our patents. In the meantime, the other two 5G network builders from Europe are not ready for 5G network and Huawei is.

SMIC, a Chinese company, is building a fab factory to produce 14 nm chips and it would be available in 4^th quarter, 2020. Chinese government is injecting 2.2 B to SMIC and Huawei will buy most of the chips from SMIC.

We understand the damages to Huawei in 2020; I bet they have a huge stockpile of chips made by TSMC. I expect the following will happen and it will lead to a complete decoupling between the two countries.

·         Most chip companies will be hurt without the orders from China.

Our total chip import to China is higher than China’s oil import at one time. Now, most are gone.

·         In the long run, the three foundries (Intel, Samsung and TSMC) will be challenged by SMIC. The former-TSMC chief scientist had helped Samsung to catch up the technology with TSMC and now works in China.

·         China will take actions: cancelling all orders to Boeing, banning all import of farm products, banning export of medical equipment, drug active ingredients and rare earth elements.

·         Due to nationalism, Chinese citizens are motivated not to buy products from Apple, which is about 10% of the total sales.

·         All the U.S. factories such as Tesla and businesses such as Shanghai Disney and all the U.S. casinos in Macau would be hurt.

China will sell if not already the U.S. Treasury bonds. If the U.S. freezes the bonds, China would take counter-actions on U.S. assets in China.

How can you stop China?

If you think Trump is stopping Huawei and China, think again. It is quite simple if you’re in China. Everyone works hard. Children study hard after school while our kids spend most time in video games. There are very few serious crimes and no shootings against citizens at each other in China. You do not see drug addicts and drunks in the street. Also there are few beggars and no homeless sleeping in the street. The sub way system is convenient and spotless. So are the high-speed rails and stations. Compare any Chinese city to any American city. I rest my case.