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The U.S. and China Semiconductor Trade War

Biden’s Tech War on China (We Just Won)

Briton Ryle by Briton Ryle
December 21, 2022
in Stock Market News, Technology
0
Flag of USA and China on a processor, CPU or GPU microchip on a motherboard. US companies have become the latest collateral damage in US - China tech war. US limits, restricts AI chips sales to China.
  1. Semiconductor Stock Price Declines
  2. Greed vs. Security
  3. The End of Chinese Tech

You may have seen the reports about how the Biden administration is trying to keep China from accessing American semiconductor technology and equipment. We all know that China is a huge market for semiconductors, and U.S. companies like Qualcomm and Nvidia make a lot of money selling their chips in China. 

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If you look at the share prices of U.S. chip companies, they’ve all sold off because of these new rules. Investors judge regulations by how related stock prices react. The formula is pretty simple: new regulation + rising share price = good regulation, or new regulation + falling share price = bad regulation. 

So it might be tempting to look at the stock price declines from semiconductors companies and think, “well, these new regulations are clearly bad.” And honestly, I’m often in that camp…

But not this time. 

Even though I first recommended my beloved Qualcomm at $51 a share in 2017, I’m happy to grin and bear the current $110 share price. Because this move by the Biden administration is a hammer stroke of incredible significance. 

Greed vs. Security 

I hope we all agree that China is a bad actor. Motivated by simple greed, corporate America has long turned a blind eye to China’s duplicity. American companies have helped China spy on its people, providing the technology to build a true surveillance state. We’ve let Chinese companies list their companies on the U.S. stock market even though some of these companies are complete frauds. 

And if China does decide to act on its stated ambition to take over Taiwan, already embedded American technology will help.

These new semiconductor rules will cripple the Chinese tech sector and completely recast its economic and militaristic ambitions.

Now, if you’ve read a few articles about all this, I’m guessing you probably still have questions about what it all means. I’ve found news reports to be not very helpful. 

For instance, Reuters says that the new semiconductor regulations are designed to  “…cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment, vastly expanding its reach in its bid to slow Beijing's technological and military advances.”  

Reuters also says that the new rules for “… top toolmakers KLA Corp (KLAC: Nasdaq), Lam Research Corp (LRCX: Nasdaq) and Applied Materials (AMAT: Nasdaq), effectively requiring them to halt shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.”

Here are a couple more snippets from Reuters: 

“The new regulations will also severely restrict the export of U.S. equipment to Chinese memory chip makers and formalize letters sent to Nvidia Corp (NVDA: Nasdaq) and Advanced Micro Devices Inc (AMD: Nasdaq) restricting shipments to China of chips used in supercomputing systems that nations around the world rely on to develop nuclear weapons and other military technologies.”

And : 

“The rules published on Friday also block shipments of a broad array of chips for use in Chinese supercomputing systems.” 

Ok. That’s fine. But what does it actually mean??

The End of Chinese Tech

The most important thing to understand is that China cannot make high-end chips. It does not have the technical know-how to manufacture so-called “high-end” semiconductors, the basic building blocks for artificial intelligence (AI) applications, smartphones, servers, and satellites.

These chips are not even made in China by foreign companies. High-end chips come exclusively from the U.S., Japan, South Korea, and Taiwan. And most of these chips are designed by U.S. companies. 

Next, there are mid-range chips, like the kinds that go in cars and planes. These mid-ranges are made mostly in Thailand and Malaysia. Like high-end chips, these mid-range chips are not made in China. 

Finally, there are low-end chips that power the basic electronics that you find in your home. Almost all of these low-end chips are made in China.

So, the new semiconductor rules from the Biden administration have three simple applications. 

  1. China can no longer buy high-end and mid-range chips without special case-by-case permits.
  2. China can no longer buy the equipment needed to make high-end and mid-range chips.
  3. China is being greatly restricted in its ability to buy the tools that allow it to operate the equipment that uses low-grade chips. 

So, in a nutshell, the situation is that China can’t make and use any semiconductors without at least some imported equipment. And the Biden administration just made it nearly impossible for China to import any of this equipment. 

Without U.S. technology, China’s ambitions for AI, hypersonic weapons, and automation will, as one expert put it, “…wither on the vine and go away.”

I can barely believe such foresight came from politicians…

Until next time,

brits-sig

Brit Ryle
The Profit Sector

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Tags: Artificial IntelligenceAutomationChinaHypersonic WeaponsKLA Corp (Nasdaq: KLAC)Lam Research Corp (Nasdaq: LRCX)Nvidia (Nasdaq: NVDA) and Advanced Micro Devices Inc (Nasdaq: AMD)Semiconductors
Briton Ryle

Briton Ryle

I’ve been trading, investing, and sharing my insights with individual investors since 1998.  Back then, the internet was not a very useful research tool. Armed with a library card and a huge budget for the printer, I’d scroll the microfiche for Wall Street Journal and Financial Times articles. I bought technical books on wireless technology and fiber optic networks. I traveled to Chicago to learn the secrets of stock options trading directly from the experts on the floor of the CBOE.  I’ve attended and spoken at more investor conferences than I can remember…. All because I’ve always taken my responsibility to my readers and subscribers very seriously. I refuse to parrot popular opinion, offer up half-baked ideas or publish incomplete or half-hearted research.  There is no shortcut to deep research... becoming as close to an expert on topics, trends, and technology as possible. And the rewards are life-changing. The very first stock I ever recommended was South Korea’s SK Telecom. My readers enjoyed a 150% profit in a matter of months.  And after 25 years, I’ve helped tens of thousands of readers change their financial fortunes.  A few months ago, I donated all my suits to Goodwill, pulled my name off the list of speakers for the big investor conferences, and left the big city for Southern Georgia. The plan was to retire to the banks of a tidal creek that splits off from the St. Mary’s river as it enters the Atlantic between Cumberland and Amelia islands... and trade stocks when I felt like it. But, I guess retirement wasn’t for me after all. I’m back, and this is gonna be something special. 

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© 2022 The Profit Sector, LLC. All rights reserved. Our website provides stock market research, commentary, and analysis. Information is provided “as is” and solely for information purposes, not for trading purposes or advice.

Nothing on this website should be considered personalized financial advice. Any investments recommended herein should be made only after consulting with your personal investment advisor and only after performing your own research and due diligence, including reviewing the prospectus or financial statements of the issuer of any security. The Profit Sector, its managers, its employees, affiliates and assigns (collectively "The Company") do not make any guarantee or warranty about the advice provided on this website or what is otherwise advertised above. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. The Company is not affiliated with, nor does it receive compensation from, any specific security. To the maximum extent permitted by law, the Company disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations provided herein prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

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