The trade war between US and China is now starting to have its corporate victims. US Vice President Mike Pence stated forcefully at Asia Pacific Economic Co-operation (APEC) summit in Papua New Guinea that US will not back down from its trade dispute with China until China agrees on U.S. demands. AOL reported that Pence said:
“We have taken decisive action to address our imbalance with China,” Pence declared. “We put tariffs on $250 billion in Chinese goods, and we could more than double that number.”
This points towards trade war escalation instead of a thaw. As a result, the Chinese are commencing to ramp-up its response. One of the first victims of this is US semiconductor companies. The Chinese are increasing its pressure against world’s biggest DRAM producers, intensifying their probes. China is targeting Micron (MU US), Samsung (005930 KS) and SK Hynix (000660 SK). FT reported
The anti-monopoly investigation into these three companies has made important progress . . . [It] has yielded massive evidence,” said Wu Zhenguo, head of China’s anti-monopoly bureau under the State Administration for Market Regulation.
For a lot of US semiconductor companies, China represents a major part of their revenues. For example, over 50% of Micron’s sales go to China. This is another way for the Chinese to go after Micron (in extension the U.S.) post the Chinese blocked Micron selling certain products in China. China stopped to sales so it can protect Micron’s local partner Fujian Jinhua Integrated Circuit Company after the U.S stopped Micron from selling other products to Fujian.
China investing massive amounts to make itself self-sufficient on various types of chips. With that said, Chinese companies are still far behind U.S companies in their capabilities in CPU and GPU chip design and subsequently China is highly dependent on U.S. suppliers. The U.S. is using this dominance to push back against China.
Other parts of the semiconductor space are also facing the consequences of the trade war. The U.S. is contemplating putting in place sanctions against Chinese surveillance equipment company Hikvisionas a result of China’s policy against ethnic Uighurs. These type of sanctions would most likely be a severe blow to Hikvision (and China) as US companies such as Intel (INTL US), Nvida (NVDA US) and Ambarella (AMBA US)supply the most important components for its products.
As potential continued escalation of the trade war, as an investor one should monitor the general semi’s space (ETF SMH US)as the semi industry falls dead centre of the trade disputes as both countries can painfully hurt the other country and its companies.
