Semiconductor Market Takes A Hit From The US-China Trade War
In the early hours of March 23rd (Beijing time), President Trump imposed $60 billion worth of tariffs on Chinese imports. The Semiconductor Industry Association believes these tariffs will hurt the U.S. semiconductor businesses.
On May 10, Trump tweeted, "for nearly ten months, China has been paying tariffs on $50 billion in high-tech goods and $200 billion in other goods at 25 percent and 10 percent rates, respectively, and the increase is part of a huge economic gain for the United States. On that portion of the goods, which will be taxed at 10 percent, the tax will rise to 25 percent on Friday.... a further $325 billion worth of imports from China has yet to be taxed, but will soon be taxed at 25 percent. The cost impact of these levies will be minimal and largely borne by China" (Trump).
Trump and Xi Jinping will meet in Washington on May 8 for the 11th round of negotiations. By then, the tariffs could cripple America's semiconductor industry. Trump justifies the trade war by directing public attention to America's runaway trade deficit with China. Trump also articulated that his only demand is for China to reduce its trade surplus by $100 billion.
Since 2013, the annual import volume of China's integrated circuit has been above $200 billion, while the crude oil import volume of China in 2016 was about $115.308 billion. This data has been talked about by the industry in various industry forums, and it has become the most convincing evidence for developing China's semiconductor industry. Additionally, China's import volume increased by 14.6 percent in 2017, and the overall deficit was close to $200 billion. Investors think that this data indicates the rise in the price of storage.
This table exhibits how the trade war can negatively impact America's semiconductor industry. Many U.S. companies outsource production to China for final assembly and testing. Major U.S. semiconductor companies such as Intel corp., Qualcomm Inc., and Texas Instruments Inc., which rely heavily on global supply chains, could be financially affected by import tariffs and restrictions on Chinese technology transfers.
Since March 22, when the Trump administration first imposed tariffs on Chinese goods, the PHLX Semiconductor Index fell 6 percent, the worst performance among technology stocks in that period. Import tariffs from China and restrictions on the transfer of Chinese technology could hit the top five U.S. semiconductor companies hard: Intel corp., Qualcomm Inc., Texas Instruments Inc., Applied Materials Inc., and Lam Inc. Also, the Trump administration could announce new controls on U.S. exports to China later this month, possibly including semiconductor materials needed by Chinese chip makers, which could adversely affect Applied Materials and Lam. Robert Maire.
Global markets are in the early stages of shifting to platforms that support a relatively higher technological capacity, so the long-term demand for semiconductors remains stable. The PHLX Semiconductor Index has more than doubled in value in the past two years and reached near record levels this month, 8 percent above its 2000 dot com bubble peak.
The trade war between the world's two largest economies will cause pain for companies and consumers in both countries, especially multinationals with operations in mainland China. According to The Conference Board analysis, foreign companies, including Hong Kong and Taiwan, account for 43 percent of China's exports. Manufacturers account for 77 percent of China's information and communications technology exports.
The Wall Street Journal said multinationals including Foxconn have considered reviewing their supply chain in response to the trade tensions. Qualcomm's planned $44 billion purchase of NXP has also been affected by trade with China. Later in May, amid signs of progress in trade talks between Washington and Beijing, Chinese authorities said they intended to complete the review and close the deal; however, that momentum stalled after the White House decided to continue raising tariffs and congress rejected Trump's decision to save ZTE.
Written by Yujia Zheng, Edited by Derek Chiang, James Mueller & Alexander Fleiss