This is the year of 5G. Whether in terms of data speed or scale, the progression of each successive generation is geometric. But whichever the generation, the chip inside has been the soul of the applications. So if this is the year of 5G, it is also the year of the chip.
When talking about chip, the market always recalls Huawei, the top Chinese firm being sanctioned by the US government. As the second phase of Sino-US trade talks begin, the advanced tech sector, especially 5G related industries, would certainly be one of the top agendas on the negotiation table. Everyone knows this is going to be tough. What then would be the consequences if the table is overturned and there are further sanctions applied?
Let’s look at the data. The accompanying chart shows the historical monthly series of US semiconductors shipment value by destination, compiled by the US Semiconductor Industry Association. One can see the imports from Japan and Europe have both been stable over time. Import from Asia Pacific has been surging since 2002 and that from Americas (ex-US) has been up slightly in recent years. Note since 2015 China is reported separately from Asia.
The monthly shipment to China rose from US$7.8 billion in early 2015 to almost double at US$14.5 billion in fall 2018 when the trade war just began. When the Sino-US relationship was in a nadir around early 2019, the dip value was at US$10.7 billion, about one-fourth lower than the peak. That means another three-fourth o the import reliance from US is still there.
US President Donald Trump has been famous for his tariff weapon. We might wonder what if a tariff is levied not on US imports but the semiconductor exports to China? Taking an “entry rate” 10 percent of that inevitable amount this would generate a monthly tariff of US$1.07 billion or an annual amount of US$12.8 billion, which is about the additional value of agricultural products to be purchased from US by China within this year under the first phase of trade agreement.
The over-reliance of imported chips from US puts China in a disadvantageous position in any further trade negotiation. And such status quo is unlikely to alter in the near future. Trump might take this advantage to squeeze a much bigger chunk of imports by China so as to further transfer the economic growth to the US.
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