The cost of everything with a microchip will soon increase. Outright war is a possibility. Let’s discuss why.
New Rules to Cut Out China
The Wall Street Journal reports U.S. Chip Toolmakers Move to Cut China From Supply Chains
The U.S. semiconductor industry is uprooting Chinese companies from supply chains, spurred by directives from Washington seeking to suppress China’s involvement in sensitive next-generation technology.
Chip toolmakers are telling suppliers that they need to find alternatives to certain components obtained from China or risk losing their vendor status. Companies relaying this message include Applied Materials AMAT -0.43%decrease; red down pointing triangle and Lam Research LRCX -0.89%decrease; red down pointing triangle, according to people familiar with the matter. The two Silicon Valley companies make equipment used in the production of microprocessors and are among the world’s biggest manufacturers of these tools.
Suppliers have also been told that they can’t have Chinese investors or shareholders, the people said.
Industry executives said such moves were likely to raise costs because it won’t be easy to find non-Chinese alternatives at similar prices.
Lam Research said it adheres to U.S. export controls for companies in the chip-manufacturing supply chain. Applied Materials said it identifies alternative sources for components to make sure they are available.
Washington is becoming increasingly strict on Chinese imports. The two main U.S. presidential candidates have pledged to get tougher on trade with China, and the semiconductor industry is seen as particularly critical because of its importance to national security.
The U.S., Japan and Europe are spending tens of billions of dollars on support for chip manufacturing in a bid to gain more control over the process.
In recent years, U.S. lawmakers have blocked China from acquiring the most advanced chips and chip-making equipment. That equipment is generally made or designed in the U.S. and in regions friendly to the U.S., including Taiwan, South Korea, Japan and Western Europe.
In China, a reciprocal drive to push U.S. technology out of the country is under way, with state-owned companies in finance, energy and other sectors moving to replace foreign software and hardware in their systems.
The rules have left some Chinese contractors in a bind. Shenyang Fortune Precision Equipment, a supplier to Applied Materials, opened a factory in Singapore this year expecting it could serve foreign customers including the U.S. manufacturer, according to people familiar with the matter.
Very Dangerous Path
- The first risk is that when trade stops, wars begin. In this case we are talking about the obvious, China, the US, and Taiwan.
- Second, the US, Taiwan, and Netherlands have the technology, but China has the raw materials. There could easily be a global collapse in trade on this basis pushing everyone towards the first risk.
Technology
- Applied Materials (AMAT) US
- Nvdia (NVDA) US
- Taiwan Semiconductor (TSM) Taiwan
- ASML (ASML) Netherlands
China does not have any companies that directly compete in skill level or quality with any of the above.
ASMl, a Netherlands corporation stands alone with virtually no competition.
ASML is a Dutch company based in Veldhoven, the Netherlands, that designs and builds systems and software used in the production of semiconductor chips.1
It is the only company in the world as of 2024 that manufactures extreme ultraviolet (EUV) lithography machines, which enables the production of smaller, faster, more powerful microchips through the use of a shorter wavelength of light.
ASML also produces deep ultraviolet (DUV) lithography systems, metrology and inspection systems, and computational lithography software; refurbishes existing machines; and provides extensive training and customer support services.
The US has pressured AMAT, NVDA, TSM, and ASML to not work with or deliver parts or service to China.
KLA and Lam Research Tumble Along With ASML as Analysts Worry About China Sales
On October 15, Investopedia reported KLA and Lam Research Tumble Along With ASML as Analysts Worry About China Sales
The losses came as ASML also accidentally released its quarterly results a day earlier than expected, reporting lower-than-expected net bookings for the period and issuing a lackluster sales outlook for 2025.
Meanwhile, a report that the Biden administration is considering a cap on exports to certain nations due to national security concerns added to downward pressure on semiconductor stocks broadly.
$SOX – Semiconductor Index
Technically speaking that is a bearish chart. And the fundamentals match the technicals.
$SOX Components
AMAT, NVDA, TSM, and ASML are in the $SOX. So are AMD, Broadcom (AVGO), Intel (INTC), Lam Research (LRCX), Qualcom (QCOM) and numerous other companies with a total count of 30.
Here is the list of $SOX Components.
When you restrict supply to China of what those companies produce you restrict their profits.
Critical Materials Risk Assessment
On June 12, 2023 I commented on a Critical Materials Risk Assessment by the US Department of Energy
Our own Department of Energy has placed some of the rare earth minerals we need for weapons systems, windmills, batteries, and aircraft on a critical materials list.
Biden Eases Sanctions on Venezuela, Blocks Rare Earth Mining in Alaska
On April 21, I commented Biden Eases Sanctions on Venezuela, Blocks Rare Earth Mining in Alaska
The Inflation Reduction Act was supposed to increase permitting in the US. As the election nears, Biden is blocking oil drilling and mining in the Alaska.
How Might China Respond?
So how might China respond to increasing US pressure? I believe the answers is obvious.
The first is blocking exports of rare earth minerals the US needs for weapons systems, wind turbines, EV batteries, and microchips.
On February 18, 2024, I commented on How China Gets Around US Sanctions on Semiconductors
There are two reasons things have not escalated further. #1: China is waiting to see who wins the US election. #2: Despite US efforts, China has been able to ramp up internal production of chips and get its hands on advanced chips needed for AI.
If either Trump or Harris pushes China too hard, China will block exports of materials the US needs for weapons systems, wind turbines, EV batteries, and microchips.
Alternatively, China will invade or attack Taiwan.
This is the game the US is playing. Cheer if you like. I don’t and won’t.
This is great.
It will force China to invest in R & D for semiconductor manufacturing.
And in training staff.
After all China doesn’t graduate very many engineers year after year.
This will work like sanctioning Russia that has worked so well.
Oh…
Wait…
Nevermind.
US has no choice but war. US is losing on global front.
US global influence is waning obviously. Only WW3 might save US from total collapse. Remember WW2? US enjoyed global no. 1 after WW2.
We Americans don’t care about “WW3”.
Also, the U.S. is not fighting in Ukraine or the Middle East.
Typical Thucydides trap, Ray Dalio pontificates on. The question is what is the best way to deal with China. I don’t think we are currently on the correct path. Trade wars typcially lead to hot wars and a politician with some morality and common sense should realize this. Free trade in theory is the best path economically. In theory there is no difference between practice and theory , but in practice there is. I suspect the corrupt MIC is pushing our politicans into conflict. Someone with brains needs to figure out the best path forward.
“There are two reasons things have not escalated further. #1: China is waiting to see who wins the US election. #2: Despite US efforts, China has been able to ramp up internal production of chips and get its hands on advanced chips needed for AI.”
Big Elephant in the room: “AI” hardly matters….
Militarily,if you look at both Ukraine and Israel’s neighbors: After 2 weeks of “precision”/”hypersonic”/”my daddy’s ‘technology’ can beat up your daddy’s” blah blah hype, it quickly went back to the only thing which really matters: Size and quantity of bombs dropped. The rest is at best temporary digression.
Even the very best counterexample in the world; the various Israeli anti-missile “domes”, are only effective against adversaries with only a fraction of the quantity of ordnance Israel itself has. If Israel attacked Israel, the missile defense system would be exhausted in the first hour or so.
None of that is even surprising: People on the ground; fighters; adapt. They have an awful lot of incentive to do so. And the true adaptability of even a fruitfly, is at least a few centuries ahead of even the “best” “AI”, at absolutely anything more complex than simple hype. Ergo: Faced with adaptable adversaries, it quickly becomes obvious that the only true measure of strength, is the sheer volume of ordnance one can drop. Hence Ukraine and Gaza.
Rare Earth elements are not rare. Abundant deposits exist outside of China in Norway, USA, Canada, South Africa. The friction is toxicity of rare earth elements to mining and refinery employees. China has no compunctions about trading lives for rare earth production. I propose that Elon Musk’s robots and machine learning can produce rare earth elements without killing employees.
“I propose that Elon Musk’s robots and machine learning can produce rare earth elements without killing employees.”
Hence why China will pretty much indefinitely not only lead in their production, but even see their lead grow nothing but ever larger over time.
All without killing a single employee. As very much opposed to the grotesque robbing into homelessness and starvation of Americans and other Westerners, which is required in order to obtain the billions to trillions in free resources to waste on childish hype, by the clownshows promoted in order to maintain the nothing-but-illiterate-delusions of the indoctrinated Western indoctrinati.
Mish, you might not like the restrictions but what is the alternative? Do you want China to dominate the industry? Look at how bad it is that the West has let China dominate so many supply chains including rare earth processing. The West needs to achieve autarky such that Chinas threats to cut off supply of anything becomes hollow threat.
I’m concerned that so much of the chip supply is not just from China but from Taiwan and South Korea, will the US be able to save Taiwan? What would the US do if China messes with SK using NK to do even limited attacks on SK targeting the chip plants?
I’d rather pay a few hundred more for my electronics than rely on Chinese chips that have back doors and I’d rather pay a few hundred more in taxes to ensure that western chips are in all defence, manufacturing and infrastructure lest those back doors are activated at a critical time
A Harris Administration will appoint VP Walz as China Czar. That way, he can continue to lead groups of high school students to China, and monitor the theft of American technology.
Iran might launch a major attack tomorrow or this week, to overshadow the election.
China stoic leader is a brutal bully. The globalist are shocked that we believe in his threats. In the last four years China bled us. Threatened Taiwan. Swallowed Tibet. Fought India. Built bases in S. America, Africa and the pacific. Shi wants to dump us to the back seat. Economic war is better than kinetic war. We dump rare earth in the rivers as toxic waste. We can reduce import coming from China that is important to our national security, healthcare sector and to our industrial sector. Demand for highly skilled workers will rise. Gov income from tax collection and tariffs will enable the gov to cut debt. Lower debt ==> higher trust in the US dollar.
This isn’t about Xi being a ‘brutal bully.’ Fentanyl, and the coming economic subjugation of the US are payback for the Opium Wars (and destruction of China) in the 19th century.
And to think Biden sent the dimwit Janet Yellen to China? Like they give $hit when a woman is involved.
If the predictable, dumb Kamel wins, WW3 within three years.
Here is a point that I came across this evening.
Assume Harris wins due to the one issue woman’s vote, abortion.
By Gender she is getting hammered in losing the Male vote.
Does anyone believe Men are going to go willingly to War to defend US from enemies abroad with Harris as President starting more neocon Wars?
US military has major problems recruiting now under Biden. It will be an complete Rout under Harris should she get seated in Oval Office.
Lower standards. Offer no jail or let them out if they enlist for 8 years for combat. Send them to the eastern front. The military has already started test groups but this was par for the course when I was in. I served with quite a few that were spared jail.
Problem is these days the prisons are not just filled with common punks who might be straitened out by army discipline. Do you want thousands of recruits who are islamists with jihadi leanings? Do you want MS13 and similar gangbangers getting better training in how to kill?
And how can you get enough recruits when most men are overweight unhealthy lard arses, soy boys, immature, simps, gender fluid cowards living in mamas basement eating junk food as they play games?
Rarely does the military straighten anyone out. The military is the fast track to the homeless shelter. I’m a vet but fortunately not homeless. If you aspire to alcoholism, homelessness, suicide or drug addiction then the military is the track.
Historically the Marines recruited this way. The law said go in the marines or to jail.
Both Trump and Biden pretended they were too sick to serve when called for military service. That is the standard of American male behavior. Don’t be naive enough to think the majority of males will serve if called, given our political leadership. Harris is irrelevant.
China is incapable of inventing anything new. They must steal it from the west and the will make it cheaper or in greater quantities.
I tried to post this BBC article on the signs of vote-rigging and Faceberg locked my account for 24 hours! I thought the BBC was a “trusted news source”. I guess not.
https://www.bbc.com/news/world-africa-37243190
You triggered the bullshit detector with your nonsense.
So the BBC is bullshit?
Yes.
As is the by now 100% fallacy that there exists as much as a single corner of “The West” where freedom of speech reach even the level inmates enjoy inside North Korean prisons.
“We’re going to make small beautiful chips in big beautiful US factories. HUGE factories. They are going to be huge – the factories that is – the chips are going to be small; the smallest ever, but powerful – the most powerful chips. We’re going to beat CHAI-NAH!”
-Donald J Trump
P.S. Before anyone gets triggered, I’m just having fun and hoping for a Trump win tomorrow. Happy voting to those yet to go.
He is a bullshit artist. I just hope he wins to throw a monkey wrench in the machine called the US government. He is inept and unfocused whereas Harris is evil and has several people around her that are evil and competent enough to operate the machine.
Trump DID mention a “big, beautiful door” in his wall. I think his supporters are going to be disappointed if he wins. Still better than Harris.
FYI, Trump has already struck a deal to relocate Taiwan to the US southern border states. Labor, technology, and an impregnable wall in one go!
Blind bureaucratic momentum will prove equally successful in realizing the stated goals as the sanctions were in causing Russia to run out of missiles (March 2022), ordinance & weapons, and chips.
They even sanctioned the chips that Russia exported to the US (which they allegedly manufactured by stripping washing machines).
China will overtake Taiwan over time. Russia will take back Urkraine it was some of Russia anyways also who cares? The Middle east wants Israel destroyed it’s biblical. Idiots in charge make very bad decisions and aren’t held accountable. Evil is doing well and we are worried about computer AI and plugging in.
It all goes back to Virgina Nuland, dumb as a rock, and a warmonger.
China is being set up as the next great enemy of the United States. Partly due to the Military-Industrial Complex (which Eisenhower warned us about), the U.S. must have a primary foe at any one time. Islam is too weak to play that role, as even its strongest states like Iran and Pakistan are either U.S. allies or unable to stand up to American bullying on the world stage.
China, growing into its historic role in a renewed way, has a desire to be a major force in the world affairs. Buttressed by its economy, and having stolen the best of Western technical know-how, China now seeks a commanding position by positioning itself above its rivals, everyone from Japan to the Philippines. There will be a Greater East Asia Co-Prosperity Sphere, but it will be based in Beijing, not Tokyo.
America, despite naysayers, is not a fading superpower. It retains all its historic vigor and forcefulness. If America doesn’t make room at the top for China, there is bound to be conflict until one side collapses from the efforts to make itself pre-eminent. Because of the nature of world alliances, China is not likely to have an alliance network anywhere as good as America’s. America is not a domineering power; China is. Few countries will take that deal when they can get America’s.
You can read more of my writings by going to: dark-dot-sport-dot-blog where the -dot- represents a period .
Study history. The Opium Wars. The destruction of China’s ‘superior’ culture. Hatred of the west. And especially, Sun Tzu.
It is a contradiction on Chinas part that they blame the West for destroying Chinas culture in the 19th century yet the CCP under Mao had the Cultural Revolution to destroy all of Chinas old culture.
And the Chinese exported opium dens to the West in the 19th century so exporting fentanyl is just a modern variation of the drug trade that includes the Chinese running the Opium Triangle at the base of the global heroin trade.
Any chance part of the retaliation will be to invade Taiwan?
They don’t even need an actual invasion. Just a feint will cause the Taiwan factories to run their self destruct mechanisms that are in place to prevent China from seizing the equipment and technology.
Once that happens, no more chips from Taiwan for anyone as rebuilding will take years and by then China will have caught up.
Why would a bunch of bright Chinese guys on Taiwan want to “self destruct”?
I don’t doubt many prefer independence. But they increasingly won’t have much of a market for their stuff outside China. Chinese buyers are whom fund their ability to stay a step ahead. It will be generations, overwhelmingly likely at least a century, before anyone supplants, or even meaningfully challenges, China as the indispensable nation. If you’re not there, you’re effectively left out in the cold.
20 years ago, China was poor and Taiwan wealthy. Unifying with China no doubt looked a bit scary. Now they’re effectively the same, from the POW of regular Taiwanese. Only the political class privileged by their big fish in small pond status, stands to be severely marginalized by “disappearing” into just another province the size of a mere neighborhood in Shanghai. So they predictably crisis maximize. But for the rest; including those at chip making powerhouses…. What do they care?
Re “ but China has the raw materials”…
This is a red herring. At best it’s a one-time event. As soon as China cuts off materials exports, (a) the rest of the world rebuilds their materials industry, and (b) ensuing boycotts of other Chinese exports in would further cripple their economy. China loses all trade leverage within a year or two of playing this card.
China cannot afford to lose its export industry, not during its current (quiet, but real) Great Recession.
Funny, this is exactly what’s happening in the microchip industry. China has almost caught up in a couple of years. I suspect that withing a couple more it will pull even.
Not sure how easy it will be to ramp up mining in the west with environmentalists fighting tooth and nail to prevent it.
As soon as the environmentalists are inconvenienced by the lack of mining their tune will change. Have you seen any of them willing to give up air travel to reduce CO2 emissions?
You can watch them all idling in front of the schools every morning, driving their kids a mile and sitting there in line for 20 minutes.
“China has almost caught up in a couple of years. I suspect that withing a couple more it will pull even.”
And then,in a couple of more, they’ll blow right by.
China is capital H Huge. And largely free. Competition is, in every area, at nosebleed levels. Current market leaders in smaller markets like The Netherlands, will have to play an effectively perfect game simply to stay ahead. And that’s WITH unfettered access to that exploding giganto market.
If they’re hamstrung by idiot nonsense cooked up by retard class zerobrains who “made money off my home and potfoiiio”, they’ll be left behind and irrelevant in less time than it takes to come down from an Amsterdam coffee shop high.
“Not sure how easy it will be to ramp up mining in the west with environmentalists fighting tooth and nail to prevent it.”
It’s not “environmentalists” in isolation which killed The West, But special insterests, Nimbyism and totalitarian governments at all levels existing for no other reason than near 100% redistributing all wealth created; from those competent enough to create any; to rank retards connected to the state and it’s coercive institutions.
It would take 30 years of mindless kangaroo court nonsense; undertaken for NO other reason than enriching and empowering ambulance chasing negative-value-add rabble; before anyone could even hope to start planning any real work at any mining site. Every decision would be made by idiots with zero competence aside from chasing ambulances, receiving Rolex’ from lobbyists, regurgitating mindless 19th century “union” slogans and “being really, really, like, smaaaaat at picking random numbers as long as The Fed backstops me with money stolen from my in every way infinite superiors” money center trash.
NOTHING works “here” anymore. NOTHING. We’re so far behind, of all things, commies in China now; that it would take 50 years to catch up even with genuinely competent governance. And fat chance of that coming our way anytime soon, now that EVERY SINGLE MEMBER of America’s owning and ruling classes are effectively clinically retarded. And “The System” being fully and wholly dependent on them all remaining exactly that.
Quite a rant!
When China launched its new-generation aircraft carrier, it struggled to launch 30 flights a day. Just a few years later, it is comparable to the best US carriers in # of launches. For a while, Chinese planes will be inferior to US fighters; however, their cost to build is vastly lower, and hypersonic missiles compensate.
The US is also in the early phase of its ‘Great Recession. When it comes to rebuild its materials industry, it will likely find China already has a foothold in most to the supplying countries.
Short sighted, the US addiction to profit bordering on usury is undermining any serious considerations for the future.
The consequences of “free” trade
We’ve run the experiments on free trade, open borders, drug legalization and letting corporations run wild. The data is in and the results are not pretty.
You can argue that we don’t have the Libertarian ideal of free trade. But I’d say it is about as free as it is likely to be. It’s like saying we haven’t had true socialism or communism.
I still agree with the Libertarians on foreign policy and the fed.
If the company you work for is making too much profit, shutup and buy their stock.
Free trade is great if you have something to trade. Watch how China is developing a network of other countries, and building a supply line across Asia and into Africa.
Like the old Silk Road.
China is gradually taking Taiwan. It is not useful for them to take it as a pile of rubble.
I’ll tell you exactly how this line of reasoning goes with the kind of folk in the CPC:
“Slow and steady wins the race, sir. Taiwan will be ours within a couple more generations. Our plan is finally coming to fruition and the goal is in sight. And the Americans can’t do anything about it. And they won’t be in a position to do anything about it. We have won. Checkmate motherlover.”
“Hmm. But we need to take Taiwan back before the centennial of the party coming to power.”
“… well… I mean… you see… ah fook it then, where’s the bombs at?”
Problem won’t be limited to microchips. Most pharmaceuticals are manufactured in China. If I were China I would threaten to cut off pharma-dependent boomers taking simvastatin, lisinopril, levothyroxine, amlodipine, omeprazole, azithromycin, metformin, hydrochlorothiazide.
Wait a minute, that could turn into a win-win, never mind!
Boomers are the biggest parasite bloc.
You really duck!
The zoomers are heavily dependent on antidepressants and psych mecications. The boomers would just die in their mobility scooters. The zoomers would roam the streets in a zombie apocalypse.
Zoomers don’t roam anywhere… they stare at their phones.
This boomer does not take any of those drugs. Nor do I use a mobility scooter. That two facts are probably related.
Correction you don’t take any of those drugs yet. Give it a few more years but then again, they may not be available.
The ability to withhold function and create dependence is built in to all this stuff. Ours or theirs.
Nvidia and AMD have a top management from Taiwan. Maybe if WSJ visited the companies, could report what percentage of development staff speaks perfect Mandarin.
How about the rest of companies?
How difficult could it be to headhunt this staff? Money speaks.
There is a narrow window of maybe a few years, and then the battle is over.
Taiwan is part of China.
Sanctions don’t work right? So any export ban China places on US will find an easy workaround I would think.
So far, sanctions have backfired. But Trump’s threat of 60 percent tariffs coupled with export restrictions that may temporarily work may be enough to provoke China into an export ban of rare earths.
There would be no winners.
How did tariffs work when, for most of our history, it financed the government without an income tax and we grew to overtake Great Britain in trade?
It worked because Government in those days was tiny by comparison to today. It might have been 1% of the economy where it’s now like 40%. So it could be financed by a small amount of tariffs. Good luck funding all those government pensions with tariffs.
If you need a frame of reference, consider a small trash can fire in your house. That was once the size of the government compared to your home. A basic fire extinguisher could put it out. That fire was left unchecked (government growth was left unchecked too) so that it’s burning roughly 40% of your home. Do you imagine a simple fire extinguisher could put that out or do you need the entire fire brigade?
So nw the Libertarians want to fund big government?
The US much larger in area than GB. And back then, most people were farmers or artisans – they produced things for export.
The story of Peanut and Fred is maybe the parable of our time. A vote for the democrats is a vote for the British in 1776. The British called the colonists garbage and deplorables too. A vote for big government. Higher taxes. No border and the indiscriminate killing of our patriotic pets. These killings in NY are the Boston Massacre of our time. Your future could be jackboots kicking in your door because of some Karen in your business willing to destroy all that you cherish. Or it could be the hope that America can once again become a shining beacon for all who love freedom and liberty. The choice is clear tomorrow. Stand in that line no matter how many fake poll workers assault you. We know how Peanut and Fred would have voted. That opportunity was taken from them. But you still have it. You can make a difference. God Bless you. God Bless America.
A vote for the maggats is a vote for stupidity, fascism, and the losing side.
Tomorrow will be the day of angry tears and denial.
When your definition of democracy is rule by the democrat party, everything else is fascism.
When your candidate says he will be a dictator on day one, and has Elon Musk sniffing around for a pardon, that’s fascism.
I doubt if Philbert realizes he’s really a donkey
Actually that day will be Wednesday.
Maybe a statue of Peanut?