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Trump's Trade Wars With China Set the Stage for the Current Chip Shortage Crisis

The current chip crisis has its roots not in Covid, but in Trump's trade policies.
Author:
Missing Chips

The one thing Trump consistently got wrong across the board was trade policy.

We are still reeling from it and in ways I was not aware of previously. Chad P. Bown explains in a series of Tweets. 

Missing Chips

Bown explains in more detail in his Foreign Affairs article How to Protect the Semiconductor Supply Chain.

One of the biggest culprits was a sudden shift in U.S. trade policy. In 2018, motivated by national security concerns, the Trump administration launched a trade and tech war with China that jolted the entire globalized semiconductor supply chain. The fiasco contributed to the current shortages, hurting American businesses and workers.

The Trump administration weaponized trade. The administration restricted companies from selling to Huawei from the United States by imposing export controls in an attempt to starve Huawei of inputs, especially semiconductors.

Because U.S. law was designed to stop exports leaving the United States, the Trump administration’s export control rollout in 2019 could do nothing about chips being made abroad, blunting the policy’s effectiveness.

Export controls imposed by the United States alone were bound to flop. Non-American companies make great chips, too, allowing Huawei to swap out the American semiconductors it used in its 5G equipment with those from Japan, South Korea, Taiwan, or Europe. The policy was lose-lose: it ended up hurting U.S. companies and failing to mitigate the national security threat. What is more, the export controls discouraged chip manufacturers from investing in the United States. American producers ultimately faced trade limits that no country besides their own was applying.

Undeterred, the Trump administration reached deeper into the semiconductor supply chain. Huawei’s other suppliers all needed cutting-edge equipment to produce their chips. But many of those tools were also made by U.S. companies, such as Applied Materials, KLA, and Lam Research. So beginning in mid-2020, the administration tried to use the dominance of U.S. equipment manufacturers as leverage with foreign chipmakers that were still selling to Huawei. It presented companies such as TSMC and Samsung with an ultimatum: stop selling to Huawei or lose the ability to use American tools.

These export controls have also had nasty side effects. To TSMC, Samsung, or any other company that was about to invest hundreds of millions of dollars on new chip-making tools produced by U.S. companies, other equipment makers—including Tokyo Electron in Japan or ASML in the Netherlands—were suddenly much more attractive suppliers.

Weaponizing Trade

There is much more to the story but the above snips show how Trump sowed the seed of a chip crisis that exploded in the wake of Covid.

Trump loudly proclaimed "Trade wars were good and easy to win", but he did not win a single one and never could. 

Everyone Loses in Trade Wars

In the eyes of Trump there is a winner and loser in every trade deal. In reality, trade is a win-win proposition and in trade wars, everyone loses.

Trump somehow construed losing less was winning.  

But given the facts presented by Bown, it is no longer even certain that China lost more than the US.  

Regardless, we are still feeling the pain of Trump's unwinnable and naive trade policy.

Backfired In Many Ways

  • Trump's trade and sanction policies backfired on the farmers, the auto industry, on Harley Davidson, on whiskey producers, and on small manufacturers who use steel and aluminum.
  • Lumber tariffs backfired on homebuilders and of course homebuyers. 
  • Sanctions on Russia, Iran, and Venezuela achieved no policy goals.
  • In particular the Gazprom sanctions actually benefited  Russia while annoying US allies. 
  • Given that tariffs are ultimately a tax on consumers, Trump screwed consumers too. 
  • Trump had to lie to get some of those tariffs and sanctions. His claim of strategic national security issues as he did with steel and autos was beyond ridiculous. 

The only sets of people happy with Trump's tariffs are economic illiterates and those working in the steel or aluminum industries. And of course everyone else is suffering from higher prices.

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Will Biden Be Better?

Biden will be better on trade policy for the simple reason no one will be  as bad as Trump.

Biden did patch things up with the EU in the Airbus-Boeing dispute. And he is taking a step in the right direction with Iran. 

But don't expect too much from Biden either. He set the tone for pitifully slow tariff rollbacks when he not only kept Trump's tariffs on lumber but increased them.

Political Filters

It's important to not play politics in these matters. Yesterday, I praised Trump in New Study Shows Hospitals Still Gouge Those Who are Uninsured

If you think Trump did everything wrong or Biden will get everything right, or you supported tariffs simply because Trump or the talking heads said so, then you have the wrong set of filters.

Media on the Left and Right is flooded with nothing but political filters.

Fox News and CNN are just two sides of the same coin in which neither side is willing to say anything good about the other.

Please think for yourself!

Rooting for Nothing

Unfortunately, the Progressives appear to be calling most of the shots when its comes to the Democrats' overall legislative agenda. Many of them support tariffs. And all of them support ridiculous wealth redistribution schemes of some sort. 

These forces mean that the smart person is rooting for nothing much to get done for the next 4 years. 

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