Trade War with China

China is doing well to go with the motions on a trade deal. I think it is still too early for the Chinese to take a hard stance on matters like this.

The Chinese economy is still in a state of flux and there is still a heavy reliance on foreign imports. The PLAN is still in the middle of its construction phase as well so if it ever went as far as a blockade things would be really difficult. It is not like China would not endure something like that but there is no point in doing it as it would cause severe hardship. I think in 5 years we will not be having this conversation however. In 5 years I think most of the structural weaknesses in these regards will vanish. Northern China will have the Power of Siberia gas pipeline. The Type 055 will be in service. The CATOBAR carriers will be on the water. The WS-20 engine will be on the J-20. The naval stealth fighter will be in service. The subways on the major Chinese cities will be finished, reducing the need for oil in urban transport. It also gives time for the bootstrapping of Chinese semiconductor manufacturing for critical products like memory.

I think it is important for China to find food sources outside US aligned nations however. Now that the USA is tightening the screws on Latin America the Chinese should find alternative sources. The Chinese government should find ways to reduce the need for imports and substitute imports with native products. As it is right now the Chinese economy is still too exposed to international trade. Given the current instability in global trade the Chinese government needs to increase self-reliance and resiliency in the economy so it can weather any inane sanctions this or future US leaders come up with.

gelgoog said:

China is doing well to go with the motions on a trade deal. I think it is still too early for the Chinese to take a hard stance on matters like this.

The Chinese economy is still in a state of flux and there is still a heavy reliance on foreign imports. The PLAN is still in the middle of its construction phase as well so if it ever went as far as a blockade things would be really difficult. It is not like China would not endure something like that but there is no point in doing it as it would cause severe hardship. I think in 5 years we will not be having this conversation however. In 5 years I think most of the structural weaknesses in these regards will vanish. Northern China will have the Power of Siberia gas pipeline. The Type 055 will be in service. The CATOBAR carriers will be on the water. The WS-20 engine will be on the J-20. The naval stealth fighter will be in service. The subways on the major Chinese cities will be finished, reducing the need for oil in urban transport. It also gives time for the bootstrapping of Chinese semiconductor manufacturing for critical products like memory.

I think it is important for China to find food sources outside US aligned nations however. Now that the USA is tightening the screws on Latin America the Chinese should find alternative sources. The Chinese government should find ways to reduce the need for imports and substitute imports with native products. As it is right now the Chinese economy is still too exposed to international trade. Given the current instability in global trade the Chinese government needs to increase self-reliance and resiliency in the economy so it can weather any inane sanctions this or future US leaders come up with.

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Thus it's likely US establishment will continue to extract concessions from China.


I think for Xi personally it really depends on his timeline on Taiwan.

I think it is quite likely the USA will attempt to pressure China into going to war sooner rather than later.
It is not in the US's interests for China to grow anymore. While for China the more they delay the stronger their position will be.

China has attempted to escape the US's trap with the OBOR initiative but it is still too early. OBOR segments like the CPEC are still in progress and the PLAN does not have the quantitative and qualitative edge to secure the sea segment yet. They are headed in the right direction but it is still too early.

I agree with @localizer that Xi is likely focused on the Taiwan reunification issue.

For the Chinese Communist Party to grant Xi with such plenipotentiary powers as they did it is because they expected to go through a period of major hardship. I doubt the "anti-corruption" drive was it. The "anti-corruption" drive is a way towards a goal rather than the end goal itself. The reunification with Taiwan is quite likely the goal which made them give such powers to Xi. I cannot think of anything else.

China actually has enough food to sustain itself you know? It is a cornerstone of the national security planning. The reason imports are used is due to low cost and to diversify diet.

Short of mass greenhousing, there’s no way to compete with places like Philippines or Latin America for tropical fruit etc. and China does not have acres of rainforest to cut down to raise ultra cheap cattle.

The most important thing now is to build new markets. I don’t think outsourcing is the problem many people here make it out to be. After ZTE event, most companies are wary of outsourcing already and many are seeking to move home. Due to economies of scale and advanced industrial tech, it is just a time question until all outsourcing becomes unprofitable.

The bigger threat is that all the goods end up with no buyer. So Russia, Pakistan and the other BRI must be developed into at least 2nd tier level in the short term. Also having these economies ready mean that China could sink the west with far fewer consequences. The main danger (and only macro level danger) presented in the trade war was that damages to the US economy would reduce demand and drag China’s economy down with it.

gelgoog said:

China is doing well to go with the motions on a trade deal. I think it is still too early for the Chinese to take a hard stance on matters like this.

The Chinese economy is still in a state of flux and there is still a heavy reliance on foreign imports. The PLAN is still in the middle of its construction phase as well so if it ever went as far as a blockade things would be really difficult. It is not like China would not endure something like that but there is no point in doing it as it would cause severe hardship. I think in 5 years we will not be having this conversation however. In 5 years I think most of the structural weaknesses in these regards will vanish. Northern China will have the Power of Siberia gas pipeline. The Type 055 will be in service. The CATOBAR carriers will be on the water. The WS-20 engine will be on the J-20. The naval stealth fighter will be in service. The subways on the major Chinese cities will be finished, reducing the need for oil in urban transport. It also gives time for the bootstrapping of Chinese semiconductor manufacturing for critical products like memory.

I think it is important for China to find food sources outside US aligned nations however. Now that the USA is tightening the screws on Latin America the Chinese should find alternative sources. The Chinese government should find ways to reduce the need for imports and substitute imports with native products. As it is right now the Chinese economy is still too exposed to international trade. Given the current instability in global trade the Chinese government needs to increase self-reliance and resiliency in the economy so it can weather any inane sanctions this or future US leaders come up with.

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I think it is too early to give verdict on the trade war China is NOT conceding anything on the trade war If anything Trump is desperate for resolution on the trade war. So don;t count your chicken before it hatches

Contrary to MSM china is not vulnerable to embargo. China is self sufficient when it come to the food The import on Soy bean are manly to feed the feedstock China produced roughly 50% of its oil and they were mostly used for transportation With highly developed urban transportation system and country wide HSR China can ride easily any embargo on oil

WS 20 etc has no bearing on China's national strength China rely mostly on missile and missile for their defense
I don't have any problem with China buying more from US that is what trade are for But demanding China to change the course of economical and technical development is a bit much NO sane country will agree to it and if Xi did he will be open to charges of selling the country

No one can be fully prepared for war when it happened it happened You just have to live with it
Crazy as they are I don't think those Neo con are crazy enough to provoke war with China It won't be pretty China has home court advantage and can easily neutralized the forward base of any foe
Actually it is very easy to provoke war with China just goad the Taiwanese into the jure independence. It will automatically trigger a war But nobody does that because the count of body bag will be immense

Here is a good article that highlight the waning influence of China hater
Trump’s wary trade hawk will have big microphone
If US trade czar Robert Lighthizer is worried about the expected trade deal with China, he gets a chance to tell everyone on Wednesday

ByASIA TIMES STAFF

According to recent reports, and judging from a televised exchange in the Oval Office, US Trade Representative Robert Lighthizer has grown impatient with President Trump’s approach to negotiating with China. Trump is expected to pull the trigger on a deal with China soon, and Lighthizer will have a chance on Wednesday to speak publicly on the progress of current trade talks, when he testifies before Congress.

Confronting China on trade is a personal mission for Lighthizer, those who know him reportedly say, and he sees this moment as a critical opportunity for the US to use economic leverage before it is, in his view, too late.

But all signs indicate that Trump is ready to strike a deal, despite the fact that experts widely agree China will not make big concessions on the so-called “structural issues” that Lighthizer is concerned with. The US president has also promised that China will deliver on these issues, which include alleged IP theft, forced technology transfer and state subsidies.


“The reason there is skepticism that President Trump will be able to get that deal is that the Chinese practices we’re objecting to are really core to the Chinese Communist Party’s mode of government China,” Robert Daly, Director of the Wilson Center Kissinger Institute on China and the United States said in an interview on C-Span Monday. “They’re not going to change them.”

If this is the case, Lighthizer knows it better than anyone, as the lead US negotiator for the talks with China.

When he testifies before the House Ways and Means Committee, which is now chaired by a Democrat who will likely be looking for a way to find holes in Trump’s characterization of the talks, the top trade official might not hold back if he has concerns.

But if Lighthizer really wanted to turn the screws on China – which economists note would have meant turning the screws just as hard on the US and the rest of the globe – that ship has likely already sailed.

“In announcing the extension [to the tariff deadline], [Trump] didn’t put a second deadline on it. It is now open-ended and China is very good at long delay. So the question is whether we are still in a state of urgency with maximum pressure under China or whether this kind of friction and long, long talks is simply going to be a feature of US-China relations going forward,” Daly said.

Do you understand what a Memorandum of Understanding is?

Trump argues with Lighthizer about the meaning of an MoU, Lighthizer is correct by the way, Trump is all face preservation at this point, while the Chinese delegation and Vice Premier Liu He looks amused and bewildered. Lighthizer gives up and just says lets call it the way the man wants it, so they can move on.

Surely Trump would have encountered MOUs in the business world before? Or did he just bully everyone into called it something else all his life?

Anyways, it looks increasingly likely a trade deal will be struck, and part of that will be a massive spending spree by China.

While on the face of it, that might looks like paying up ‘protection money’ to US extortion, and there is indeed a great deal of truth to that, such purchase will not be without condition either.

China was already buying all it wants/needs from the US on the open market; but there just wasn’t that much China wanted to buy, hence the massive trade deficit.

America only has so much soya beans and natural gas, if America wants to take that 1tn+ order, they need to put things on the table that China wants and needs.

That may mean easing of export restrictions, or else China can just give them a 1tn shopping list, and if America wants to reject most of that, then that’s America not sell instead of China not buying.

In addition, I see this as a way for China to de-couple itself from the USD by paying for those purchase with some of its US T Bills reserves.

Such a one-off shopping spree would be a perfect way to offload a massive amount to T Bills without freaking out the market into a selling frenzy and massively devalue the T Bills China still hold.

I think this will be remembered as the beginning of the end of the USD dominance.

Biscuits said:

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I don’t think outsourcing is the problem many people here make it out to be. After ZTE event, most companies are wary of outsourcing already and many are seeking to move home. Due to economies of scale and advanced industrial tech, it is just a time question until all outsourcing becomes unprofitable.
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This depends on the industrial sector. For companies like Huawei, ZTE and the like there is little recourse but outsource the manufacturing of critical IC components. Some sources claim that over 90% of ICs consumed are manufactured by foreign chipmakers.

An effort is underway to change the balance, but thus far the results have been underwhelming. They need to step up investments big time.

Max Demian said:

This depends on the industrial sector. For companies like Huawei, ZTE and the like there is little recourse but outsource the manufacturing of critical IC components. Some sources claim that over 90% of ICs consumed are manufactured by foreign chipmakers.

An effort is underway to change the balance, but thus far the results have been underwhelming. They need to step up investments big time.

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That is because the like of Qualcomm and Intel Micron dominate the 4G and memory chip and unwillingness of Chinese Industry to invest in expensive and low margin Chip bussiness But now that threat of embargo hanging over their head. They have no choice but investing in semiconductor industry
The past attempt was halfhearted try But this time around the government is behind the move to invest in semiconductor industry couple with improving industrial base I will expect that within a half decade China will substantially reduced their dependence on imported chip

For your information China did manufacture machine to make semiconductor and it is how gathering pace

China’s Foundry Biz Takes Big Leap Forward

30 facilities planned, including 10/7nm processes, but trade war and economic factors could slow progress.

JANUARY 28TH, 2019 - BY: MARK LAPEDUS
popularity
China continues to advance its foundry industry with huge investments in new fabs and technology, despite trade tensions and a slowdown in the IC market.

China has the most fab projects in the world, with 30 new facilities or lines in construction or on the drawing board, according to data from SEMI’s World Fab Forecast Report. Of those, 13 fabs are targeted for the foundry market, according to SEMI. The remaining facilities are geared toward LEDs, memory and other technologies.

As before, China’s foundry industry is split into two categories—multinational and domestic vendors. Until recently, both groups used older technology. But Taiwan-based TSMC recently moved into 16nm finFET production in China, while SMIC this year hopes to become the first domestic foundry vendor to enter the 14nm finFET race. SMIC’s move would put it on par with some of its foreign rivals. In addition, SMIC has obtained $10 billion in funding to develop 10nm and 7nm.

Still, it’s doubtful that China will build all 30 fabs. It’s also unclear whether it can develop 10nm or 7nm. And for the foreseeable future, the majority of China’s foundry production remains at 28nm and above.

But armed with billions of dollars, the China government is determined to develop the nation’s IC industry to combat a trade gap. China has a sizeable domestic IC industry, but the nation imports the vast majority of its chips from foreign suppliers. In response, the China government for some time has been investing in its domestic IC industry. It also has lured several multinational chipmakers to build memory and foundry fabs in China.

Those efforts are paying off, but the current IC slowdown, coupled with U.S.-China trade tensions, is causing some headwinds for both memory and foundry vendors in China. Some chipmakers are decelerating their fab expansion plans there, while others are delaying their projects.

Still, some foundry vendors are expanding in China. While some are trying to move to the high end, most are stuck at more mature nodes, where the competition is fierce within China and elsewhere. This is especially true at one popular node. “They are all backed up, especially at 28nm,” said Bill McClean, president of IC Insights. “The foundries talk about the overcapacity situation at 28nm lasting a couple of years. They are not talking about a couple of quarters. They are talking years.”

All told, China remains a vibrant foundry market. The domestic foundry vendors continue to gain steam, although they won’t dominate the landscape anytime soon. In total, China-based companies’ share in the foundry market is expected to reach only 9.2% in 2018, up from 9.1% in 2017, according to IC Insights.

Nevertheless, there are a number of major foundry events in China. Here’s the latest:

TSMC will expand its 16nm finFET production in a new China fab with possible plans to build another plant.
UMC plans to expand its 200mm capacity in China, and continues to produce 40nm and 28nm in a 300mm fab.
GlobalFoundries and TowerJazz are building fabs in China. The latest possible entry is Taiwan’s Foxconn, which plans to build a fab for captive and foundry purposes, according to reports.
On the domestic front, SMIC and Shanghai Huali are eyeing 14nm. Plus, several domestic vendors are expanding their 200mm and 300mm capacities.
Made in China and trade wars
Over the years, China has unveiled various initiatives to advance its domestic IC industry. With help from foreign concerns, China launched several joint chip ventures in the 1980s and 1990s, followed by the emergence of Semiconductor Manufacturing International Corp. (SMIC), China’s largest foundry player, in 2000.

Around that time, OEMs began to move a large percentage of their production to China. Demand for ICs grew, and China eventually became the world’s largest market for chips.

However, China’s IC industry could only satisfy some demand, and the nation was forced to import most ICs from foreign suppliers. By 2015, China amassed a $150 billion trade deficit in ICs alone, according to Gartner.

In 2013, China consumed $82 billion, or 30%, of the world’s chips, according to IC Insights. But IC production in China was $10.3 billion in 2013, which represented only 12.6% of the world’s chip production, according to the firm.

At the time, China also found itself behind in IC technology. For one thing, it was late in modernizing its IC industry. In addition, the United States and other nations imposed strict export control regulations for China, which prevented equipment vendors from shipping the latest gear into China. Recently, many export controls have been relaxed in China.

In response, the Chinese government unveiled a new plan in 2014, dubbed the “National Guideline for Development of the IC Industry.” The plan was designed to accelerate China’s efforts in 14nm finFETs, memory and advanced packaging. To help its cause, China poured billions of dollars into the arena.

The overall goal of these and other programs in China is to reduce its dependency on foreign suppliers. “That’s the issue with China. These projects are not driven by market demand. It’s driven by policy. They want to build capacity to be independent from overseas vendors,” said Clark Tseng, director of industry research and statistics at SEMI.

Then, in 2015, China launched another initiative, dubbed “Made in China 2025.” The goal is to increase the domestic content of components in 10 key areas—IT, robotics, aerospace, shipping, railways, electric vehicles, power equipment, materials, medicine, and machinery.

As part of those efforts, China hopes to become more self-sufficient in ICs. It wants to increase its domestic IC production from less than 20% in 2015 to 70% by 2025, according to IC Insights.

To accomplish those goals, China would not only develop its own technology, but it also wants to acquire foreign companies to gain access to technology.

It acquistion strategy hasn’t worked out as planned, at least for now. While China has purchased several small foreign IC vendors, its strategy was derailed in 2015 when it tried to acquire U.S.-based Micron Technology. The deal, which would have given China a vast portfolio of memory technology, was scrapped due to U.S national security concerns.

Since then China has made some progress in ICs, but it has fallen short of its goals. It still imports most of its ICs. In 2018, China produced 15.3% of the world’s chips, up from 12.6% in 2013, according to IC Insights.


Fig. 1: China’s IC market vs. production trends. Source: IC Insights

That’s the least of China’s problems. Last year, the Trump administration started a trade war with China for a couple of reasons. First, China has a massive trade surplus with the U.S. And second, U.S. companies have been the subject of IP theft in China, which has largely gone unchecked, according to the Trump administration.

In response, the U.S. last year slapped a 10% tariff on $200 billion worth of Chinese goods. China retaliated with a 10% tariff on $60 billion of U.S. imports. The U.S. said it wants to increase the tariffs on Chinese goods to 25%, but that action has been postponed. Then, in a separate measure, the U.S. last year restricted exports of fab equipment to Jinhua Integrated Circuit Co. (JHICC), a Chinese DRAM hopeful. JHICC faces some legal and IP issues.

All told, SEMI estimates that these tariffs will cost semiconductor companies more than $700 million annually. “Trade disputes can quickly spin out of control,” pointed out Joanne Itow, managing director of manufacturing at Semico Research. “Partnerships, purchasing and inventory levels are all impacted by increased levels of uncertainty, and we already are seeing companies develop contingency planning scenarios.”