Trade War with China

now I read this controversial
Opinion: The reason behind the US trade deficit
Updated 2018-05-05 14:39 GMT+8

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A US delegation led by US Treasury Secretary Steven Mnuchin was sent by President Donald Trump to Beijing in an effort to ease the trade tension with China. Although Mnuchin sounded a positive note on Friday about talks between US and Chinese officials, divergences still remain. Washington insists on a 200 billion US dollar cut in Chinese trade surplus with the US, which has been the main issue of the talk.

John Ross, a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China, points out that the principle cause of the US' trade deficit with China is the US' high level of expenditure on military for the purpose of maintaining its global supremacy. It's rooted in the US itself and not be irrelevant to China, Ross states.

In order to shed light on what causes the US' trade deficit with China, Ross draws inspiration from history. Herman Goring, one of the most infamous leaders of Nazi Germany, announced in a speech in 1936 that "Guns will make us powerful; butter will only make us fat." His economic thought was then put into practice as the main policy implemented by Nazi Germany during the Second World War, and has been known as the "Guns versus Butter model." Now the US is in a dilemma that is similar to Germany 80 years ago. It has to choose between two options when spending its finite resources. While Germany chose to buy guns, the US' decision is in pursuit of a combination of both, which leads to an adverse trade balance with China.

The US, as the only superpower in the world, has to spend a large proportion of its annual financial revenue on the military for the sake of its global interests. At the same time, maintaining domestic living standards has been turned into priority of the US policy-making process in an effort to maintain social cohesion. If the US government adopts the same policy of what Nazi Germany made 80 years ago, that would strike a blow to the US' national security, triggering a serious political crisis which will certainly hold back the national economy.

However, the US is incapable of investing heavily in the military and ensuring a high level of ordinary people's living standards at the same time, which means that the US must spend more money on importing than exporting. It results in the imbalanced trade with China. Ross states that in order to have a balance between income and expenditure, the US has to choose between 'guns' or 'butter', or its trade deficit problem will continue plaguing the US.

In light of the US' interests, Ross suggests the US should give up its military expansion, and focus on improving local living standards. Ross firmly believes that cutting military spending will not only be beneficial to local people, but also bring value to the world that develops a healthy environment for economic growth. Unfortunately, President Trump hasn't recognized the importance of local people's interests. Instead he increases military expenditure for the purpose of intervening other country's politics, which are treated as "enemy" to the US. Recently the US and its allied military operations in Syria were a demonstration of Trump's willingness to maintain the US' global supremacy, Ross notes.

The US' adverse trade balance with China will continue as long as the US still wants to maintain the high level of expenditure on its military, says Ross in conclusion.

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According to Reuters, Trump has said that China "have become very spoiled".

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antiterror13 said:

I just can't wait .. just bring it on

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Orthan said:

According to Reuters, Trump has said that China "have become very spoiled".

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To accept those conditions is degrading to China. I will say to hell with all these coercion and threat. China should do whatever she think it's right under WTO rules at whatever cost.

It's funny how in Trump's demands he wants China not to target US farmers in tariff retaliation. Oh yeah somehow China cannot target where it hurts Trump's base. Yeah like the excuse when the US has military strikes on other countries that kill civilians is they should've done something about their government so that the US wouldn't have to bomb? And terrorists have the same mentality... I've read many articles where it says China's retaliatory tariffs are shrewd and calculating. Like they wouldn't be in any other case? Trump's tariffs weren't meant to hurt China in order to force China to submit to other demands? When I heard about Trump's demand that China reduce the trade deficit $200 billion, I didn't even think about China buying $200 billion of US goods. Why should China when it's the US that prevents China from buying technology that would easily account for that much money. China should do another end-around like when China targeted Trump's base. Reduce $200 billion in goods foreign corporations outsourcing to China shipping their products to the US which is counted as products of China. Some of those companies might actually go bankrupt.

China really needs to speed up its construction of fab labs and start producing 14 nm semiconductor chips. The ZTE case showed Chinese dependency on American chips, which basically makes their tech companies hostage to America. I really don't understand why the Chinese government did not invest so intensively in semiconductors a couple years ago as it does now. Especially since the domestic semiconductor industry is the most important tenet of the Made in China 2025 initiative. Sure the Chinese can slap retaliatory tariffs and hurt farmers, but the US can really damage major Chinese tech companies due to this chip reliance. I think the government is finally getting the message ... better late than never, I guess. I'm starting to wonder what the Chinese tech industry impact would be if the US banned sale of American chips to Huawei in a similar fashion to ZTE ...

Quickie said:

To accept those conditions is degrading to China. I will say to hell with all these coercion and threat. China should do whatever she think it's right under WTO rules at whatever cost.

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To accept these conditions would basically amount to unconditional surrender by the Chinese. I'm pretty sure China would rather fight to the end than agree to even one of the aforementioned conditions ...

now I read
Commentary: China, U.S. need to follow through candid dialogue, consultation
Xinhua| 2018-05-06 01:00:25

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Talks on economic and trade issues between China and the United States have made a good start. The question now is can both sides stay on the right track, remain candid and make progress.

The two-day talks between Chinese and U.S. negotiators have sent out basically positive signals. Frank exchanges are essential if issues of common concern are to be properly addressed.

By reaching agreement on some issues and deciding to stay in close contact on other unresolved issues, the world's two largest economies have simply highlighted their indisputable co-dependency and shown the necessity, and the possibility, of reaching an amicable conclusion.

Exchanges of views instead of arguing lead to better results. Talking smooths issues over.

But being candid does not mean being self-centered. In order to bring more constructive results in future talks, the U.S. side needs to be more rational and pragmatic and abstain from making outrageous demands.

China will defend the interests of the nation and the people at all costs. China will not cater to haggle.

Throughout the consultations, China has vigorously struck back at unsubstantiated accusations and staunchly defended the interests of its business community.

China's concerns are real, and if the United States continues to dismiss them, paying heed only to its own interests, subsequent talks face tremendous uncertainties. On many of these issues, the differences between the two sides are huge.

Hard work and hard talk: that is how a bright new chapter in Sino-U.S. economic and trade relations will open, not through threats or replacing win-win with tit-for-tat.

These two days can go down in history as the time when Sino-U.S. economic and trade relations began to inch their way back to open, fair normality. There should be no losers. Before us is an opportunity to silence the cacophony and strike a harmonious chord.

Let us prosper together.

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Figaro said:

China really needs to speed up its construction of fab labs and start producing 14 nm semiconductor chips. The ZTE case showed Chinese dependency on American chips, which basically makes their tech companies hostage to America. I really don't understand why the Chinese government did not invest so intensively in semiconductors a couple years ago as it does now. Especially since the domestic semiconductor industry is the most important tenet of the Made in China 2025 initiative. Sure the Chinese can slap retaliatory tariffs and hurt farmers, but the US can really damage major Chinese tech companies due to this chip reliance. I think the government is finally getting the message ... better late than never, I guess. I'm starting to wonder what the Chinese tech industry impact would be if the US banned sale of American chips to Huawei in a similar fashion to ZTE ...

To accept these conditions would basically amount to unconditional surrender by the Chinese. I'm pretty sure China would rather fight to the end than agree to even one of the aforementioned conditions ...

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Do you actually know what a semi-conductor fab is? and the underlying economics of semi-conductor manufacturing?

It's not Star Trek where you say make it so and things magically happen, make a proclamation and state of the art chips just materialise out of thin air!

Here's a really simplified view

• The raw material is plentiful essentially sand
• This has to be turned into cylindrical Silicon Ingots of extreme purity, its produced in environments so clean that in comparison hospital surgeries look like sewage works
• The ingots are sliced into wafers when people talk about 8in (200mm) wafers and 12in (300mm) wafers that's the diameter of the silicon ingot from which the wafer is sliced. Suffice to say the greater the diameter, the greater the difficulty in production, the reason for larger wafers is that it's more cost effective to process as the time it takes to produce the same chips on a given wafer is more less the same but the larger wafer provides more chips so greater volume is produced per unit time.
• Having made extremely pure silicon it then needs to be "doped" (essentially made impure again!) in precise a manner to achieve the desired characteristics
• A whole series of steps are then applied to the wafer, etching away layers, this is done almost like processing film (film for the millennial generation is a plastic like translucent material where light sensitive chemical reactions are used to capture scenes, further chemical reactions are used to produce the paper photographs ), further doping to change a layer's characteristics, depositing metal layers etc. The more layers a process has the more complex "chips" can be produced per unit area of wafer, so it's not just the feature size but the number and types of layers that a process offers that's important.

I'll skip the whole testing and packaging cycles

This type of manufacturing needs heavy investment it costs billions of dollars to set up a fab, it's in the ball park of the price of an aircraft carrier per fab and can take just as long to commission one! That's why the foundry business model came about as it consolidates the investment needed and optimises the capacity, i.e. you don't have hundreds of chip manufacturers spending trillions on half idle fabs. The net effect is availability of consumer electronics that are actually affordable.

Flaws can creep in along each step of the manufacturing process from the bucket of sand to the finished devices, commercially it's important that a respectable number of functioning 'chips' are produced from each wafer both from a supply and profit standpoint. Since the time in manufacturing a wafer is fixed if only 20% of the chips produced are functional then it takes a lot more wafers to fulfil an order than if 50% are thus hitting profits and also means longer time to fulfil an order which deters customers (go to vendor A get your order of 10,000 chips every month, got to vendor B it's every 2 months).

Given the challenges and costs, it's not simply a technical challenge but also a commercial one. Despite the moniker fabless a 'chip' nevertheless needs to be 'designed' (laid out) with an end process in mind, Just because a process has the same feature size one foundry's 14nm process can be very different from another's and work has to be done to switch foundries, unless of course the processes are essentially copies which would be astounding without theft!

To give a picture of the commercial realities, at the end of the day is it better for China that Huawei is able to supply and sell phones competitively using non-domestically produced ICs or limit it's production and supply less competitive phones using only domestic ICs? For one answer we can look at the Apple/Samsung relationship, Apple despite year's of law suits and competition against Samsung is still Samsung's best external customer, Samsung despite the ability to halt iPhone production by with holding supply still fulfils Apple's order and ships boat loads of components to them. Commercially the relationship is fairly win win neither side gets the whole pie but both sides gets a bigger slice of the pie than the alternatives. The obvious alternate answer is the burn it all down, I don't care mantra doing the rounds in Washington!

The economics of a wholesale US semi-conductor ban against China is no different to a wholesale Chinese ban on rare earth metals to the US, is the US spending billions re-opening mines and building smelters? well no, the last time there was the threat of a rare earth shortage every one piled in lost money and everything was shut down! So what failed for the US is obviously a winning tactic for China!

The Chinese government has already had one go at promoting the domestic semi-conductor industry with mixed results. However, in recent years the Chinese imports of integrated circuits has rocketed so the investment thresholds can be met and there are opportunities to de-risk another round of investment.

When you have responsibility for close to 1.5 billion people surely the basics of getting them housed, clothed, safe and fed are the top priorities ahead of speculatively dumping billions of dollars into semi-conductor manufacturing, in a now prosperous China the sums add up better but a decade ago, I think not. Making cases that governments should be doing X or Y and how money should be spent without the any responsibility for the outcomes is sheer hubris and dare one say a key issue with the lobbyist infested forms of "democratic" government.

We then go into the deranged fantasy world of those that make the argument "but what happens when we're at war?" there's never been a war between 2 nuclear states for good reason it might be a very short one and in this context the background radiation would mean none of the semi-conductors will work afterwards anyway. Beyond that pithy sentiment in a protracted conventional total war you wouldn't be worried about the feature size of your integrated circuits but the production of war material, logistics in supplying the frontlines and defence of the homeland you can then worry about how to rebuild your civilian industries afterwards.

We live in an era where the US, and judging by the sentiments expressed here a fair few members of this forum, thinks it can rattle a sabre and every one will fall into line, China excepted because its "special", is that actually true? I guess we'll find out!

That is true in the past China does not have the demand back then and too poor or too busy with mundane task of providing shelter, food, and all other necessities in life
You also have weak industrial base and no strategic requirement for semiconducto industry.

But now it is different story China have the money the industrial base and talent to built a succesfull semi conductor industry.So Yes it is the right thing to provide subsidy for semiconductor industry
Basically she has all the ingredient to be successfull this time around trade war or not

The only hold back is talent China need about 700,000 engineer in semiconductor but she only has 350,000 sofar They recruit like mad in western country by offering high salary and residency for overseas chinese who make the bulk of semiconductor engineer in silicon valley
But sofar the result is mixed What they can do is allowing double citizenship that way it become more attractive for those overseas Chinese to work in mainland !

China recruitment drive boosting semi salaries

China is aggressively recruiting semiconductor engineers and execs, reports headhunters TrendForce, leading to a boost in salaries across the entire semiconductor industry.
With a number of new fabs set to start production in H2 2018, China is looking for veteran semiconductor people, particularly memory specialists, to run them.


With a number of new fabs set to start production in H2 2018, China is looking for veteran semiconductor people, particularly memory specialists, to run them.

Memory specialists are particularly required because Yangtze River Storage Technology (YRST), Fujian Jin Hua Integrated Circuit (JHICC), Hefei Chang Xin and Tsinghua Unigroup’s Nanjing fab are all targeting DRAM and 3D-NAND.

TrendForce estimates that China’s semiconductor sector will have a deficit of 100,000 high-level technical personnel by 2020 unless it can recruit enough people from outside China or train enough people locally.

According to TrendForce, the focus of the headhunting is process development engineers and IC designers.

now I read
Both U.S. and China benefit from deepening economic integration: former U.S. envoy to China
Xinhua| 2018-05-07 04:29:56

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The U.S.-China relationship established four decades ago is the most important bilateral ties in the world today and peoples in both countries are benefiting from the deepening economic integration, former U.S. Ambassador to China Gary Locke has said.

"We are gathering here in Silicon valley at a time of rising tensions between the United States and China with the potential of full blown trade war," Locke said here over the weekend in a keynote speech at the 2018 annual conference of a prominent Chinese American group, the Committee of 100 (C100).

The two countries, however, are increasingly economically interdependent since China's opening-up, said Locke, who was a former governor of U.S. state of Washington and a former U.S. Secretary of Commerce.

"Today, roughly 1.5 billion dollars of goods and services flow between our two countries every single day. China is our largest export market outside of North America, with exports to China growing at twice the rate as exports to the rest of the world, and America is China's largest export market exceeding exports to all of the EU countries combined," he said.

"More than 900,000 American jobs depend on producing goods and services exported to China and more than 2.6 million jobs in the U.S. and many, many millions more in China depend on two-way trade between our two countries, so people in both countries are benefiting from this deepening economic integration," he said.

Locke noted that esteemed panelists at the C100 panel "U.S.-China Trade and Economic Outlook" agreed that there are no winners in a trade war, only losers to consumers, workers and companies of both countries.

"Tariffs on Chinese goods coming into the United States will only raise the price of components used by American manufacturers. Then that will either reduce their profits or force them to charge higher prices, thereby making their products less competitive against foreign competitors in America and overseas," he said.

"It's a tough time in the U.S.-China relationship. We must avoid a trade war," Locke told the more than 500 leaders and experts in government, business, technology, academia, and media attending the two-day C100 annual conference, a premier forum on U.S.-China relations and Chinese-American advancement.

The New York-based C100 is a non-profit, non-partisan organization of prominent Chinese Americans in business, government, academia, and arts.

Founded in 1990 by world renowned architect I.M. Pei and internationally acclaimed cellist Yo-Yo Ma, among others, the group is committed to the twin missions of promoting full participation of Chinese Americans in all aspects of American life, and encouraging constructive relations between the two peoples.

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