Over the weekend The Economist published an article about the administration’s attack on Huawei, denying Taiwan Semiconductor Manufacturing Company (TSMC) the use of US intellectual property in making chips for the Chinese telecom firm. The article basically paralleled my post from the 18th. And it concluded that the ban could easily end up hurting the US far more than China. In other words, it’s vintage Trump.
Although I didn’t mention it a week ago, I think it’s interesting to observe the behavior of the US companies affected by the initial order, which prevented them from supplying US-made chips to Huawei.
A basic fact about chip manufacturing is that although the output comes from gigantic, multi-billion dollar factories, the chips themselves are tiny and weigh next to nothing. Output can easily and cheaply be shipped anywhere. So plants don’t need to be located near customers. They are highly automated, so no need for a large nearby workforce, either. The key variables in locating a fab: areas where there are no earthquakes and where government tax breaks and subsidies are the highest.
Anyway, US firms continued to supply Huawei as usual after the initial directive, just from non-US facilities.
My point isn’t about administration ineptitude in taking months to realize this elementary workaround. It’s that the chipmakers acted as businessmen. They did what they thought was best for the long-term survival and prosperity of their firms. Logically, it’s what they should have done as stewards of other peoples money. More important, it’s what they did do. That is, we have a reason to think that they will continue in this manner–to at least plan to put their operations out of the reach of Washington. In addition, they will presumably pressure their suppliers of capital equipment–the semiconductor production equipment makers, some of which are heavily concentrated in the US–to do likewise.