News TSMC Will Cut Off Supply to Huawei In September

[gg83]

The problem is fundamental, it takes more than quantity of bodies and brains to innovate. If that is all it took then China would have dominated the world 2000 years ago. They simply do not have the culture or environment that would develop and encourage creativity and innovation. They are great reverse engineers yes, but reverse engineering is a just a job.

I read an article close to that concept. Back in the day we saw huge innovation from single individuals coming up with ground breaking ideas. Its a gamble though. If you paid 15 individuals to do research alone, one might come up with a ground breaking idea. If you pay 15 people to work together they will make only minor advances. Slow growth, but constant. I hope I made sense.

 

[Deicidium369]

I disagree with that. China might get close to parity in some things, but not in the way you think.

I've seen instances where entrepreneurs had a great idea, went to a Chinese manufacturer to have their idea turned into a physical product, and before their first product rolled off the line a clone was already shipping. Even the big western corporations typically don't bother to take these manufacturers to court, and when they do it's typically fruitless. They shut one down only to have them pop up somewhere else. Chasing Chinese shell companies is a waste of resources.

In that environment, what incentive is there to do anything but rip other people and companies off?

Also logical fallacy repeated here a bunch is the 'lots of people with skill' argument. China's population did not just appear out of nowhere over the last 10 years. They've always had a lot of people, and many of those people have always been skilled and intelligent.

The problem is fundamental, it takes more than quantity of bodies and brains to innovate. If that is all it took then China would have dominated the world 2000 years ago. They simply do not have the culture or environment that would develop and encourage creativity and innovation. They are great reverse engineers yes, but reverse engineering is a just a job.

China has dominated the world in accomplishments many times over the last 5000 years. This is just the latest round. You need to read up on ancient China...

 

[bit_user]

I disagree with that. China might get close to parity in some things, but not in the way you think.

I've seen instances where entrepreneurs had a great idea, went to a Chinese manufacturer to have their idea turned into a physical product, and before their first product rolled off the line a clone was already shipping. Even the big western corporations typically don't bother to take these manufacturers to court, and when they do it's typically fruitless. They shut one down only to have them pop up somewhere else. Chasing Chinese shell companies is a waste of resources.

In that environment, what incentive is there to do anything but rip other people and companies off?

First, I think you're over-generalizing.

Second, even if the manufacturing sector is making unlicensed knockoffs, that is not mutually exclusive with internal innovation.

China certainly has startups and innovation. Not as big a fraction of their overall economy as some places, but it's there and growing. However, I think we're getting off topic.

Regarding the subject of semiconductor dominance, the main thing you need is a lot of capital and a large skilled workforce. China has both. Most of the big name chip makers have offices there, and do chip design. It's been that way for the past couple decades.

Even if what we've seen from chip makers like HiSilicon and MediaTek have mostly integrated 3rd party IP, China has built its own HPC chips from scratch. And they already designed their own GPUs for more than a decade (Vivante). The capability is there, it just needs more time to grow and mature.

 

[bit_user]

Back in the day we saw huge innovation from single individuals coming up with ground breaking ideas. Its a gamble though. If you paid 15 individuals to do research alone, one might come up with a ground breaking idea. If you pay 15 people to work together they will make only minor advances. Slow growth, but constant. I hope I made sense.

A lot of startups are in the range of 10-100 people. A lot of big companies do mostly incremental improvement. It's difficult for big companies to take big risks.

In my opinion, that's really a story about incentives. You can do risky things, on a big scale, if you get the incentives right. You need suitable reward for success, a relatively low penalty for failure, and the capital to fund the whole effort.

Talented people are naturally drawn to big challenges, especially if the cost failure is acceptable. Even if it's not, there are still a few willing to stake their career and livelihoods on their ambitions. If you want to build a startup machine, like Silicon Valley, you need to make it okay to fail. That's how you attract the largest number of skilled people to take on risky endeavors.

 

[NightHawkRMX]

I understand why they are doing this. It will surely hurt TSMC and US relations with China, but imo it is well worth it.

The US population certainly benefits from cheap manufacturing and labor in China so it would be a good idea to keep a good relationship (and for other reason), but the only reason it is so cheap is the poor life many Chinese factory workers have.

 

[bit_user]

I understand why they are doing this. It will surely hurt TSMC, but imo it is well worth it.

Please explain why they're doing it, what they hope to get, and why it's worth the probable risks.

BTW, we should acknowledge that all the short-term pain and much of the long-term risk are being borne by TSMC, who's certainly an unwilling partner in this. However, without minimizing that, let's just focus on the US' interests, as I'm sure neither of those impications for TSMC factored into Trump's decision.

 

[NightHawkRMX]

I have a feeling you already know what I am going to say, and you already know how you will argue back. But anyhow, I will oblige.

They are doing it to stop supporting a company that has been reported to spy on many users and or US government and report back to the Chinese government. They hope to stop China from getting access to confidential information that could pose a threat to national security.

You might say "the US has provided no evidence of this." While this may be true, they shouldn't have to in this case. Explaining how they know Huawei is spying is a bit like telling someone some homeless person how a robber was able to break into your house and get away.

Depending on what method Huawei is using to supposedly confidential info, the USA publicly explaining what exactly Huawei has done is opening doors to other countries/individuals to use similar tactics.

I have no way of predicting the damage to TSMC. I understand this puts TSMC in an odd place, with regards to Taiwan and having factories in China. What I will say is a lot (maybe the majority) of their major customers, such as Apple, Samsung, and AMD are not Chinese based.

 

[bit_user]

I have a feeling you already know what I am going to say, and you already know how you will argue back. But anyhow, I will oblige.

Thanks.

They are doing it to stop supporting a company that has been reported to spy on many users and or US government and report back to the Chinese government. They hope to stop China from getting access to confidential information that could pose a threat to national security.

I don't believe that's the actual reason for it. I believe that's the true justification for keeping Huawei out of US telecoms networks (and I agree with that move), but not for this. I believe this is 100% about the trade war, and Trump trying to get more leverage.

Anyway, on to the last part: Assuming it's as you say, what is the move supposed to achieve? How will anyone know when that bar has been met? And what are the likely long-term consequences, in your judgment?

 

[NightHawkRMX]

Why I think the USA is justified in their decisions:

I personally do not support the trade war as it hurts all parties involved. That being said, I don't know whether it is about the trade war or not, but I think it should not matter.

It is possible a big reason for these actions is leverage in the trade war, but it doesn't matter as there are other valid reasons that justify the actions to choke off Huawei anyhow. In my opinion, the USA should not support Huawei in any way regardless of the real motivation behind it, given Huawei's connections to the Chinese government.

I do 100% agree with you the USA would be stupid to let Huawei on the United States telecom networks given their ties to the Chinese government, but I also believe the USA should try to choke Huawei's supply as well.
China is known to spy on anyone they possibly can spy on and invade on rights which I believe ALL humans should have, so I think the USA would be stupid if they did not do anything to stop the support of Huawei given their ties to the Chinese government as well as the tendencies of said government, even if there are tradeoffs.

This move is just another step to choke Huawei. Did they need to be choked? In my opinion yes, assuming what the government said is true.

The consequences and why I believe they are worth it:

Given out reasons for choking Huawei, one of the main consequences would be a poorer relationship with China, of course. Trump clearly does not care about a relationship with China, so this was likely not even considered with this decision. Personally I do not like to support China due to the constant oppression of citizens, their spying, and also on the grounds of them being communist. A positive relationship with a country is usually a good idea, however, I do not think it is good to support a country that turns around and uses this support to spy on you, even if it means worsening relationships.

And another big consequence would be hurting TSMC, potentially in a big way. Since TSMC is Taiwanese and China controls Taiwan, TSMC stopping supporting Huawei, which is basically an extension of the government, combined with the type of government China is, could cause China to retaliate on TSMC.

I do not think this would cause TSMC to lose many customers, as I have previously stated most of their customers are not Chinese.

If Taiwan ever gets their independence it shouldn't affect them much. As of now, it depends on if China chooses to react.

 

[bit_user]

I think the USA would be stupid if they did not do anything to stop the support of Huawei given their ties to the Chinese government as well as the tendencies of said government, even if there are tradeoffs.

This move is just another step to choke Huawei. Did they need to be choked? In my opinion yes, assuming what the government said is true.

Huawei is not a state-owned entity. I'm not aware of any ties it has to the Chinese government that any other large Chinese tech company wouldn't also probably have. So, are you saying that all large Chinese tech firms should be choked, or only those building telecoms equipment?

BTW, the concern about spying is that Chinese law allows for companies to be compelled to help the Chinese government, in matters concerning national security. So, to the best of my knowledge, the issue is that China could force Huawei to help it, and it would have no legal recourse to refuse.

When it comes to spying, I'm not sure if that's materially different than the US' National Security Letters.

And another big consequence would be hurting TSMC, potentially in a big way. Since TSMC is Taiwanese and China controls Taiwan,

China does not control Taiwan. China wishes it controlled Taiwan.

TSMC stopping supporting Huawei, ... could cause China to retaliate on TSMC.

I do not think this would cause TSMC to lose many customers, as I have previously stated most of their customers are not Chinese.

Some of their current customers are, and surely they were anticipating a lot more business from China. Semiconductor fabrication is a capital-intensive business, where plans and investments must be made several years in advance of actual wafer delivery. So, a major shortfall of anticipated demand could put them in really bad shape, even if it's just like 20%-30% of their volume. Compound that with a global economic recession and they could realistically be looking at bankruptcy.

And there's also a longer-term problem in store for TSMC. China will eventually have its own fabs, which will compete with TSMC. I think that was an inevitability, but this move will only hasten that development.

If Taiwan ever gets their independence it shouldn't affect them much.

They are de facto independent, today. One of the things that could drive them into China's open arms is financial trouble, and I'm sure TSMC is one of Taiwan's biggest exporters. So, hurting TSMC could actually hurt Taiwan's independence. However, if they can survive the financial impact of this move, then perhaps preventing TSMC from becoming even more dependent on Chinese customers will reduce or eliminate it as a future point of leverage over Taiwan.

I do wonder if China and TSMC won't arrange some kind of backdoor deal, in order to get around this. That would be counterproductive, for sure, but may be a better alternative than TSMC going bankrupt - I don't know if that's now a realistic possibility.

 

[bit_user]

With all that being said, I have yet to spell out one of my deeper concerns, so far in this thread. If the US Government can seize up technology business arrangements, seemingly at a whim, then why would foreign businesses want to take on the risk that some future US administration decides to lash out at their country (or, perhaps the entire EU)? For instance, ARM does some of its CPU design in the US, but it doesn't have to. It and other tech companies could choose to avoid any potential entanglements with the US, by simply eliminating it from their engineering activities and upstream supply chain.

And that's my real concern. Whatever Trump thinks he can gain from China, I think the long-term implications for US tech businesses and workers will be far worse. That's why nobody did this sort of thing, before. It's like playing with matches inside a fireworks factory.

I don't believe this is going to resolve the stated security concerns about Huawei or China. I don't think it's going to have much impact on trade talks, either. However, I do think it's really going to hurt the US tech business and workforce, and that's like stabbing the goose that laid many golden eggs.

We've already seen a lot of US-based tech players get replaced by foreign competition, but this will only accelerate the trend. Most tech products are now designed and manufactured in Asia, but at least we still have the most sophisticated and high-value pieces - Intel, AMD, Micron, Nvidia, Apple, and Qualcomm. Now, what do you think will happen to their bottom lines, as the Chinese market closes to them? Then, what about Chinese developing their own competing products and starting selling them in high-volume, price-sensitive markets, like developing countries? Finally, what if Europeans, Japanese, and South Koreans opt for their own ARM or RISC-V based chips? US tech companies are far too big to survive mainly on just the US market. And fickle US consumers can't even be counted on for much support or loyalty.

You might end up using a Chinese CPU or GPU sooner than you think.

 

[shady28]

Huawei is not a state-owned entity. I'm not aware of any ties it has to the Chinese government that any other large Chinese tech company wouldn't also probably have.

That's a nice qualifier there, "that any other large..".

Huawei's ties to the CCP are documented - and long, long before Trump was POTUS.

If you don't know perhaps you should do some slight amount of looking before continuing on. I specifically pulled these from the past, none of this is new.

2018:
https://www.npr.org/2018/12/07/674467994/huawei-and-the-chinese-government

2011:

Chinese telecom firm tied to spy ministry

A U.S. intelligence report for the first time links China’s largest telecommunications company to Beijing’s KGB-like intelligence service and says the company recently received nearly a quarter-billion dollars from the Chinese government.

www.washingtontimes.com

2012:
https://www.nytimes.com/2012/10/09/us/us-panel-calls-huawei-and-zte-national-security-threat.html

 

[Deicidium369]

First, I think you're over-generalizing.

Second, even if the manufacturing sector is making unlicensed knockoffs, that is not mutually exclusive with internal innovation.

China certainly has startups and innovation. Not as big a fraction of their overall economy as some places, but it's there and growing. However, I think we're getting off topic.

Regarding the subject of semiconductor dominance, the main thing you need is a lot of capital and a large skilled workforce. China has both. Most of the big name chip makers have offices there, and do chip design. It's been that way for the past couple decades.

Even if what we've seen from chip makers like HiSilicon and MediaTek have mostly integrated 3rd party IP, China has built its own HPC chips from scratch. And they already designed their own GPUs for more than a decade (Vivante). The capability is there, it just needs more time to grow and mature.

At one point all Japan did was make knockoffs - then companies like Sony, Pioneer, National/Panasonic, Mitsubishi, etc started making products that were market leading. South Korea used to make cheap knockoffs - Gold Star became LG and along with Samsung they are dominant in their product lines.

Toyota used to make reliable but basic cars (Corolla) then kept improving, taking the advice of people like W Edwards Deming to heart and ramping up quality - Introduced the Lexus line and now Toyota is a world leader - same with Nissan/Infiniti, Honda/Acura and now even the S Korean perennial butt of a bad joke Hyundai is making great reliable cars and has their own up market brand Genesis.

I see no reason what soever why China could not do the same. People who discount China do it at their own risk. I have been to Chengdu twice - take away the Chinese signs, and you would be hard pressed to differentiate it from any other city in any other part of the world. Clean and filled with larger businesses and restaurants to food stall type mom & pop shops - Free Enterprise is alive and well in China.

 

[shady28]

At one point all Japan did was make knockoffs - then companies like Sony, Pioneer, National/Panasonic, Mitsubishi, etc started making products that were market leading. South Korea used to make cheap knockoffs - Gold Star became LG and along with Samsung they are dominant in their product lines.

Toyota used to make reliable but basic cars (Corolla) then kept improving, taking the advice of people like W Edwards Deming to heart and ramping up quality - Introduced the Lexus line and now Toyota is a world leader - same with Nissan/Infiniti, Honda/Acura and now even the S Korean perennial butt of a bad joke Hyundai is making great reliable cars and has their own up market brand Genesis.

I see no reason what soever why China could not do the same. People who discount China do it at their own risk. I have been to Chengdu twice - take away the Chinese signs, and you would be hard pressed to differentiate it from any other city in any other part of the world. Clean and filled with larger businesses and restaurants to food stall type mom & pop shops - Free Enterprise is alive and well in China.

Japan never made knockoffs like China does. I grew up in that era. When Japan knocked Harley, Truimph, and BSA off their perch in the 70s and 80s it wasn't with knockoffs, and their earlier bikes were not knockoffs either - they were mostly scooters or bikes with a distinctly Japanese flair.
So what knockoffs are we talking about? You telling me that a 70s and 80s Civic is a knockoff of what? The accord? The mini pickup craze from Toyota and Nissan were knockoffs of what? The Sony Walkman? What did they knock off?

They didn't copy anyone. They simply made a better product, and to some degree were making the right product at the right time, that's all.

All these false equivalencies makes me question peoples motivations. I think it comes down to what I stated before - people gotta have cheap slave labor Chinese stuff.

 

[bit_user]

That's a nice qualifier there, "that any other large..".

Indeed, it was a big qualifier. I'm glad you noticed! There's a reason for it - it was a setup for this question:

So, are you saying that all large Chinese tech firms should be choked, or only those building telecoms equipment?

So, thanks for derailing that. I take it from RMX's "like" of your post that he thinks it let him off the hook.

Anyway, I'm not even sure where this is coming from. Do you think I'm an apologist or defender of Huawei? If so, I don't know why - I already said I didn't think they should be in US (or other countries') telecoms infrastructure. I'm just trying to get us to think clearly and strategically about this situation.

It's too easy to see a bad actor and want to lash out, but action without a plan is a recipe for unintended consequences. So, what's the plan? If we accept that this move is about national security, is this primarily a punitive or preventative move? If the former, is it likely to be an effective deterrent? If the latter, what are we trying to prevent and how well do we think that's going to go? Finally, is it time-limited, and what would be the criteria for ending it - of course, this depends on the rationale.

I know these are questions none of us is in a position to answer, but we can at least do some thought experiments to see how it might play out.

 

[bit_user]

Of course, I don't want to seem overly dismissive of your points, but I wanted to try and get the thread back on track. So, I'm replying to them in a separate post.

I don't pretend to be an expert on Huawei, but they've been on my radar for about 20 years, since rumors circulated about them stealing the IP of Cisco's routers and basically running an unmodified copy of its IOS firmware on their cloned hardware.

https://www.npr.org/2018/12/07/674467994/huawei-and-the-chinese-government

I already knew that. And he was out of the military, when he started the company. More importantly, it's not obvious to me that it makes any real difference, in the face of China's National Security Law, which I already mentioned.

I'm sure most/all senior executives, in China, are also Party members. So, that's a connection. Except the point of contention is whether/why Huawei is a special-case - not whether the government has any leverage over it.

Chinese telecom firm tied to spy ministry

A U.S. intelligence report for the first time links China’s largest telecommunications company to Beijing’s KGB-like intelligence service and says the company recently received nearly a quarter-billion dollars from the Chinese government.

www.washingtontimes.com

Uh, the Washington Times is hardly the Washington Post or New York Times and that article really doesn't have much information. So, was the arrangement just a large infrastructure purchase? Was there anything about it that would differ from what one would expect of such a large transaction?

https://www.nytimes.com/2012/10/09/us/us-panel-calls-huawei-and-zte-national-security-threat.html

Now, this is interesting, because it introduces ZTE into the discussion. Why does that name sound familiar? Hmmm...

Maybe because the US Department of Commerce sanctioned ZTE for illegally exporting embargoed tech to Iran, which Trump unilaterally overruled, for unspecified reasons.

https://en.wikipedia.org/wiki/ZTE#U.S._sanctions_and_import_ban​

I think that shows, as clearly as anything, that Trump is using these types of sanctions as leverage in trade negotiations. He doesn't really care about national security interests, in spite of the fact that we're talking about Iran - a country he nearly started a war with, around that time.

And yes, I realize that the sanctions weren't completely dismissed, but there's no formal role for negotiation, in such situations. The fact that he negotiated with it basically sends the message that all sanctions are negotiable, and effectively weakens the force of law - if bad actors get caught red-handed, they'll know they just have to call in a political favor to save their bacon.

 

[bit_user]

Japan never made knockoffs like China does. I grew up in that era.

That was a little before my time, but I concur with @Deicidium369 that Japan definitely had a reputation for making knockoffs. Not unlike Taiwan and South Korea, soon thereafater, as he mentioned.

You telling me that a 70s and 80s Civic is a knockoff of what? The accord? The mini pickup craze from Toyota and Nissan were knockoffs of what? The Sony Walkman?

Yeah, I think the late 70's fuel crisis is where Japan really made a name for itself, precisely because its cars were small, cheap, reliable, and fuel-efficient - very much unlike their American competitors. Also, the Walkman stands as a milestone in the development of Japan's consumer electronics industry.

I think their reputation for low-cost manufacturing is likely a product of the 60's and 70's.

I think it comes down to what I stated before - people gotta have cheap slave labor Chinese stuff.

Like Japan, Taiwan, and South Korea, China is now reaching a point in its development where it's no longer the cheapest place to make stuff. First, the Chinese moved factories inland, but then they started with their own outsourcing to Vietnam and I'm not really sure where else (but I think I heard them looking at places in Africa?).

FWIW, I have nothing against the Chinese people. I really just hope China finds a way to change course and move away from their current authoritarian trajectory. What worries me most is their recent moves to effectively export authoritarianism, especially in the developing world. It's almost like a world war that's being fought through economics and trade, rather than with guns and bombs. I guess there's something good in that.

 

[bit_user]

Free Enterprise is alive and well in China.

It's modern, and it's enterprise... except, it's not all that free.

Many people mistakenly associate capitalism with democracy. One doesn't need the other, and I'd even go so far as to say they have a mutually-corrosive effect. They exist in tension, with each (ideally) serving to keep the excesses of the other in check.

 

[attacus]

With all that being said, I have yet to spell out one of my deeper concerns, so far in this thread. If the US Government can seize up technology business arrangements, seemingly at a whim, then why would foreign businesses want to take on the risk that some future US administration decides to lash out at their country (or, perhaps the entire EU)? For instance, ARM does some of its CPU design in the US, but it doesn't have to. It and other tech companies could choose to avoid any potential entanglements with the US, by simply eliminating it from their engineering activities and upstream supply chain.

And that's my real concern. Whatever Trump thinks he can gain from China, I think the long-term implications for US tech businesses and workers will be far worse. That's why nobody did this sort of thing, before. It's like playing with matches inside a fireworks factory.

I don't believe this is going to resolve the stated security concerns about Huawei or China. I don't think it's going to have much impact on trade talks, either. However, I do think it's really going to hurt the US tech business and workforce, and that's like stabbing the goose that laid many golden eggs.

We've already seen a lot of US-based tech players get replaced by foreign competition, but this will only accelerate the trend. Most tech products are now designed and manufactured in Asia, but at least we still have the most sophisticated and high-value pieces - Intel, AMD, Micron, Nvidia, Apple, and Qualcomm. Now, what do you think will happen to their bottom lines, as the Chinese market closes to them? Then, what about Chinese developing their own competing products and starting selling them in high-volume, price-sensitive markets, like developing countries? Finally, what if Europeans, Japanese, and South Koreans opt for their own ARM or RISC-V based chips? US tech companies are far too big to survive mainly on just the US market. And fickle US consumers can't even be counted on for much support or loyalty.

You might end up using a Chinese CPU or GPU sooner than you think.

You know, I used to think like this a couple years ago. The US was cutting off its nose to spite its face. Stop selling tech here, arms there, and China will fill the gap. While there's still some truth to that, I realize today that the US is in a far stronger position. Today. I'm not saying you're wrong for thinking that, but when I think critically, my judgement was clouded by something:

a desire for China to form a "balance of power" which meant that the US could elect the most corrupt, inept politician(s) ever, and it wouldn't have such a disastrous effect on the environment, economy and culture due to their overarching influence. I don't think Putin is a good leader, but who Russians "pick" as their president doesn't have nearly as much global repercussions as the POTUS.

The US and its allies still have the best tech. This tech advantage is what they rely on to keep dominance militarily and financially. Who works with China without financial incentive? Now they're trying to create an alliance of dictators. Without common values, who can you really trust?

It may have seemed with the 2008 crash and the Trump/populist uprisings everywhere that it was China's time to shine. But in hindsight, it probably would've been better to keep to Deng's peaceful rise. It wouldn't have brought China to the attention of the US. Huawei was the 2nd biggest phone manufacturer, and yet nobody had heard of them. Now they've been cut off at the knees and banned left and right.

Now is Trump doing this for trade, or security? I believe it started with trade. Meng's arrest in Canada is IMO 100% leverage. Perhaps the first $50B tariffs were there just to close the gap. Perhaps a good trade deal would get him to back off. But I think that's shifted now. The people around him, Pompeo, the GOP, heck even the Dems now see them as a security threat. He can't back off, even if he wants to.

Should Xi have bided his time? Probably. It seems on the face of it that he's no better than Trump in terms of competence. Covid, HK, economic slowdown, and capital flight. Not sure if a change of leader would mend relations, or if we're on an irreversible course to a new Cold War, but detente and bridge-building would certainly help.

Are they trying to block the growth of a competitor? We won't really know until India's rise. There was the Plaza Accord foisted on Japan when it was thought they would overtake the US, but that's not the sole reason for Japan's stagflation. It certainly doesn't hurt that China is a competitor, and they can have multiple reasons for doing it. Can the US say it cares about Xinjiang when Trump had multiple Muslim travel bans?

Now Trump abuses his leverage trying to "shake down" S. Korea, the EU, Japan and others like a mob boss. But he undoubtedly has it. China is looking for leverage, hence why they signed up to the Phase 1 Deal. Having a monopoly on advanced tech, but most importantly the reserve currency and high-value customers means things like secondary sanctions (companies that trade with the US can't trade with you) are more powerful than nukes right now.

That's the kind of power and leverage that China's looking for. "Our market is too big to ignore, despite your IP worries." "TSMC goes under if it doesn't trade with us." That and tech parity, so it can't be held over them. But building a competitive fab is like getting a best actor/picture/director Oscar. It's not something you can buy, it's all about talent. Meanwhile, give me $300M, studios like Weta/ILM, time and maybe a popular franchise for good measure, and I can probably buy a best visual effects Oscar.

I'm no leader, but if I ran a country that was on the cusp of development i.e. educated workforce, protected market with domestic companies, planned economy with state-backed companies, I would do everything in my power to reach that developed state.

This means keeping my industries competitive, but not letting them become complacent monopolies. I wouldn't want any one country, but particularly the US to have every major market leader under the sun. I don't want to be Europe, where every internet service, phone and laptop is foreign.

I'd look for foreign investment, and ways to privatize certain companies so I'm not subsidizing them. FDI usually has better interest rates than domestic markets, although they always want something in return: austerity, political change, etc. Debt is like getting hugged by an iron maiden.

Next, I'd want to attract foreign talent. Again, why should they all go to the same place? This could include attracting the diaspora back as well, but this foreign talent is likely to be WEIRD (Western, educated, industrialized, rich and democratic), so I might have to adjust my power structure (or perceived power structure) to accommodate that.

I'd want to build and invest in sectors that are highly value-adding. I'd basically end up with a Korean Chaebol or Japanese Keiretsu, In fact, this whole thing stinks of the route East Asian tigers took to reach development in one generation, even the turn to democracy. And the risk is I'd be over-leveraging myself (in the financial sense) creating businesses "too big to fail". So the question is whether you'd give up political power for economic development?

It's incredible that a state can create competing industries out of thin air. I'm not a neoliberal who thinks the state is some red-headed stepchild that should never be seen. It's quite clear that businesses across the world have been taking their countries for a ride. Who can blame them? At on point I even thought I was rich enough to be a part of them. But I'm not rich, I'm just surrounded by guys who are quite poor.

I also believe that, while the state is useful for creating these behemoths, it can't continue to support them forever. Not sure exactly what the structure of Huawei is. I've heard their 200K employees described as "co-owners" of the company, like some sort of co-operative. Official or not, any authoritarian state, be it China, Russia or Iran, can turn the screws on businesses operating within its borders, if they want to.

A large market, while it attracts business and customers, also needs IP protection, contract law and a lack of state coercion to draw in businesses. I talked about the middle income trap before. China is killing it in high-end audio, coining the phrase "Chi-fi". Their workers may not be the cheapest, but having competed against each other for decades, they are the most efficient.

One brand, Topping, is hardly know outside of the hi-fi market. Yet someone went and copied their product, the D10, calling it the Aimpire AD-10. Although the D10 is an entry-level product, when Chinese copy Chinese, you know it's good. But yes, if I want to compete, not only on price, but performance, I would need to consider freedom of thought/expression, safety nets (like someone said) to minimize the risk of failure and the above mentioned.

Chi-fi is good bang for buck. Look at Sony's PS5 vs Microsoft's XSX. Everyone thinks the PS5 will cost $499. The XSX is objectively better in terms of hardware (mostly), but it is estimated to match it. The power and brand of a Japanese company has forced the US company to compete on price. When that happens, you know you've escaped the middle-income trap.

 

[bit_user]

Thanks for that. Quite a read, but I appreciate the time you took to organize your thoughts and make your case.

a desire for China to form a "balance of power" which meant that the US could elect the most corrupt, inept politician(s) ever, and it wouldn't have such a disastrous effect on the environment, economy and culture due to their overarching influence. I don't think Putin is a good leader, but who Russians "pick" as their president doesn't have nearly as much global repercussions as the POTUS.

Back when the USSR was recognized as the other global superpower, I'm not sure it was a better world. Countries would play off one side against the other, in order to win favors. The USA backed a lot of bad regimes and overlooked a lot of human rights abuses, in order to keep certain countries from switching sides. It even funded the Mujahideen, which would later come back to bite us.

There were also numerous indirect wars, such as Korea and Afghanistan, and proxy wars, like India vs. Pakistan.

So, I reject your thesis that a di-polar world would be preferable. I think the solution you want is one with strong multi-lateral institutions.

The US and its allies still have the best tech. This tech advantage is what they rely on to keep dominance militarily and financially.

I disagree. I think the US' strength has been primarily in its economy, stability, reputation, and the dollar-denomination of numerous commodity markets. For these reasons, the US has been able to borrow indefinitely and fuel military flights of fancy with vast levels of deficit spending.

Huawei was the 2nd biggest phone manufacturer, and yet nobody had heard of them.

They're more popular in Europe and elsewhere. I think they also made a couple of Google's Nexus devices.

Meng's arrest in Canada is IMO 100% leverage.

It smells that way. I actually think she might've been arrested, regardless, but agree that Trump will use her as a chip in the deal (which is absolutely inappropriate).

A better remedy to that issue would've been more like how ZTE was handled, for what I believe were similar offenses. So, it is suspicious they didn't take the same route with Huawei.

Perhaps the first $50B tariffs were there just to close the gap. Perhaps a good trade deal would get him to back off.

Oh, the trade deal was doomed to fail. Trump overestimated his leverage, and he did it so publicly that no one could afford to lose face. So, the best we got was a "ceasefire", that didn't even return us to the level we were at, when he took office.

But I think that's shifted now. The people around him, Pompeo, the GOP, heck even the Dems now see them as a security threat. He can't back off, even if he wants to.

No, anti-China sentiment is nothing new. Also, Trump doesn't want to back off, and he doesn't care at all what any Democrats think. In fact, he'd prefer they criticize him, so he can lash out at them and brand them as China-allies. He also mostly disregards what Senate Republicans think. And Pompeo is little more than a supplicant, which is how he manages to stay in Trump's good graces.

Should Xi have bided his time? Probably. It seems on the face of it that he's no better than Trump in terms of competence. Covid, HK, economic slowdown, and capital flight.

I don't see how Covid-19 speaks to Chairman Xi's competence. Compared to the US, and many other countries, China did an excellent job of quelling their epidemic. They got off to a slow start, due to some initial missteps, but they knew vastly less about it than we did, and yet they still managed to quash their initial outbreak and keep resurgences contained.

As for Hong Kong, that did seem a step too far, too fast. Badly managed and embarrassing for China.

Still, I think Xi is playing with a full deck of cards, so to speak. His biggest problem is that he's created so many internal enemies that he has to worry about how to step down, if he ever decides he wants to retire (the typical trap of authoritarians).

Not sure if a change of leader would mend relations, or if we're on an irreversible course to a new Cold War, but detente and bridge-building would certainly help.

The way out is for China to take over as the one pushing for multi-lateral institutions. And they need to do it in a way that other countries believe is fair. Eventually, even the US will want in.

Are they trying to block the growth of a competitor? We won't really know until India's rise.

Is China trying to block a competitor? China seems determined to restore its rightful place as a global superpower, and it sees the US as getting in the way of that.

I wouldn't hold my breath for "India's rise". India is a mess, environmentally, politically, demographically, and economically. Modi is a more competent leader than Trump, but he's following a theocratic trajectory more along the lines of Turkey's Erdogan. Neither of these countries will approach China's level of success, until they manage to get their birth rates under control, which they appear to have no interest in doing.

Can the US say it cares about Xinjiang when Trump had multiple Muslim travel bans?

It definitely weakens the US' position, but comparing internment camps to an immigration ban is a false equivalence if there ever was one. But, the bigger issue is that Trump just doesn't care. I think John Bolton even said (in his recent book) that Trump told Xi he thought it was a good idea, when they discussed it over dinner (or something like that).

At most, Trump would probably just use it as another negotiating chip, in the trade dispute. Except, it probably didn't even occur to him, at the time, because he didn't see anything wrong with it.

That's the kind of power and leverage that China's looking for. "Our market is too big to ignore, despite your IP worries." "TSMC goes under if it doesn't trade with us." That and tech parity, so it can't be held over them.

I think China long wanted its own fabs for simple competitive reasons. It can subsidize them to give its domestic chip makers a financial advantage. They can also have guaranteed capacity, and things like that.

The strategic and security aspects are more recent developments.

FDI usually has better interest rates than domestic markets, although they always want something in return: austerity, political change, etc.

Those are extreme cases. IMO, the main problem with FDI is just that the returns represents profits leaving your shores. It also makes companies act in ways that are even more divorced from national interests.

Next, I'd want to attract foreign talent.

Unless you have enough of your own, domestic talent. In that case, you'd rather those high-paying jobs go to your own workers. True, you'll lose out on a bit of creativity by having a more homogenous workforce, but I'm not sure an otherwise healthy industry really needs diversity - especially if the primary market is also very homogeneous.

foreign talent is likely to be WEIRD (Western, educated, industrialized, rich and democratic), so I might have to adjust my power structure (or perceived power structure) to accommodate that.

Not if you're paying enough and have good a good standard of living. Look at countries like Dubai, Qatar, and Singapore.

It's quite clear that businesses across the world have been taking their countries for a ride. Who can blame them? At on point I even thought I was rich enough to be a part of them. But I'm not rich, I'm just surrounded by guys who are quite poor.

You lost me. What do you mean by being "part of them"?

 

[GenericUser]

Nothing's ever that simple ya know.

Wikipedia has a great article on Taiwan.

Oh for sure. I was just giving the extremely fast and dirty version for the sake of brevity.

I thought about bringing some information from Wikipedia, but too many people seem to think Wikipedia is the antichrist or something when it comes to information, and thought it might unintentionally "discredit" what is otherwise factual information. But I'm glad someone did it anyway.

 

[Avro Arrow]

We've got two sides to this story. Firstly, the US Government is pissing off other countries with this evidence-less crusade against Huawei. It sounds all too reminiscent of "WEYAPUNS UF MAYASS DEEESTRUHCKSHUN!" and it's clear that even countries allied to the USA no longer trust the US government's word.

However, in this case, it's China who is mostly to blame because it has displayed several times that it fully intends to invade Taiwan at some point and only the USA stands in its way. Of course TSMC is going to bend to the will of the country that protects it from Chinese invasion. If I were TSMC, I'd be doing the same thing.

China is suffering from the consequences of their government's aggressive attitude towards its neighbours. The USA has, for better or for worse, been Taiwan's best friend and ally while China has been the opposite. This comes as no surprise to me.

 

[Avro Arrow]

I really want to know how the US was able to stop a Taiwanese company from selling to a Chinese company. They must use a ton of IP owned by US companies. Taiwan also known as Republic of China, I guess isn't part of the Peoples Republic of China? Maybe someone knows more about the political status. Do Western counties do everything they can to prevent Taiwan from becoming part of a communist Country?

I agree that it sounds stupid but Taiwan doesn't want to be taken over by China. That's the reason that they're a separate entity to begin with. Taiwan has a lot of gratitude towards the USA because without them, China would have conquered Taiwan decades ago. That's why TSMC is so willing to follow what the US Government wants. They don't want to become another Hong Kong.