Have you internalized the tension between the US and China and thought about how it
could affect your business and possibly even the capital markets?
The US and China are in fact in an economic war that has triggered a vicious cycle of
actions, reactions, and more actions. The tit for tat has already begun.
Consider the facts of one such battle that is ongoing. The US believed Chinese chip
makers had stolen trade secrets from US semiconductor companies. Knowing that
technology is often used for both civil and military purposes, the US last fall imposed an
embargo on select high-tech semiconductor chips. US chipmakers including Nvidia,
Qualcomm, Intel and Micron were legally constrained from selling certain chips to
China.
China was not pleased. In March this year, it made a retaliatory move not against an
American political target but against one US-based company, Micron Technology, an
American jewel. Some 11% of Micron’s 2022 revenues came from China. Now it stands
to lose some or all of it as China conducts a national security review of the company.
In presenting its March 2023 quarterly report, Micron management noted that the
Chinese government “may restrict us from participating in the China market or may
prevent us from competing effectively with Chinese companies.” It also said China
warned Micron that it may lose access to rare earth materials.
A ban on imports from Micron and the concomitant loss of revenue would almost
certainly hurt the company’s share price. It would put the whole industry on notice and
could nick share prices across the board. And across the globe.
In the past week it was reported that Washington has pressed South Korea’s largest
chipmakers, Samsung and SK Hynix, not to supply chips to China that would replace
those from Micron.
Micron is caught in the crossfire of the raging economic war between the two giants. It’s
a new challenge for any business.
What company or industry will be next? What will be the collateral damage? How might
your business be affected?
The economic war is just beginning. More battles will come.
Remember, luck favors the prepared.
