U.S. Is Using Taiwan as a Pressure Point in Tech Fight With China

on May20
by | Comments Off on U.S. Is Using Taiwan as a Pressure Point in Tech Fight With China |

The Trump administration has for years sparred with China over tariff threats, technology and the terms of their trade deal. But in a pair of actions last week, the administration escalated those economic tensions in a way that comes close to touching a red line for Beijing: its contentious relationship with Taiwan.

One of the world’s leading computer chip makers, Taiwan Semiconductor Manufacturing Company, or T.S.M.C., said Thursday that it would build a factory in Arizona, a move heralded by American officials as a first step toward relocating a vital supply chain to the United States.

The administration has been working on multiple fronts to isolate Huawei, a major global smartphone brand and the planet’s largest producer of the equipment that powers mobile networks. But simultaneously undermining Huawei and bringing T.S.M.C. closer into the American orbit is a one-two punch of industrial policy that would have been unthinkable only a few years ago, one that raises the prospect of a more serious conflict between China and the United States.

Never before has the Trump administration so forcefully challenged Chinese companies’ access to Taiwan’s high-tech supply chain — and, by extension, Beijing’s influence over the self-governing island democracy, which it claims as part of its territory.

The administration seems intent on “hitting at targets that are both economically and politically sensitive for Beijing,” said Eswar Prasad, a professor at Cornell University.

The rule change bars companies around the world from using American technology to produce or design chips that are sent, either directly or through an intermediary, to Huawei itself. But it does not appear to prevent them from producing chips that would be sent to Huawei’s customers or partners, such as contract manufacturers that assemble phones and other devices on Huawei’s behalf.

The rule could still disrupt Huawei’s business, however, forcing the company or its suppliers to reorganize their operations. And the Commerce Department could revise its rule in the coming months to narrow any loopholes.

As of Tuesday, some administration officials were already discussing ways to strengthen the rule, two people familiar with the deliberations said.

“The future of at least a major portion of Huawei’s business is now firmly in the hands of the Commerce Department,” said Paul Triolo, a technology policy analyst at Eurasia Group.

In an emailed comment, Wilbur Ross, the commerce secretary, said his department was charged with catching and punishing intermediaries and front companies that circumvent its regulations, and that it does so regularly. “Any collusion with Huawei or its affiliates to willfully violate this rule is prohibited, and any party found to be in violation will be barred from further access to U.S. equipment or software,” Mr. Ross said.

Huawei this week declined to answer reporters’ questions about the amended rule, although it acknowledged that its business would “inevitably” be affected.

The company appears to have been preparing for the possibility of being cut off from key suppliers. As of the end of 2019, Huawei had stockpiled $23.5 billion worth of finished products, components and raw materials, according to its annual report, an increase of nearly three-fourths from a year before.

“I feel differently now about that deal than I did three months ago,” Mr. Trump said Tuesday afternoon of his trade pact with China.

The United States has also grown more active in jockeying against China to build up and control access to the technological components that power everything from smartphones to missiles.

By taking aim at Huawei’s access to a company that sits in Taiwan, the Trump administration added a dash of geopolitical insult to the injury.

Taiwan has long been of keen political significance for both Beijing and Washington. It is currently governed by a party that is suspicious of China’s ruling Communist Party and favors closer ties to the United States.

In recent years, Taiwan’s status as a global capital of semiconductors has added to its strategic importance. T.S.M.C. makes microchips for big global names across the tech world, including Apple, Qualcomm and Huawei’s chip subsidiary, HiSilicon.

“You have the best semiconductor manufacturer in the world, and China thinks it owns the land it sits on,” said Stacy Rasgon, a semiconductor analyst with the research firm Sanford C. Bernstein. “It shows just how dependent everyone is on T.S.M.C.”

For many months, T.S.M.C. rebuffed those offers, citing costs. East Asia is the center of the global electronics supply chain, and Mark Liu, the company’s chairman, had said that the major stumbling block was the greater expense of operating in the United States.

But recent entreaties from Washington — including, apparently, the promise of funding — changed the company’s mind.

On Friday, a spokeswoman for T.S.M.C. said the company now saw “a potential possibility for us to close the cost gap,” but she declined to elaborate. In a call on Friday, a State Department official suggested funding might be forthcoming from Congress, where lawmakers have discussed new funds to stimulate the semiconductor industry.

Analysts said spiraling tensions between the United States and China might also have forced T.S.M.C.’s hand. According to its latest annual report, a fifth of its revenue is from companies headquartered in China, but 60 percent is from customers based in North America.

“T.S.M.C. wants to sit in the middle and be Switzerland,” said Ben Thompson, author of the influential tech newsletter Stratechery. “But it was getting to the point where that was unsustainable.”

Another factor that may have led American officials to push for the Arizona factory is their broader fears about China’s influence in Taiwan and its ability to hack or sabotage supply chains there, said Mr. Triolo of Eurasia Group. T.S.M.C. plays a crucial role in producing commercial chips that also have military applications in aircraft, satellites and drones.

The real purpose of the Arizona deal may have been “to allow T.S.M.C. to eventually become a trusted member of the U.S. military’s supply chain,” Mr. Triolo said.

The geopolitical dimensions of the technology tussle are not lost on Huawei executives.

At an event at Huawei’s headquarters in Shenzhen on Monday, one of the company’s deputy chairmen, Guo Ping, made pointed remarks about Washington’s motivations for continuing its crusade against Huawei, even amid the global coronavirus crisis.

“The United States believes that technological leadership is the foundation of its supremacy,” Mr. Guo said. “Technological leadership from any other countries or companies could put American supremacy at risk.”



Previous postTourists, High-End Shoppers Slowly Returning to Rodeo Drive – NBC Los Angeles Next postLong Beach Approves ‘Open Streets’ Plan for Restaurants; LA Up Next – NBC Los Angeles


Los Angeles Financial times


Copyright © 2020 Los Angeles Financial times

Updates via RSS
or Email