The Trump administration has doubled down on its initiative to ban certain Chinese companies from selling to the U.S. or buying components from American firms. This push to slow China’s technological advances threatens to backfire on American companies and their share prices in the long-term, keeping them permanently out of the China supply chain, according to several experts cited in a detailed Bloomberg report. The companies most at risk include chip makers such as Qualcomm (QCOM), Micron Technology Inc. (MU), Intel Corp. (INTC), Nvidia Corp. (NVDA), Advanced Micro Devices Inc. (AMD), Broadcom Ltd. (AVGO) and Xilinx Inc. (XLNX), as well as blue chip players General Electric Co. (GE), Alphabet Inc. (GOOGL) and Microsoft Corp. (MSFT).
Arbitrary Disruption of Global Supply Chain Bad for U.S.
While 2019 started off strong for U.S. equities, a wave of uncertainty hit the market in May, driven in part by new trade rhetoric from the White House. Now, some market watchers suggest that a full-blown trade war, in which the U.S. would impose levies of 25% on all Chinese goods, and the Trump administration succeeds in keeping major Chinese players out of doing business with U.S. corporations, could wreak havoc on the global economy. First and foremost, such a disruption would completely uproot the current global supply chain, resulting in a painful transition for both the companies involved in these intricate systems, as well as the economies that they represent.
Following the administration's crusade against Huawei Technologies Co., China’s largest telecommunications provider, the White House threatened to ban five Chinese video surveillance companies from buying U.S. components or software.
At the center of Washington’s fears is the proliferation of 5G technology, the new wireless standard set to become the backbone of the modern economy. Up until recently, Huawei looked like the leader in supplying the next-gen infrastructure.
While Trump’s recent blacklisting of Huawei will surely thwart its dominance in 5G, Bloomberg notes that the move should “only slow the expansion,” translating into “bad news for some of the most important U.S. companies, particularly component makers, that were banking on it for a major surge in orders starting this year.”
Without a 5G network in China, consumers in one of the key markets for companies in the smartphone ecosystem will see demand for their products decelerate significantly. As consumers buy fewer new phones containing chips from the likes of Qualcomm and Micron, companies that make processors for those phones, such as Intel and Nvidia, will also see sales fall. The effect will trickle down to companies that make chips for networking gear, like Broadcom and Xilinx.
A war against major Chinese companies is also a net negative for the broader U.S. economy, according to some market experts.
"I don’t think it’s good for the U.S. economy,” said Minyuan Zhao, an associate professor of management at the Wharton School at the University of Pennsylvania. “With its strong institutions, the U.S. has long been an assuring force in the global supply chain. People don’t always trust China, but they consider the U.S. a trustworthy partner, if not guardian, of the global economic system.”
Zhao notes that the White House’s crusade against Chinese corporations would cause an arbitrary disruption in the supply chains, leading the longstanding trust in the U.S. supply chain to disappears. As a result, countries will start to develop individual systems, said Zhao.
Meanwhile, companies like GE and Microsoft are worried that Washington’s plans to contain the world’s second-largest economy in areas like AI via export controls could end up impeding them from competing in lucrative markets and reduce their capacity to innovate.
Despite his initial promises of an “easy” trade war, Trump’s tough stance towards China doesn’t seem to be eliciting any sign of backing down in Beijing. Per another Bloomberg story, China seems to be preparing for the long-term, doubling down rather than caving to U.S. demands, indicating that this will be a long war versus a short one.