The US and China trade war continues to deepen this week with the increasing chance that a phase one trade deal has been delayed until 2020. In the meantime, we've been reporting on a Sino-U.S. technology war developing, something that has been heating up in recent months.
China understands the tech war with the US is about to erupt, that's why the country has been pulling forward orders of US chips, reported Bloomberg. It's an acknowledgment that China is preparing for the worse, and it's likely the Trump administration could prevent Chinese companies from buying chips if the trade war deepens further.
We reported earlier this week that the Trump administration considered banning Huawei from using the US financial system as a nuclear option to crush the company.
If White House officials were proposing that, then they've also been preparing to ban Chinese companies from buying US chips altogether.
In the past three years, Chinese imports of US chips have jumped, despite ongoing trade war threats that have surged in the last 1.5 years.
As shown below, imports of chips and chip equipment were $1.7 billion in Aug., the most since 1Q17, and continued increasing through Oct.
Bloomberg notes that there's a severe risk that the Trump administration could impose new measures that would establish a "silicon curtain" to halt all shipments of US chips to China.
"It's politically intolerable to China that the US has an at-will ability to turn off major companies like ZTE and Fujian Jinhua, as well as being able to deal major operational blows to Huawei," Dan Wang, a tech analyst at Gavekal Dragonomics in Beijing, told Bloomberg "So the government and the companies are trying to be more technologically independent."
This past summer, the Trump administration blacklisted Chinese companies, including Huawei, from selling products to certain US firms unless the federal government granted special licenses. This forced Huawei to develop new domestic chips to reduce the dependence on the US.
Many Chinese firms, including Huawei, have been ramping up purchases of US chips since about 2018, in anticipation of being blacklisted.
Huawei understands what's coming down the pipe and how the trade war is likely to deepen in 2020. The company has also moved its US research center to Canada to avoid having its US assets frozen.
Huawei, like many other Chinese firms, pulled forward chip sales to get ahead of new US economic sanctions. So what happens when Chinese firms stop frontloading chip purchases? Does that mean PHLX Semiconductor Sector is in a blowoff top if purchases pullback?