Trade War Seen As 'Zero-Sum Game' for Chip Industry

A trade war between the world's two largest economy that formally begins Friday will be "a bruising zero-sum game injurious to both sides in which there are no winners," according to an analyst for IHS Markit.  

"For the semiconductor space, the escalating tariffs dispute between the United States and China will be a bruising zero-sum game injurious to both sides in which there are no winners," said Myson Robles-Bruce, a semiconductor value chain researcher with IHS, in a blog posting earlier this week.

"A tariff war between the world’s two biggest makers and consumers of semiconductors is likely to spread throughout the vast electronics supply chain involving multitudes of markets, trades, and businesses, and both American and Chinese companies could end up suffering," Robles-Bruce wrote in the blog.

What had been largely a war of words turned into a bonafide trade war Friday with U.S. President Donald Trump following through on his threat to impose 25 percent tariffs on about $34 billion worth of Chinese goods, many related to technology and the semiconductor industry. Trump has warned that he may end up imposing tariffs on billions of more dollars worth of Chinese goods.

China, meanwhile, almost certainly will follow through on its threat to impose reciprocal tariffs on U.S. goods, beginning with mostly agricultural products.

How far the two countries will go in imposing tariffs on each other remains to be seen. Trump initially threatened the tariffs in an attempt to negotiate a trade deal between the two countries that would reduce a roughly $375 billion annual trade deficit with China. But negotiations between the two countries have not produced an agreement, and there is reportedly a disagreement within the Tump administration over what course of action to take.

Trade groups including the Semiconductor Industry Association and the SEMI trade group support the administration's efforts to protect U.S. intellectual property in China, where they have long complained that Chinese policies and law expose it to potential theft. But trade groups do not support tariffs, which they argue will harm the global economy and the semiconductor business.

According to Robles-Bruce, while almost half of the world's chips are designed in the U.S., much of the output is sent for assembly, test and packaging in China. Robles-Bruce said "most of the $57.2 billion in revenue from semiconductors used in the United States, based on electronics equipment manufacturing, would be subject to tariffs under the new Trump administration tariff policies."

Robles-Bruce also argues that the large number of consumer electronics products manufactured and finished in China and imported into the U.S. means that US-based semiconductor suppliers will also see their costs rising.

Robles-Bruce maintains that in terms of electronics, neither the U.S. or China has any advantage over the other. "While it is true that the United States has tremendous leverage over China in chip design, China has immense power in the semiconductor supply chain. In this sense, both countries are needed to drive the industry in its current form," he wrote.