How Geopolitics Can Change the Way Your Devices are made – Looking deeper into the China-USA trade war and understanding its ramifications for industry as a whole with a special focus on Taiwan and Vietnam

With the trade deficit tilting in favor of China since the GATT came into picture and the subsequent rise of the electronics and semiconductor industry, 2020 – Q3 and Q4 were a tipping point. 300 Billion USD, never had it been so skewed in favor of China in just two quarters. With the dragon flying high even during the COVID-19 pandemic and continuing its trade dominance in the global trade the USA has decided to take steps to change the supply chain dynamics for the industry as a whole. South Korea has already set an example with Vietnam, accounting for almost 27% of the country’s exports.

With the demand for the semiconductor chips set to rise with the Fourth Industrial revolution and the increasing adoption of technology in the so-called developing economies, China is set to see an upward trend in terms of exports and subsequent economic growth in this sector especially in the APAC, MENA and LATAM regions. Also, with these chips being an integral part of everything right from our toilets, TVs, phones and the most advanced of technologies, it will be interesting to see how this trade war pans out after Mr. Biden taking over the presidency. With USA controlling almost half of the market mostly due to Intel, Nvidia, Texas Instruments, Analog and a few others, it has been taking stricter steps to if not curb but regulate it semiconductor trade with China using stricter Licensing and IP policies. China too has been playing smart using its strength in Silicon Valley to acquire stakes in the industry via supply chain and other stakeholder acquisitions. The new Make in China policy to stimulate and strengthen the local Chinese semiconductor manufacturing is being implemented aggressively.

Now coming to Taiwan; a nation in turmoil, fighting an identity crisis with China, a nation with whom they share strong social, historical as well ethnic ties; it has come to the forefront of the trade-war with literally owning the world’s largest foundry – TSMC. It is interesting to note how Taiwan has traded with the industry and world liberally; literally keeping a very neutral stance throughout and supported the growth on the Semiconductor industry. As of Q4 -2020, USA (13%) and China (25%) accounted for 38% of the total trade of the 25 million island nation. The analysis shows that USA is mostly transferring a lot of its IP knowledge in this field to Taiwan who in turn is integrating this using and providing finished chips at large. China too has trade with Taiwan but very less on the value-added side of the industry and mostly on the finished goods part; for example; China exports – base metals, chemicals, machinery and other heavy goods and natural resources and allied products to Taiwan and in turn importing high-value electronic goods and components. Taiwan also has a trade surplus of USD 80 billion with China if we also include Hong Kong in the list. Now comparing this with the USA with whom it enjoys a surplus of USD 13 billion, it will be interesting to see how the Taiwan governments plans and executes its policies.

The USA is indeed trying to push Taiwan as a pivot at least with respect to the semiconductor industry in the world. It remains to be seen what 2021 brings for the industry as a whole.

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