The recent news of US sanctions against Huawei has hit social media, and there is a lot of analysis about this issue. In this article, we’ll jump out of Huawei’s perspective to analyze this event.
It begins with a conclusion: Huawei is fine. But China is in big trouble.
Let’s now go through the logic of this issue in its entirety.
What are American policymakers thinking?
On May 15, the U.S. finally gave Huawei another shot.
On the same day, the U.S. Department of Commerce announced that starting May 15, all global chip manufacturers using U.S. technology will need to obtain a license from the United States in the future if they want to OEM for Huawei.
Note that the U.S. ban is aimed at “all chip manufacturers worldwide that use U.S. technology” – that is, the global ban also includes Chinese chip manufacturers.
For example, China’s most powerful chipmaker, SMIC, also uses U.S. technology and equipment, so it also falls under this ban. Once SMIC produces chips for Huawei’s foundry without a U.S. license, it will face U.S. sanctions.
When the U.S. sanctioned Huawei last year, there was also a 25% cap on U.S. technology, when TSMC evaluated its own production line to use no more than 25% U.S. technology, so it continued to give Huawei foundry chip production.
Now the United States has abolished even this 25% rate, as if Huawei will not stop until it’s dead.
Intriguingly, the U.S. Department of Commerce revised this latest export control regulations give a 120-day buffer period, global chip manufacturing enterprises in the next 120 days for Huawei processing chips are not subject to this regulation.
So why did the U.S. put this 120-day buffer period in place?
The opinion analysis may be that the U.S. still has to take care of the interests of the various chip factories around the world, and if it is cut off directly, it will cost the companies (mainly TSMC) that are OEMs for Huawei a lot.
This analysis makes me wonder a little bit, the U.S. whole Huawei is a national strategy, and the U.S. declared an emergency for the whole country last year for Huawei – can the U.S. give a 120-day buffer now to look after the interests of the global chip factories?
How many chips can Huawei stockpile in 120 days?
If the global chip makers turn on all cylinders to produce for Huawei, this one buffer period could save 2 years of chip inventory for Huawei at least!
One might argue that TSMC has an interest in U.S. capital (the U.S. has a roughly 22% stake in TSMC) and that the U.S. side is defending the interest of U.S. capital by giving a buffer period.
What is this interest compared to a national strategy?
Last year, the United States introduced export control regulations on Huawei, a vote of U.S. high-tech enterprises have to lift cooperation with Huawei, do you know how much loss these U.S. high-tech enterprises?
10 billion dollars a year!
In order to bundle U.S. capital, Huawei had to import $10 billion+ per year of chips and software from U.S. companies before export control regulations were introduced.
TSMC’s losses pale in comparison to the economic losses of American high-tech companies.
However, the US is going to give a 120-day buffer, which allows Huawei to stockpile chips for at least 2 years, and then live two years alive!
If you want to kill Huawei, you should do it without stopping, and you should kill it with a knife, so what is the point of being so forward-looking and dragging your feet?
Are American policymakers brainwashed?
Then something even more bizarre happened again.
On May 15, TSMC announced that it will invest $12 billion to build a 5nm chip manufacturing plant in the United States.
Why is this a strange thing to say?
Because on May 11 TSMC also clearly announced that there are no specific investment plans to the United States, why just four days later the attitude has taken a 180 degree turn?
Just a coincidence?
I don’t think so.
As we all know, the hollowing out of American industry has been going on for decades, and many manufacturing industries have moved abroad. The biggest problem with the return of manufacturing in the United States now is the lack of skilled industrial workers and qualified engineers, so most of the time, investing in the United States to build factories is a loss-making business.
A typical example of this is that after Chuan Poo came to power, Guo Taiming made a high-profile announcement about investing $30 billion in a factory in the United States, which is still on paper.
In April this year, TSMC responded to investors’ questions by stating that there is a “cost gap” for investment in the U.S. at the company’s earnings conference.
Why did TSMC jump into this pit at this juncture?
On the face of it, it was a swap of interest – the U.S. set a 120-day buffer period to take care of TSMC’s interests, and in return, TSMC decided to invest in a plant in the U.S.
However, this logic of benefit exchange, if it holds, is a loss-making deal for both parties.
The U.S. set a buffer to attract a $12 billion investment to keep Huawei alive for two more years; TSMC made a huge investment decision for this 120-day buffer that was likely to lose money.
So, TSMC’s investment in the US may be far from simple.
Why not use financial hegemony?
I’ve been pondering a question since May 15, a question that has me puzzled.
There are four main pillars of US global hegemony – scientific and technological hegemony, financial hegemony, military hegemony and cultural hegemony, and financial hegemony is the most used means by other countries in the US.
At present, global trade relies mainly on the SWIFT system, which is controlled by the United States and is the sharpest weapon in the United States to implement long-arm jurisdiction.
The U.S. sanctions on Iran and North Korea are the SWIFT system to freeze all foreign trade between the two countries, leaving Iran and North Korea on their last legs.
In order to counter the US financial hegemony, our country has set up a Kunlun bank specifically to do Iran trade, so how does this bank bypass the SWIFT system to solve the problem of cross-border settlement?
The Kunlun Bank is a unit of account, but there are no cross-border payments and settlements at all, except that the banks of the two countries revise the figures on their books after the bilateral trade volume has been consolidated.
Understanding the Kunlun Bank’s operating model, one can imagine how inefficient Kunlun Bank would be in doing “cross-border trade settlement”.
So, for a long time, this SWIFT system was hard to shake.
Press: Now our central bank is about to launch a digital currency, and trying to use blockchain technology to do cross-border RMB settlement is to find a way to break through this SWIFT system, but this road will take a long time to get out.
Now the question comes, why does the whole Huawei thing in the US keep revolving around tech hegemony? Why not use your own financial hegemony to screw Huawei?
As long as the U.S. freezes all Huawei’s enterprise transactions in the SWIFT system, it’s simply a downside blow to Huawei!
By turning Huawei from an international company into a domestic company, all international business will be scrapped, and the harm to Huawei may be even greater than banning global chip manufacturers from manufacturing chips for Huawei.
In addition, this blow also solved the problem of preventing Huawei 5G base stations from occupying Europe, Trump, Pompeo these years to the EU countries all kinds of bullying and enticing is not to prevent them from using Huawei equipment? Wouldn’t freezing all Huawei enterprise transactions directly in the SWIFT system solve this problem completely?
So, what the United States is doing makes me suspicious.
On the one hand, the country is declared to be in a state of emergency, and all kinds of gestures are made to kill Huawei; on the other hand, the country has turned a blind eye to its own sharpest financial hegemony, and has been making a show of its technological hegemony.
This time it looked like Huawei was going to be completely screwed, but instead it left a 120-day buffer period.
What the hell are the Yankees up to?
The US strategic trap.
Now let’s comb through the deeper logic behind America’s contradictory behavior.
First of all, why didn’t the US use the SWIFT system to launch a downside-down strike against Huawei?
I think the only reasonable explanation can only be fear of retaliation from the Chinese side.
With $100 billion in U.S. exports to China and more than $500 billion in U.S. sales in China each year, capital gains of this magnitude are the biggest scruples for U.S. policymakers.
Once the U.S. uses SWIFT to kill Huawei, the Chinese side will certainly retaliate – as much as Huawei’s overseas interests lose, U.S. interests in China will also suffer.
This kind of exchange of hundreds of billions of dollars of mutual interests is difficult for even the United States to make up its mind.
There is another problem with this logic if it holds up – doesn’t the U.S. use tech hegemony to screw Huawei and worry about Chinese retaliation?
In fact, as long as the U.S. is behind Huawei, whether it’s using technology hegemony or financial hegemony, China will retaliate!
After the U.S. revised the export control regulations for Huawei, China showed its own backing card. Once the U.S. implements the control regulations for Huawei, China will retaliate against Qualcomm, Cisco, Apple and Boeing!
Now China hasn’t stepped in just because this current US export control regulation hasn’t hit the ground running!
Why didn’t it land?
Because the U.S. side also gave a 120-day buffer period!
Because of this buffer period, China and the United States, while at war, are not yet at the point where they can really lift the table against each other!
So we can derive this logic -.
The United States does not dare to use its financial hegemony to use the SWIFT system to kill Huawei because of fear of Chinese retaliation.
The same fear of reprisals from China makes it unlikely that the United States will actually enforce this export control provision against Huawei in the future.
Now the question comes, if the US has long anticipated the outcome of not being able to really lay a killer on Huawei – why start this series of tumultuous operations?
This is an elaborate strategic trap by the US!
To be precise, it’s digging a big hole and forcing China to jump down.
This pit is high-end chip manufacturing.
The U.S. is using a false and realistic approach to force China to invest an enormous amount of resources in high-end chip manufacturing, which will not only greatly compress China’s investment in other areas of science and technology, but also the enormous amount of resources invested in high-end chip manufacturing in the next 5-10 years will likely be ineffective investment.
This is a strategic American scam.
Talk about the twists and turns in this.
High-end chip manufacturing
The United States is a master of strategic deception.
In the early 1980s, the United States proposed an ambitious Star Wars plan to build an anti-missile defence system in outer space to intercept nuclear bombs against a possible future nuclear war.
The plan cost so much that US President Reagan announced he would spend $1 trillion to build this nuclear shield in outer space.
At that time, the US and the Soviet Union were pitted against each other, both possessing nuclear forces sufficient to destroy their opponents countless times, and to leave the US with a unilateral nuclear shield would mean that the US would have a unilateral nuclear deterrent against the Soviet Union in the future.
Therefore, after the United States announced its plan for the planet, the Soviet Union had to follow suit and develop an anti-missile defense system in outer space.
In fact, the Planetary Plan was an elaborate US strategic hoax to introduce the Soviet Union into a costly and ineffective arms race with a fictitious plan that was far from technologically mature.
When the Soviet Union collapsed in ’91, the United States immediately announced the end of this Star Wars program.
What is more troubling now is that the strategic trap the United States has dug for us this time is largely not a conspiracy but a conspiracy.
The meaning of a yang conspiracy is that you know full well that your opponent’s calculations are not yet broken.
First of all, let’s talk about how big this pit is for high-end chip manufacturing.
There are two benchmarks for high-end chip manufacturing, one is the benchmark for production technology and process, which is TSMC, and the other is the benchmark for production equipment, which is the photolithography machine produced by ASML in the Netherlands.
SMIC, which is currently the strongest chip maker in the country, has just achieved mass production of 14nm chips, while mass production of 7nm chips is still far away, while TSMC has already achieved mass production of 5nm chips, with a two-generation gap between SMIC and TSMC.
The same is true for lithographs, we can make 22nm lithographs at CASO, but the Dutch company ASML has 7nm lithograph technology, and there is a difference of 2 generations between us and the Netherlands.
These two benchmarks look like only two generations apart, but both areas are super burners.
TSMC’s annual research and development costs are $2 billion, the gap between the second generation will take at least 5 years, the research and development costs alone will hit $10 billion, if you take into account equipment, personnel training, process improvement and so on this figure will be several times more.
The most annoying thing is that some equipment is not something you can buy for money, this card neck device is a lithographer.
The average person may not have a concept of how much money a lithograph burns.
There were originally three giants in the photolithography industry, ASML, Nikon and Canon, but then the R&D in this area really burned too much money, so Nikon and Canon gave up, leaving only ASML to hang on.
Then ASML also can’t hold out and is ready to give up, the key moment, the global chip production of several giants – TSMC, Samsung, Intel took out nearly 4 billion euros in ASML shares.
Not only do the three giants take a stake in the order, they also provide 50% of ASML’s annual R&D costs.
So if China wants to catch up with these two pacesetters in high-end chip manufacturing, there’s no way in hell it won’t burn a few hundred billion dollars without a decade!
What a concept a few hundred billion dollars is.
In 2017 there was a big debate in the Chinese scientific community over whether to build a large collider or not. Both sides had the support of important scientific leaders, and in the end it was the great scientist Yang Zhenning who rejected the plan with a single stroke.
The main reason for Yang’s denial is also financial.
The collider’s construction budget is $20 billion, and Yang argues that investing $20 billion in the collider project would dramatically squeeze research budgets in other scientific fields.
There are currently huge gaps in research budgets in many important areas of fundamental theoretical research (including condensed matter physics, astrophysics, life sciences)!!!
A single $20 billion research project would dramatically squeeze the budgets of other research areas.
What is the concept of a budget squeeze on other areas if we drop a few hundred billion dollars on high-end chip manufacturing?
The most painful thing is that even if we drop hundreds of billions of dollars in high-end chip manufacturing over the next decade, it may still not work.
In the next 5-10 years, with the spread of 5G, the efficiency of information transmission will be greatly improved, when our smart terminal products (mobile phones, computers, home appliances, etc.) will be revolutionized – most of the storage and computing functions will be put in the cloud to solve.
To use an analogy, now we need high-end chips for intelligent terminals because each end product has to go to “cooking” (storage, computing), the future will go directly to the “canteen” (cloud) to eat rice, we only need a “lunch box” will do!
In other words, the future demand for high-end chips will be dramatically reduced!
Now because a large number of smart terminals need high-performance chips, so the market demand for high-end chips is tens of billions, the future may be 5G base stations, large servers need high-end chips, the number of which is millions.
We’ll be in a very awkward situation when we spend hundreds of billions of dollars on high-end chip manufacturing capacity.
Because the market demand is greatly reduced, our high-end chip production capacity is directly faced with TSMC such a benchmark competition – probably there is still a certain gap, and finally our high-end chip production capacity into the predicament of no rice in the pot.
This is the most vicious of U.S. strategic calculations – to lure and force China to spend huge resources in an area that is destined to shrink dramatically and burn money, thereby squeezing the resources it has invested in other areas of science and technology.
The most crucial competition between China and the United States is that of technology.
The development of science and technology requires money and resources.
China is expected to spend more on research than the U.S. for the first time by 2022, but if we spend too much in some inefficient areas, we will continue to lag behind the U.S. in other important areas (such as quantum computing, artificial intelligence, controlled fusion, etc.)
overtly scheming and calculating
Why is this American reckoning a conspiracy and not a conspiracy?
Because even if we knew that the U.S. was digging in this area, we’d still have to jump – because we can never predict the extent of the U.S. strategic resolve, and in case the U.S. does have the cash in, the U.S. can cut off supplies to Chinese tech companies at this stage in high-end chip manufacturing.
And before 5G becomes widespread (it will take at least five years to build tens of millions of base stations alone) – the vast majority of our smart end products, and even our 5G base stations, are still in need of high-end chips (chips with a 7nm or higher process).
It is definitely a major blow to China that the U.S. is going to cut off China’s supply of high-end chips during this critical period.
The best thing about the U.S. is that it has made an aggressive gesture to cut off high-end chip production, but then it doesn’t (with a 120-day transition period), forcing us to continue to invest more in high-end chip manufacturing.
The key point is that the United States, without spending a penny in the process of this game, uses its technological hegemony to repeatedly pressure us to constantly force us to consume precious resources in this area.
If the game is likened to a war, the exchange alone is a big loss for us.
Now I can probably understand why TSMC is investing in the U.S. to build a factory knowing that it is losing money.
Huawei is a big customer of TSMC, with orders accounting for 20% of TSMC’s revenue. If TSMC loses Huawei as a customer because of the U.S. factor, it will definitely hit TSMC hard – with 20% less revenue, TSMC will probably go from profit to loss.
Now that the U.S. has changed its export control rules, all chip makers around the world will have to apply for a license from the U.S. to OEM Huawei, as long as they use American technology.
This “license” is a key “switch” created out of thin air by the United States.
This “license” may or may not be given, or even “given” in stages, with the United States in full control.
This is not only difficult for China – do not know when this sword of Damocles hanging overhead will fall and have to increase investment in high-end chip production.
On the other hand, this licensing system is also a huge constraint for chipmakers like TSMC – do you want me to “take your interests fully into account” when I license in the future?
This is why TSMC knows that investing in the United States is a loss-making business, but also has to come up with $12 billion to invest in the United States to build factories.
In this way, the U.S. not only pulled in a $12 billion investment in high-tech industries, but also achieved a deep bundling of interests with TSMC.
use one’s strength to break the ice
After sorting out the complete logic of this event, I’m also lamenting – the US global hegemony you have to admit is indeed bullying, using the hegemony at hand, the US can create countless means to suppress challengers out of thin air without spending a dime.
It is an asymmetrical war.
It is also our most bitter war.
I’ve been thinking about this for a few days now, and the only way to do it is to–
Break the game with force!
Bring me TSMC!
This approach will not solve the problem completely, but it will save us more than 5 years of catching up time in high-end chip production and greatly save investment in this area.
Five years is enough time!
I now look forward to the early reunification of the two sides of the Taiwan Strait.