Coronavirus Causes Old US-China Tensions to Resurface
US-China Relations Strained
The coronavirus has proven to be the latest wrench in an already-tense relationship between the US and China. In January, the two countries appeared to mend fences by signing a preliminary trade deal that US President Donald Trump said would unify the world’s two largest economies. But a lot has changed since then. Most notably, the COVID-19 pandemic has spread across the world and rocked the global economy.
Tensions have been simmering for a while due to multiple geopolitical disagreements. China’s military ambitions, the status of Taiwan, supply chain disruptions, and the deportation of journalists are a few developments that consistently cause strain between the two countries. Halfway through the first quarter, the coronavirus’ spread exacerbated these existing conflicts.
Wall Street generally believes that the increased rhetoric about China-US disagreements does not bode well for the global economy. Due to increased globalization over the past three decades, the two nations are economically intertwined. For example, China holds over $1 trillion in US debt . Any rupture in the relationship could cause massive global economic shockwaves. Investors have been unnerved by the increasingly fraught relationship, which has manifested itself in the stock market’s recent volatility.
US Aims to Limit China’s Access to Smartphone Chips
On Friday, it seemed like the Trump administration was going to prevent chip manufacturers from shipping semiconductors to Huawei Technologies, the world’s second-largest smartphone manufacturer.
US officials have repeatedly expressed concern that the Chinese company could use its 5G networks to spy on the US and its allies. For its part, Huawei has denied these claims. The semiconductors, which Huawei uses in its smartphones and other telecoms equipment, were targeted on the grounds that they are the direct product of certain US software and technology, according to the US Department of Commerce. This speaks to the United States’ concern about intellectual property theft as well. The department also noted that Huawei’s acquisition of the semiconductors both flouted US export controls and exacerbated national security concerns.
Taiwan-Based Company Chooses to Build Arizona Facility
As if the Huawei news wasn’t unsettling enough, another development made noise at the end of last week as well. On Friday Taiwan Semiconductor Manufacturing Co (TMSC), which makes chips for Huawei’s HiSilicon unit, announced that it will be turning away from China. The firm said at the end of last week that it plans to build a new semiconductor plant in Arizona—a move that may add to the list of growing tensions.
The Trump administration has been critical of the global supply chain as the US aims to reduce its dependence on China. TSMC, which has facilities in China, is the latest company to move manufacturing away from Beijing. Apple Inc. (AAPL), which has long made its products in Chinese factories, has reportedly begun manufacturing some of its AirPods in Vietnam to speed up the diversification of its supply chain.
TSMC’s move may be viewed as adding fuel to the fire during an already intense time period. To that end, the Dow Jones Industrial Average lost 2% last week. Part of the overall downward turn was related to increased tensions between the US and China.
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