Source: Content from The Economist , thank you.

According to The Economist, the US and Huawei are at odds not just because some of them make unreasonable assumptions about the use of Huawei equipment. On the other hand, Huawei is the global leader in 5G technology and also symbolizes China's technological and economic progress, which Trump hates.

U.S. Attorney General William Barr once warned that if the United States cannot prevent Huawei from gaining dominance in 5G, it may hand over the dominance to China.

However, the impact of the US ban on Huawei did not meet the White House's expectations. Chip manufacturers still have ways to continue to supply Huawei from factories outside the United States, so the United States further extended the ban on May 15, not only can chip manufacturers not sell chips to Huawei, but also cannot use US-made equipment in the process of manufacturing chips. As long as large wafer fabs like TSMC use US-made equipment, there is no way to continue to make chips designed by Huawei anywhere in the world.

At a press conference on May 18, Huawei said the new ban could threaten the company's survival. China then announced that it would invest $1.4 trillion by 2025 to enhance China's technological autonomy. However, like the previous ban, the latest US offensive may not achieve the expected results.

The new regulations may completely miss the mark.

The assembly of Huawei's mobile phones and base stations is outsourced to other manufacturers, and the chips produced by TSMC are sent to the companies responsible for assembly, not to Huawei. The assembled products are then delivered directly to Huawei's customers.

In other words, Huawei does not need to touch the chips blacklisted by the United States from beginning to end, which gives Huawei an opportunity to dodge the ban. Some lawyers analyzed that the new restrictions do not seem to cover products sent to third parties instead of Huawei, even if they are actually provided to Huawei for use.

Even if the legal experts misinterpreted it, the regulation is difficult to enforce. Asian chip manufacturers' clean rooms are difficult to monitor, and more importantly, the $412 billion semiconductor industry has a global footprint, so even if the U.S. law is more permissive, it will be difficult to constrain the entire industry. The result of the new ban is more likely to cause the U.S. chip manufacturing industry to move abroad.

The geographical scope of the chip manufacturing industry is getting wider and wider, gradually leaving the United States. One indicator is to see where the physical assets of the manufacturer are located. According to statistics, only 20% of the factories of the world's top 12 semiconductor companies are located in the United States. The factories of Asian companies such as TSMC, SMIC, and Samsung are mainly located in their local areas. At the same time, American companies and many upstream suppliers have been continuously expanding their locations abroad over the years, partly to seek cheaper labor, and partly to avoid the impact of natural disasters.

Take Intel, for example. Intel designs and manufactures chips for its customers (Huawei is also a customer). In 2019, more than 35% of the US giant's $55 billion worth of physical assets were located overseas. About $8 billion worth of assets were located in Israel and $4 billion in Ireland. Industry insiders point out that since the US declared war on Huawei, shipments from Israel and Ireland to China have increased. Intel also has more than $5 billion worth of assets located in China, Intel's largest market. Last year, Intel's $72 billion in revenue came from China, with $20 billion.

Another example is Analog Devices, a smaller American company. The radio frequency chips made by Analog Devices are important parts for Huawei to make telecommunications base stations. The company has also begun to diversify its investments in recent years: half of its assets are located in the Philippines, Ireland, Singapore and Malaysia. This strategy may make it easier for it to find ways to manufacture chips in non-US factories and provide them to Huawei.

Geographical complexities make it difficult for the U.S. government to prevent manufacturers from sending chips to Huawei. Therefore, the government has turned its focus to the equipment needed to make chips. Many of these equipment are still made in the United States, which makes them easier to control. Applied Materials, a semiconductor equipment and service provider, has its parent company in California and 90% of its assets in the United States. Lam Research, an equipment supplier for TSMC, has 88% of its $1.1 billion factories in the United States.

The new Huawei ban has an unknown that has chip industry lawyers busy exploring: whether equipment produced overseas by American companies is considered "Made in the USA." If so, manufacturers like TSMC that rely on those equipment to make chips for Huawei will have to find other suppliers. Japanese competitors of American equipment manufacturers, such as Tokyo Electron and Hitachi Advanced Technology, have suddenly gained a new geopolitical advantage.

Another mystery relates to a piece of news that was announced on the same day as the ban.

On May 15, TSMC announced that it would invest $12 billion to build a wafer fab in Arizona, which is expected to be put into use in 2024. Why would TSMC, a company that gets 15% of its revenue from Huawei, agree to invest more than $10 billion in the United States when the United States caused it to lose its largest customer? Perhaps it was to win Trump's favor to avoid the United States from further extending the ban to other Chinese customers of TSMC. But there is another possibility, that is, TSMC can move American-made equipment from existing factories to the wafer fab in Arizona, freeing up space in the Taiwan factory for newly purchased non-American-made equipment, so that it can be used to serve Chinese customers. TSMC did not respond to this.

Even if that is not TSMC's intention, manufacturers will inevitably find a way to bypass it.

On May 18, the chairman of Samsung Electronics visited the company's new wafer fab in Xi'an. Samsung Electronics plans to invest $115 billion in chip manufacturing over the next 10 years, and has made it clear that it will not ignore China. The US export ban may force Samsung to choose equipment that is not affected by the geopolitical situation between China and the United States.

According to insiders in the chip industry, semiconductor equipment has been marketed as "EAR free" in China, claiming that Chinese buyers do not need to worry about the "export administration regulations" used by the Trump administration to attack Huawei. A person familiar with American equipment manufacturers pointed out that some manufacturers are considering moving patents overseas and re-establishing their business outside the jurisdiction of the United States to circumvent current and future anti-China restrictions. Trump's attempt to de-Sinicize the semiconductor industry may instead lead to the de-Americanization of the industry.