Thread by @NavroopSingh_

After US administration's chip export ban to China, 'chip war' between two countries has officially begun.

Any business with operations in the US is now banned from exporting any chipmaking equipment to Chinese customers that cannot be provided by foreign competitors.

The ban is already having an impact. Dutch company ASML, the world’s only producer of the lithography machines that are vital in the semiconductor production process, has reportedly instructed US-based staff to have no contact with Chinese customers

(ASML was already banned by the US from selling its most advanced EUV machines to China). ASML said it expects the impact of the sanctions to be “limited” as part of the announcement of its third-quarter results.

Other key companies in the chip supply chain, such as Lam Research, Applied Materials and KLA Corporation, are also taking steps to comply with the rules, while US vendors AMD and Nvidia had previously been instructed not to sell AI chips to China or face government action.

Elsewhere, US tech companies including Dell and HPE, which offer servers with advanced chips in them to Chinese clients, could be impacted.

China consumes around 40% of semiconductors manufactured globally, but is only 12% self-sufficient. The market is expected to grow to more than $1trn by 2030, according to analysis from industry group SEMI, with China accounting for 90% of the growth over the next eight years.

China is by far biggest market for South Korea’s Samsung Electronics and memory chip maker SK Hynix, while ASML currently derives 20% of its revenues from China, and power semiconductor specialists STMicroelectronics, Infineon and NXP are also heavily reliant on Chinese clients.

China jas developed its first chips built on the 7nm process nodes, one of the more advanced chipmaking technologies. This is still someway behind Samsung and Taiwan’s TSMC, the chip market leader, both of which are working on 3nm technology.

Washington reckons that the weaponisation of US semiconductor tech intellectual property is the best chance of stopping China replacing it as the global superpower by 2035 or so.

The bans on Nvidia & AMD selling their most advanced AI chips to Chinese research institutes & companies such as Huawei, Alibaba, Horizon Robotics and

Baidu will hold back China's ability to train large AI models and build inference platforms as China has no domestic capability to make such powerful chips

China is "already at parity with the US and many areas of AI", and "in supremacy in AI lies scope for world domination". China is however well placed in designs of rudimentary semi-conductors used in IoT devices, smartphones, data centers.

The semiconductor industry relies on both US IP and the Chinese chip market, and the US chip industry derives over 30% of its revenues from its China sales,

This is the serious conundrum facing the industry - in hurting China to protect its sovereignty, the US will hurt its most important strategic industry.

The CHIPS Act passed by US Congress is a bu-partisan effort to stall China’s global power ambitions by stalling Made in China 2025. America controls all proprietary technologies of Semi Conductor chip Manufacturing. TSMC needs State Department clearance for any sales to China.

Step 1: The #TradeWar started by Trump was the first disruption of Global Economic supply chain. The tariffs on the Chinese goods were inflationary for the US Consumers.

Step 2: The Pandemic disruptions lead to US Fed printing QE worth 3 Trillion $ to ensure liquidity.

Step 3: Commodities War by Russia in response to Weaponisation of Dollar disrupted commodity supply chains again having inflationary impact.

Step 4: And now Tech War will cause further disruptions to supply chains & will have inflationary impact on the hi-tech goods.

From Trade War it turned into Commodities War and now a Tech War. The west is at Geo-Economic war with Russia & China. And there are no winners over here. As the current international order winds down in this #TheGreatReset it will cause massive disruptions globally.

Looking from lenses of monetary policies, rate hikes, bond yields is half baked analysis. The Fed Rate hikes wont yield much & will only put world into a recession. The inflation is not cyclical this time but structural. Politicians matter more than central banks.

This inflation will be dirty, stubborn & prolonged. So we are looking towards a scenario of Stagflation which is a combination of high inflation & low growth. A consequence of the Geo Economic war. I had tweeted abt Trade Wars since 2017 & documented in my book #TheGreatReset !

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