Global stock markets tumbled the day after news about US Republican presidential candidate Donald Trump's accusation about Taiwan taking the chip business from the United States and that he would impose 60% tariffs on goods from China and 10% on all goods from other countries.
The share price of Taiwan Semiconductor Manufacturing Company (TSMC) fell 2.43%, while MediaTek dived 3.4% on July 18. However, the US semiconductor companies experienced an even heavier hit overnight. Applied Materials, Marvell, and AMD plunged more than 10%, while Nvidia, Supermicro, Broadcom, and Micron were down 6-7%.
DIGITIMES Asia had an exclusive interview with South Korean political economist June Park, who is an expert observing the geopolitics and geoeconomics of emerging technologies in the US, East Asia, Europe, and the Persian Gulf, to discuss the possibility of a new tariff war and how various countries are coping with the uncertainties.
Q1: It is widely speculated that Donald Trump is even more likely to win the US election after the shooting incident. He has already threatened to impose tariffs on all chips made outside the USA. Is that only an election rhetoric? What's your take?
It is speculated that Donald Trump's chances of winning the 2024 US presidential election have increased, upon the failed assassination attempt against him. If sympathy or a sense of justice sway voters towards Trump, it could bolster his electoral prospects. Furthermore, Trump's threats of imposing tariffs on imports suggest a continuation of his protectionist stance.
Though some of Trump's statements may be election rhetoric, it is very difficult to gauge from this point forward the exact percentage of tariffs on each segment of the semiconductor industry he would impose. There is complexity in determining and implementing tariffs on various components when considering perspectives from the industry. Such implementation would require considerations for practicality beyond campaign promises.
Q2: Do you agree that whoever gets elected as the US president will certainly resort to tariffs for a new round of trade war with China? What would be the implication of this for the world economy? Given the fact that the interest rates remain high, and inflation has yet to be tamed?
Yes, I agree that tariffs are likely under either a second Trump term or a second Biden term, which would impact the global economy. If interest rates remain high amid persisting inflation, then tariffs would be a double whammy for US consumers. Once the tariffs are imposed, the cost and availability of 'made-in-America' goods will be the question for US consumers.
For Chinese firms with the US as the main clientele, there would be no other option than to resort to relocation of their final assembly lines, if re-routed Chinese exports to the US via Vietnam or Mexico come under scrutiny.
Q3: South Korea is also an important semiconductor manufacturing country, and SK Hynix and Samsung are also producing memory products in China to be shipped to the world. What measures have the South Korean government and big semiconductor conglomerates taken to prepare for the scenario of a renewed trade war?
I believe that the trade war never really ended and that the tech war was at the core of the trade war. The trade war between countries, particularly in the tech sector, has evolved beyond traditional trade war tactics involving tariffs upon conducting antidumping and countervailing duty investigations or currency appreciation pressures. Now, what matters more is tech supremacy, and the tactics are chosen to limit the capacity of the opponent.
The WTO dispute settlement system is currently ineffective due to the lack of a functioning appellate body. This has led nations to consider other avenues for resolving trade conflicts, such as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).
The economic security concerns for South Korea amid ongoing trade tensions would be centered around tariffs and export controls if and when a second Trump term is confirmed. There is a shift towards considering additional controls and tighter enforcement measures on China, leading to a scenario where South Korean industries need to adapt to new challenges.
Furthermore, the emergence of AI chip controls presents both challenges and opportunities for South Korean industries, particularly in developing newer chip technologies such as Neuromorphic Processing Units (NPU) amid the need to keep a stronghold for market dominance in High Bandwidth Memory (HBM) chips for Graphic Processing Units (GPU). The competitive landscape, especially in legacy chip environments in China, poses a significant challenge for South Korea's chip industry as well. As the trade dynamics evolve, South Korea must formulate a strategic approach that considers both China and the US to navigate the complex trade environment effectively, while exploring other avenues of revenue by diversification of markets.
Q4: You are also well connected to the European and Middle East research institutes. What could be the reaction of the EU and other major players in the world to a disarray in the years ahead?
There is constant debate in the US concerning the allocation of tax money to support Ukraine amid the ongoing war. Additionally, concerns are raised about the lack of a reliable partnership between the EU and the US, particularly regarding shared ideals and security apparatus.
The challenges for the US and the EU to reach common ground on tech lie in their differing priorities, especially vis-à-vis tech regulation and innovation. The Trade Technology Council (TTC) led by the White House is a platform for economic discussions but struggles to make significant progress due to regulatory differences.
The EU's announcement of tariffs on Chinese EVs before the G7 meeting shows that there is common interest with the US to stave off a looming threat from possible dumping of Chinese EVs, and it was a gesture for political alignment.
However, there are complexities and frictions in transatlantic trade relations, tech regulations, and the impacts of global trade disputes on various sectors.
For example, Apple is refraining from releasing some of its Intelligence AI in the EU market due to considerations that the interoperability requirement of the Digital Markets Act (DMA) may force them to compromise the integrity of the product. So, frictions are expected on the tech side, across the Atlantic.
And the conflict in the Middle East may be prolonged, as the relationships between Saudi Arabia, Israel, and Iran have already blunted in this war. Aside from the conflict, China is expanding into the Gulf market. BYD showrooms are now present in major Gulf cities. China is coming on very strong, not just with EVs but with diesel cars and hybrids, being displayed in malls in major Gulf cities as well. China's EV charging poles and flying taxis are also coming to the Gulf.
The US has noticed that there is a risk here. The recent deal between Microsoft and G42 to enable Nvidia chip access for the UAE was a solution for the US for the time being amid the difficulty of reigning in China and their tech cooperation with Gulf states. The reality for the US is that Chinese tech companies and engineers are hugely impacting the growth of the tech industry in the UAE and Saudi Arabia.
The Gulf countries are trying to transform their economies to combine industries with resources, and tech is the frontier these states look to. There is this intricate play between fossil fuel and renewables, and when it comes to AI, they have the electricity to power data centers but are nascent in digital transformation. The dilemma is how to build their tech in the ongoing US-China tech war.
Dr. June Park's Bio:
June Park is a visiting fellow at the Middle East Council on Global Affairs. She is also a fellow with the Digital Euro Association, an inaugural Asia fellow of the International Strategy Forum at Schmidt Futures, and a nonresident fellow at the National Bureau of Asian Research in Washington, D.C..
Park is a political economist by training and works on the geoeconomics of technology among East Asia, Europe, the Gulf, and the US. She focuses on trade, energy, and technological conflicts. She has published in World Development and Asian Perspective and has authored numerous book chapters and policy reports. At the ME Council, Park is working on South Korea-GCC relations. She is finalizing her first book, "Digital Trade Wars & Currency Conflict: China, South Korea, and Japan's Responses to US Pressures."
Previously, Park was a Fung Global Fellow at the Princeton Institute for International and Regional Studies at Princeton University and a fellow at George Washington University. She has served as a consultant on central bank digital currencies (CBDC) for the South Korean Ministry of Foreign Affairs and on artificial intelligence (AI) legislation for Ernst & Young.
Park advises on economic security for European governments and think tanks. She contributes to the Center for East Asia Policy Studies at the Brookings Institution and provides her analysis to the East Asia Forum and The Diplomat while engaging with various media outlets such as the BBC, Deutsche Welle, and Al Jazeera.
Credit: June Park
