PAPER TIGER
The fact that Trump couldn’t wait for just one day of a meaningful market correction in China before reversing himself is interesting. Has he realised that the balance of leverage is shifting to China’s favour? Has Trump become – what the Chinese say – a paper tiger?
For all his love of the stock market, the Chinese can certainly hold him hostage. By now, the S&P’s AI-driven rally is priced to perfection, and any prolonged supply chain disruptions can derail and kill the stock boom.
Beijing’s aggressive new export controls on rare earths, for one, can upset the fabrication process of AI chips.
Lithography machines, like those sold by ASML Holding, which chipmakers including Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics rely on to produce semiconductors, are especially vulnerable because they contain extremely precise lasers and magnets that use these elements. Separately, foundry giant TSMC relies on China’s consumable materials for 30 per cent of its production capacity of chips at 7nm and below.
In other words, from the market’s perspective, China’s grip on rare earths is even more lethal now than in early April, despite the fact that the US government has lately made a big investment in rare earth magnets.
Meanwhile, nagging trade tensions will strengthen Xi’s resolve to not only build China’s own AI models, but power them with its own hardware, thereby redrawing a supply chain dominated by Nvidia.
Already, Beijing has told its tech companies to stop buying Nvidia’s H20 AI chips tailor-made for the China market. Its customs offices have been cracking down on smuggling of the most advanced chips, a sharp reversal to the eyes-wide-shut attitude in the past. Nvidia’s shares tumbled 4.9 per cent on Friday.
