China Likely to Retaliate with More Than Tariffs, Says Rhodium’s Goujon

Key Concepts:

• US-China Trade War: Escalating tariffs and retaliatory measures between the US and China.
• Supply Chain Disruption: Impact of tariffs on global supply chains, particularly for companies like Apple.
• Tit-for-Tat: Reciprocal actions taken by the US and China in response to each other's policies.
• Export Controls: Restrictions imposed by the US on the export of advanced technologies to China.
• Anti-Foreign Sanctions Law: Chinese law allowing countermeasures against foreign sanctions.
• IP Rights Suspension: Potential suspension of intellectual property rights for US companies in China as a retaliatory measure.
• Anti-Monopoly Arm (SAMR): China's regulatory body with veto power over strategic mergers and acquisitions.
• Conflict of Law: Situations where US and Chinese laws clash, creating challenges for multinational companies.
• Economic Security Standards: Measures to exclude China from infrastructure build-outs globally.

1. Impact of US-China Trade War on Supply Chains

• China serves as a major assembly point for many global products, including Apple devices.
• Components may be manufactured in the US (e.g., Kentucky) and shipped to China for assembly before being re-imported.
• The trade war, characterized by escalating tariffs (e.g., potentially reaching 104%), is causing significant supply chain disruptions.
• Empty shelves at retailers like Walmart and delays in Amazon orders are potential consequences of the trade war.

2. US-China Negotiations and Potential Outcomes

• Both the US and China believe the other is in a weaker economic position.
• China anticipates US inventories will deplete, forcing a conversation.
• A return to lower tariff levels (e.g., 54%) is considered a minor win given the scale of disruption.
• China desires a broader negotiation encompassing trade deficit reduction through large-scale purchases (e.g., semiconductors).
• This could potentially undermine US export control regimes, which is unlikely to be accepted by the US.

3. Escalation Beyond Tariffs: Tech Controls and Retaliation

• The conflict extends beyond tariffs to include technology export controls.
• The US may impose further restrictions on cutting-edge GPUs (e.g., NVIDIA chips) and other technologies.
• The US is considering evolving economic security standards to exclude China from global infrastructure projects.
• China is developing retaliatory measures targeting US big tech companies operating within China.

4. China's Retaliatory Toolkit: Anti-Foreign Sanctions Law and IP Rights

• China's implementation of the anti-foreign sanctions law includes potential suspension of IP rights for US companies.
• This is considered an "explosive" measure that could alarm companies from various countries (Japan, Europe) due to the erosion of established norms.
• China's anti-monopoly arm (SAMR) has veto power over strategic mergers and acquisitions globally.

5. Conflict of Law Conundrum: M&A and National Security

• Strategic deals intended to result from the trade wars are facing uncertainty.
• The potential for China to veto mergers based on national security arguments creates a "conflict of law conundrum."
• The example of Intel and TSMC is raised, questioning whether the US would accept a Chinese veto over a major merger.

6. Notable Quotes and Significant Statements

• "At 104% tariffs, I'd say so." (referring to the US-China trade war being a game of chicken)
• "That's explosive, right, if China goes down that path." (referring to the potential suspension of IP rights)

7. Synthesis/Conclusion

The US-China trade war is escalating beyond tariffs, encompassing technology export controls and potential IP rights suspensions. This creates significant uncertainty and risk for multinational companies, particularly in the tech sector. The conflict of law issues arising from China's regulatory power over global mergers and acquisitions further complicate the situation. The long-term implications of these actions could reshape global supply chains and technology landscapes.