Wednesday, June 23rd, 2021

Moving US Tech Supply Chains Out of China


A recent Bloomberg article details how Chinese military intelligence planted tiny spy chips in circuit boards headed for major US companies. This news comes as it becomes clear than the US Chinese trade war is going to be a long term if not permanent issue. The New York Times looks at tensions with China and their effects on tech stocks.

Earlier in the day, the Treasury Department imposed new rules making it easier to block foreign investment in technology companies on national security grounds, outlining a rigorous review system that is aimed primarily at preventing China from gaining access to sensitive American technology.

“There’s an increasing realization in the market that this is not just about the trade deficit. This is about security concerns. This is about geopolitical strength,” said Evan Brown, director of asset allocation at UBS Asset Management. “It’s about encouraging U.S. companies to move their supply chains out of China. And so there are questions about a broader disruption and potential legislation or scrutiny in these markets.”

As profits continue, tech stocks are not likely to crash, but profit margins are going to be hit by rising costs of raw materials, tariffs, and other trade-related issues. Meanwhile, so-called value stocks are finding buyers as the ever-longer bull market ages.

CNBC writes about growth stocks getting slammed.

The sell-off has definitely been targeting big-cap growth names, like “FANG” companies Facebook, Netflix, Amazon and Google’s parent Alphabet, all down sharply. In tech, semiconductors were down 3.4 percent, and have now fallen more than 7 percent since the start of October. Names tied to global growth, like Caterpillar, have also been slammed.

Analysts look at tariffs, the cost of raw materials, and an aging bull market. But, as our sister site, noted, the USA and China are going head to head for global dominance and that is where all of this is coming from. US hawks would like to move all US techs out of China and stop helping that nation propel itself towards more global influence if not dominance. Read their article about the US China trade war becoming permanent.

The USA became the dominant global power at the end of World War II. War had ravaged Europe and Asia. In the years after the war Japan and Germany rose from the ashes of defeat to become major manufacturing and global powers. India became a country instead of a British colony. Brazil started seriously developing its industry. The USSR rose and fell to be followed by the rise of the Russian Federation as a dominant producer of raw materials, especially oil and natural gas. As Europe, Asia, and other parts of the world gained economic ground they cut into the dominance of American industry and even science. This would have been easy to predict given that another global war did not occur. Nevertheless, many in the USA long for the “good old days” of American dominance.

The USA is now digging in to protect its position again the rise of China.

China was the “middle kingdom” in Eastern Asia for centuries. Then the European Colonial powers ringed them in. When the Communists defeated the Nationalists in the late 1940’s they became an enemy of the USA. And, the USA developed alliances that ringed in both the USSR and China. China was an isolated nation with a huge army and nuclear missiles.

Now China is not isolated but still has missiles and a big army that is modernizing. The threat to the US, Europe, and everyone else is China’s single-minded push for global influence and, probably, global dominance. Moving US tech supply chains out of China is probably only part of the picture. Options traders will be wise to keep this global picture in mind when setting up trades.

Moving US Tech Supply Chains Out of China PPT

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