Earlier this month, shares of Semiconductor Manufacturing International, China’s top chipmaker, plunged on reports the Trump administration may blacklist the company as part of The White House’s constantly escalating tech war with Beijing.
Fast forward three weeks and those sanctions are a reality.
According to a letter from the Commerce department sent to companies that do business with SMIC, exports to the chipmaker represent an “unacceptable risk”. Specifically, the Trump administration cites the potential for “military end use”, again conjuring the PLA as a threat that’s not just pervasive, but almost omnipresent.
The Financial Times, which broke the news on Saturday, notes that “SMIC has already been hit by the tightening of US sanctions”.
The reference is to Trump’s draconian crackdown on Huawei, which faced an existential crisis after the administration moved to close loopholes embedded in previous actions against the company. SMIC is among Huawei’s manufacturers.
When reports of the forthcoming sanctions tanked the shares (red in the figure above), SMIC said it was in a state of “complete shock” at the prospect of being added to Wilbur Ross’s entity list, which now includes almost 300 Chinese companies, and is the administration’s weapon of choice when it comes to perpetrating the tech war.
The narrative is familiar. The Pentagon and the Commerce department are ostensibly concerned about SMIC’s ties to the PLA. SMIC said earlier this month it has “no relationship” to the military at all, a contention it reiterated on Saturday. “[We have] no relationship with the Chinese military, and do not manufacture for any military end users or end uses”, SMIC insisted.
There was no formal notification delivered to the company as of FT‘s initial reporting.
If Trump slaps an export ban on the company, it will have devastating consequences, not just for SMIC, but for its suppliers and clients, many of which saw their shares hit with SMIC’s on September 7.
This comes as the TikTok/Oracle soap opera drags on, with no definitive word on whether the deal will ultimately be cleared by Beijing, which recently unleashed a state media blitz lambasting what China calls “extortion” on the part of the Trump administration.
Trump himself still hasn’t decided whether to clear the deal. The proposed freezing of TikTok in the US as well as Trump’s ban on WeChat, are tied up in US courts. A hearing on the looming TikTok ban is set for Sunday morning.
At some point, China is likely to respond to the provocations with the unveiling of the long-rumored “unreliable entities list”. Beijing has repeatedly warned that companies which pose a threat to China’s national interests could be designated as hostile, threatening the operations of multinational businesses in the world’s second largest economy.
FT quotes Eurasia Group’s Paul Triolo. “In the worst-case scenario, SMIC is completely cut off, which would severely set back China’s ability to produce chips”, he said, adding that this “would be a tipping point for US-China relations”.
I suppose what I would add is that the drama never ends. While I have repeatedly emphasized that the US has legitimate national security concerns around Xi’s global tech ambitions, the incessant badgering — the constant provocations — the never-ending escalations — are exhausting, both for market participants and for the international community, including and especially America’s allies, who are themselves often the targets of the administration’s broadsides.