Skip to comments.The Stock Market Is Sending a Message to Trump: This Is the Wrong Kind of Tech War
Posted on 05/30/2019 12:17:47 PM PDT by SeekAndFind
As things stand, America is likely to lose the tech war with China. The stock market should be sending a message to President Trump. U.S. semiconductor stocks are down 20% in the past month, and the broad market has been in freefall for a week. This is a war we can win, by mobilizing American ingenuity to produce technology that will crush the competition. No-one ever won a war by trying to stop someone else from doing something. I'm an Always Trumper, and I want the president to win another term. But he's risking the U.S. economy and his re-election chances on a poorly-conceived offensive.
Last year we produced just 10% of the world's semiconductors, down from 25% in 2011 and nearly 100% in the Reagan era. We don't produce any telecom gear to compete with Huawei's best-of-breed products (we're telling our allies to buy from Ericsson and Nokia, who also make their gear in China). We're trying to stop the Chinese telecom giant from dominating the rollout of a game-changing new technology, but we've got no competing product. We might slow Huawei down by banning exports of U.S. technology--although I doubt we will slow it very much--but we can't stop China from becoming the world's dominant producer of high-tech products unless we rebuild our own high-tech industry.
The U.S. invented the integrated circuit in the 1950s and perfected CMOS chip manufacturing in the 1970s, making cheap, small, and powerful processors the basis for the modern digital economy. CMOS came out of RCA Labs with Defense Department R&D funding, under the direction of Dr. Henry Kressel, then head of RCA's electrical engineering research. Last December, Dr. Kressel and I argued in a Wall Street Journal op-ed that the U.S. had to bring chip manufacturing back onshore, despite the enormous cost of doing so.
Just why has the trade war morphed into a tech war?
Telecom hardwire providers serve their national intelligence agencies. It would be naive to imagine that China's giant Huawei Technologies, the world's largest provider of telecom equipment, doesn't have ties to its country's intelligence service, as American officials allege. I'm sure of this, because that's exactly what our National Security Agency did with Cisco, formerly America's premier supplier of Internet routers and related equipment. The NSA installed "back doors" in Cisco equipment according to documents leaked to the public by renegade NSA consultant Edward Snowden. Yes, the NSA knows where your phone is, even when it's turned off, and when it's turned on, it can listen to your conversations. Whether it actually does or not is a matter of conjecture.
The U.S. intelligence community has led the charge against Huawei, claiming that if the Chinese company leads the global rollout in fifth-generation mobile broadband, China will be able to eavesdrop on the world. It isn't quite that simple. The 5G signal is so dense, I am informed, that it permits end-to-end encryption of voice calls as well as data, with an unbreakable degree of complexity. It isn't so much that China would be able to steal data, but rather that U.S. intelligence would lose its present advantage in signal intelligence.
Much as I fear abuse of power by U.S. intelligence, and suspect "deep state" participation in an attempted coup against President Trump, I want the United States to maintain its advantage in electronic eavesdropping. The problem is that we don't produce any telecom hardware. Zilch. We used to. Cisco was the market leader, but has pretty much abandoned the hardware business (it makes more money in software).
The U.S. economic expansion is at risk. In April the purchasing managers' surveys produced by the research organization Markit fell off a cliff. At barely above the 50 mark, they show that almost as many businesses were contracting as were growing. The trade war is partly to blame: Businesses have postponed capital investment until the shape of global supply chains is clear. The Atlanta Fed is now projecting 2nd-quarter growth at just 1.3%, and JP Morgan is predicting 1%. That's a big drop from the preliminary 3.2% number for the 1st quarter (and that was probably inflated by fluff). Bond yields are in free fall, at their lowest level in 17 months, as investors anticipate economic weakness.
Cutting off technology shipments to Huawei may not have the desired effect. Huawei already produces its own high-end chips for smartphones and data processing, and has been preparing for the worst for a long time. The result of the tech war might be a global round of predatory price cuts that will push U.S. chipmakers out of the Asian market that accounts for most of their revenues. When the dust settles, China may end up with a dominant position in semiconductors.
We've licked this problem before, when John F. Kennedy set the Apollo moonshot in motion and Reagan led a massive, tech-intensive defense buildup. We can do it again. But what we are doing now will sooner or later be a losing strategy.
The U.S. invented the integrated circuit in the 1950s...
It isn’t about the Stock market.
This is more NeverTrumper BS -- the reason the market's been off is the impeachment push off Mueller's despicable semantic gymnastics.
Defeatists? Or Globalist shills?
STAY THE COURSE, MR PRESIDENT!
We are in the unfortunate position where having Chinese intelligence able to eavesdrop on us, is less dangerous to our liberties than US intelligence having the ability.
Whats Kudlow got to say about it?
Never mind that the Federal Reserve has inverted the yield curve with their war against economic growth.
Huawei already produces its own high-end chips for smartphones and data processing, and has been preparing for the worst for a long time.
It's time for us to 'prepare for the worst'...
Thanks for posting.
I found this sentence interesting
“The 5G signal is so dense, I am informed, that it permits end-to-end encryption of voice calls as well as data, with an unbreakable degree of complexity. It isn’t so much that China would be able to steal data, but rather that U.S. intelligence would lose its present advantage in signal intelligence.”
The market is brainless. Unfortunately we are stuck with it.
This is not about semi conductors. It is about leveling the playing field for all things traded or not and it is going to to take time to win. If we win and we had better. I don’t want to see another wasted shut down type thing.
Spengler is an idiot.
Intel and Broadcom has several production facilities idle in the US.
And anyone who thinks Huawei can outdo Cisco on ANY technology is just plain stupid.
Many American companies have not tried to outdo the Chinese do to price. All their R&D and manufacturing is subsidized by the state.
But under tariff and embargo pressure, US companies will fire back up and DOMINATE.
Got to take the long view on this and think about geopolitics
This author is hysterical. Ariffs have not harmed the economy one bit.if inflation numbers are to believed there is none. What does the author really know about Huawei and it’s spying capabilities or intentions?
I have been a serious investor since 1981 and I have learned much over the yrs and mostly I have learned hat the guys who have all the answers basically use guess work when they prognosticate.
Finally most investors have heard the phrase,”Sell in May and go away”. This is well known because history tells us the worst performing months for the markets are May through October. It’s May and the markets are down...big deal. Ony an idiot chases the averages instead of looking at the fundamentals which drive the markets.
This author knows as much about the markets as I do quantum physics.
Biggest concern I have going forward in this fight is America has turned the stock market into it’s God over last 30 years. It’s the measure of goodness for the country. China is not as concerned with their stock market, more concerned with GDP. China can build empty buildings to pump GDP, globalists can hammer the U.S. stock market. Will U.S. cave if that happens?
I wonder who they think should take the brunt of the trade battles? Some industry that has nothing to do with China.
Its past time to start preparing. That is the problem with America.
The worst invention for the average American was the 401(k) statement sent every quarter. God help us if there is ever a negative return!
Why bother electing a president if he just needs to obey Wall St?
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