Trump’s outdated nationalistic protectionist trade policies are not only threatening the world with a global trade war but are also punishing the USA’s own epoxy resin and semiconductor industries.
As discussed in our previous blog post, Trump is punishing China with two very long and extensive lists of products targeted with a 25% tariff increase. This list dedicates the first six pages to targeting harmonization codes with the “39” prefix: namely plastics and epoxies. That means epoxide and phenolic resins, as well as other raw materials and components of epoxy resins and epoxy compounds, coming out of China into the USA, will be targeted with a 25% tariff increase.
This is an incredibly significant development if you are at all connected with the epoxy resin and semiconductor industries. China is the main source of epichlorohydrin and bisphenol A, and other important raw materials needed for the creation of epoxy resin.
America has zero (significant) domestic semiconductor epoxy manufacturers. That means that the USA’s entire epoxy resin industry and semiconductor industries are totally dependent on China for those raw materials. So the trade tariff won’t have any effect as a deterrent when industry demand is this inelastic. Instead, the increased tariff costs will simply have to be transferred to the final customer: making American products much less competitive in this global market.
Stopping the 25% Epoxy Import Tariff
All of CAPLINQ’s own epoxy molding compounds, as well as the epoxy brands that we represent, will be severely affected by the rise in import tariffs if it should be ratified. That goes for epoxy compression molding compounds, epoxy transfer molding compounds, injection-grade molding compounds, as well as our optically clear epoxy encapsulants. Same goes for our range of insulating epoxies, epoxy binding resins, and epoxy coating powders will also be affected. This is an industry-wide upheaval, with far-reaching consequences.
CAPLINQ is a specialized market partner and we are constantly monitoring our client’s markets for opportunities and potential problems. We are right now lobbying to keep epoxies and other related products off the list. We have written several letters to the American government and are working with our customers to petition the American government not to impose tariffs on epoxies.
Along with the list, the U.S. banned American chip makers from selling to ZTE, one of China’s biggest telecommunications firms. This comes two months after the introduction of legislation to block the U.S. government from buying or leasing equipment from both Huawei and ZTE.
This move reveals that the long-term strategy behind Trump’s trade war has nothing to do with claims of espionage: real or imagined. The U.S is scared that China will eventually copy and then replace their technology. At the moment, the US dominates the global semiconductor and chipmaking industry because of its superior technological know-how. China’s technology and IP transfers, as conditions for US companies to trade within China, are an attempt to cultivate the domestic Chinese core and chipmaking industry: to break the US’s global monopoly on that market.
If Trump attempts to protect America’s long-term market monopoly on chipmaking technology by banning technology transfers from US companies to China then a lot of American semiconductor companies will suffer in the short-term.
Companies like: Nvidia, Qualcomm., Micron Technology, Intel, and Advanced Micro Devices etc., all of which have a lot of Chinese customers or factories, may then no longer be able to do business in China. And that would hurt the US, because China represents the largest and fastest growing market for the chip industry.
Moore’s Law depends on Free-Trade!
The Global semiconductor market is expected to almost double in size over the next 6 years: reaching $832bn by 2024. While the resin market is forecast to reach $140bn by 2024, and the global liquid encapsulation market is projected to reach $1,400mn by 2020: integrated circuits making up more than 75% of the total market for encapsulation.
The question is: will American companies be locked out of these growing markets by either having to transfer the 25% increase in tariff costs to their customers or eating it by sacrificing their R&D budget?
The Chinese market is predicted to be the largest and fastest growing market: being already disadvantaged by freight costs, can American epoxy and semiconductor companies really bear additional tariff costs? (Assuming that American companies will still even be allowed to do business with China by then!)
By punishing China in the short-term, Trump may well be scuttling the future for the American semiconductor industry in the long-term: the very future he is trying to protect.
At CAPLINQ we believe in the interdependence of markets and want to protect the global epoxy and semiconductor market ecosystem. In many ways, Moore’s law depends on free trade: because without the market competition that free trade stimulates there would be no global push to continually innovate. That’s why CAPLINQ believes so strongly in helping businesses access new markets and facilitating the global epoxy and semiconductor market ecosystem.
Our North American office and our Chinese office in Shenzhen are coordinating together with clients to find common ground and build a sustainable supply chain and distribution network that empowers all parties. With CAPLINQ as your market partner, you stay 10 steps ahead of the competition and any potential market pitfalls. Join us today, and let’s discuss how we can build global bridges rather than burning them.