Trump’s Trade War on Epoxy, Semiconductors, and Chipmaking

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 encap­su­lantsSame 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.

About Chris Perabo

Chris is an energetic and enthusiastic engineer and entrepreneur. He is always interested in taking highly technical subjects and distilling these to their essence so that even the layman can understand. He loves to get into the technical details of an issue and then understand how it can be useful for specific customers and applications. Chris is currently the Director of Business Development at CAPLINQ.

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