trade policy

The U.S. on September 1 will levy a 10 percent tariff on $300 billion (List 4) worth of Chinese goods that until now were exempt from duties, President Trump said today. The trade action makes good on the U.S. president’s commitment to impose the new round tariffs in response to China’s failure to deliver on promises to buy more U.S. farm goods and to stop the flow of the painkiller fentanyl into the U.S. The 25 percent tariffs already in effect on $250 billion in goods will remain in place.The new list includes items used in the electronics industry but also encompasses retail products spanning the U.S. economy including clothing, toys and cell phones, exacting a more direct hit to U.S. consumers. A meeting between China and U.S. trade officials in Shanghai this week apparently did little to ease trade tensions. Both sides plan to meet again in September, though expectations for meaningful progress toward resolving their trade differences then are low.The U.S. believes China backtracked from commitments to changing its practices related to forced technology transfer and intellectual property theft. China denies making the pledges and insists on the removal of all tariffs as part of a settlement.The U.S. actions risk backlash from China including non-tariff barriers to trade such as licensing delays, more stringent business-related inspections, and an accelerated rollout of its unreliable entities list, China’s response to the U.S. decision to blacklist telecommunications giant Huawei. The list includes foreign companies, other organizations and individuals that China sees as national security threats or risks to China’s economy.SEMI will continue to urge both nations to reach an agreement consistent with its 10 Principles for the Global Semiconductor Supply Chain in Modern Trade Agreements. The principles encourage free and fair trade, open markets, and respect of IP among all players in the global electronics manufacturing supply chain.SEMI member companies impacted by the new U.S. tariffs or facing any new non-tariff barriers in China should contact Jay Chittooran, public policy manager in SEMI’s Global Advocacy Office, at [email protected] Russo is vice president of Global Industry Advocacy at SEMI.

Yesterday, President Trump extended the deadline for List 3, which would have raised U.S. tariffs on $200 billion worth of goods from China. SEMI welcomes the deadline extension.Over the past three months, the United States and China have engaged in bilateral discussions to address structural issues like intellectual property protection and requirements for the use of joint ventures as well as trade balance concerns. President Trump announced that these talks have yielded significant and substantial progress in all areas. That said, it’s been reported that discussions on structural issues, such as forced technology transfer, have seen limited progress.Certainly, questions remain on the specifics of liberalization, the structure of the agreement and, most notably, enforcement. Any new commitment will be toothless without a firm and binding enforcement mechanism. While the date of the new deadline hasn’t been clarified, we believe that the tariffs won’t be increased before Presidents Trump and Xi meet, which could happen in late March at Mar-a-Lago.List 3 covers a range of items, including a number of consumer goods, but also directly impacts items critical to the semiconductor manufacturing process, including materials and machines. SEMI estimates that all U.S. and Chinese retaliatory tariffs – which hit machines and tools central to the semiconductor industry, including equipment used to manufacture wafers, boules, and chips as well as test, inspection and sensing equipment – will cost members more than $700 million in annual duties.While SEMI strongly supports stronger protections for valuable intellectual property (IP), tariffs will not help address Chinese trade practices and will ultimately have significant and unintended consequences. SEMI asserts that these tariffs will harm companies in the semiconductor supply chain by increasing business costs, introducing uncertainty, and stifling innovation. The tariffs seem to target U.S. firms for simply operating in China.Given that chips, tools, and materials are extremely complex, precise, and difficult to manufacture, it is not reasonable to believe that any component can easily be replaced with a part from another source. Further, this U.S. government approach does not take into account that many items subject to these tariffs are not available, at sufficient quality and cost, from domestic sources, or even non-Chinese sources. We stand steadfast in our belief that this trade action will raise prices, put thousands of high-paying and high skill jobs at risk, and curb growth.SEMI will continue monitoring new developments in this area. Any SEMI members with questions should contact Jay Chittooran, Global Public Policy Manager at SEMI, at [email protected].

Meeting Attended by More than 100 Tech Company RepresentativesOver the past decade, China has become a central market for the semiconductor industry. China is now home to more than 30 percent of semiconductor end users worldwide. All semiconductor companies, regardless of size, operate in China. The rise of China’s semiconductor market has been enabled by global commerce and a vast network of supply chains that span the globe.With China now a prominent player in the industry, it has become critically important for semiconductor companies to effectively engage with China. In order to help our member companies better understand the challenges and opportunities and navigate what can be a complex landscape, SEMI hosts annual trade compliance conferences in China for trade professionals. This year, SEMI, with CompTIA and U.S. Information Technology Office (USITO), hosted two global trade seminars in China, one in Shanghai on October 30th and the other in Beijing on November 1st.Over 120 representatives from more than two dozen technology companies attended the 2018 trade compliance seminars. Over the course of the two sessions, speakers from government, business, and law firms highlighted the most pressing trade issues in China. Speakers included thought leaders, trade practitioners and senior Chinese government officials.Sessions included a deep dive on China’s draft customs reform law, a panel discussion on U.S. export controls, and a briefing on how best to engage with China Customs and how China’s products are classified. Another well-received session focused on the status of China’s export control law, which has been in the drafting process for years.However, the overarching question for many attendees was U.S.-China economic relations, which are undergoing a sea change, with the U.S. having imposed or threatened tariffs on all imports from China – totaling more than $500 billion in goods – over the past six months. As a speaker noted during a session on the U.S.-China tensions and the surrounding broader geopolitical impacts, the environment is becoming increasingly complex and volatile. In fact, on the morning of the first session, Fujian Jinhua Integrated Circuit was added to the U.S. Commerce Department’s entity list, which effectively restricts exports to the company.As a result of the trade actions, ranging from tariffs to enhanced export controls, U.S. semiconductor companies are beginning to increase prices, reduce research and development (R D) budgets, restructure supply chains and take other mitigation actions that will ultimately slow innovation. Certain export controls and other regulations that prohibit U.S.-companies from conducting business with targeted companies will put the U.S. at a competitive disadvantage.In fact and as we speak, some companies with China-based operations have cancelled orders from U.S. companies and shifted to suppliers that are not subject to U.S. actions to reduce the associated risks of supply interruption and cost increases. Ultimately, U.S. trade policy could backfire, threatening jobs, curbing growth, cutting U.S. R D investments and compromising the competitiveness of U.S. firms.SEMI will begin planning next year’s Global Trade Seminar in the coming months. If you would like to be involved in the planning, or would simply like more information about the seminar, please contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

With (most of) the election results in from the U.S. midterms, the expected Democratic takeover of the House and the Republican’s maintaining control of the Senate is now a reality. The day of the election, DC insiders expected that the House would go to the Democrats by a margin of +/- 20, with the Republicans gaining 2-3 seats in the Senate. Not a bad prediction, which is a far cry from what the same insiders called in advance of the 2016 Presidential election.What does that mean for our members and the tech sector in general? Will there be an ease of trade tensions or less of a chance of tighter export controls? Some believe that with the midterm elections over, President Trump will have some room to take a less aggressive stance against China, setting up a “win” that he can carry into 2020. With the recent more aggressive stance by North Korea against the U.S. regarding its nuclear program, China may well have some leverage at the trade table … and the U.S. may want to make a deal that provides a path for a “win” on both fronts. Indeed, there are the makings of a potential win-win leading into the G20 meeting in Argentina when President Xi Jinping and President Trump are scheduled to meet on Dec. 1.One can see a scenario where there is a meeting of the minds and some degree of lessening tariffs; that does not mean that the effort to enhance export controls will go away. The need for tighter restrictions on export controls is driven to a great degree by the U.S. Department of Defense (DoD) and is a follow on from the previous FIRRMA legislation and attempts to curb the loss of U.S. technology critical to global competitiveness and national security. This issue will not go away anytime soon, and cases like the recent one involving Jinhua only add fuel to the fire. In addition, given how these cases can be leveraged at the negotiating table, they will continue to surface.SEMI’s approach has been to educate governments, lawmakers and administration officials on the strategic importance of the globally connected and highly complex semiconductor supply chain, and how some of the approaches will not achieve the attended goals. This approach helps to ensure that when and if it comes time to make decisions based on merit, the principals are informed. It also helps SEMI and its members develop and maintain important relationships and positions SEMI as an industry leader and spokesperson, making it a more effective advocate. As an example, on Nov 8th SEMI released its Global Trade Principles with the intention of providing a framework to all governments to guide various trade talks. It also helps to inform member companies and others from the broader tech sector of our industry position(s) so we are able to speak with one voice. These principles are aligned with our fundamental advocacy pillars of promoting free trade and market access, respect for IP, cybersecurity and national security.Will the fact that power is now split between the two chambers of Congress help or hurt? Will the House focus on investigations limit the ability to move productive legislation? Besides taking time, it may well put them at increasingly worse odds with the Senate and the President (if that is possible), creating deadlock. Some argue that if nothing moves, no harm can be done. Some also say that it may drive the President to take independent and more aggressive actions in order to demonstrate (his) effectiveness to his base. There is another view: that with the Democrats, the President may be able to lead in the advancement of legislation that will show he can get things done when others couldn’t in areas that benefit the greater good…some of which may impact our industry…such as investments in education and infrastructure development. This would be a way that he could pull in some of the votes from the middle that he has lost in his first two years in office. They say “politics makes for strange bedfellows”; one never knows what might happen in this case.Regardless of what happens, some things will not change: the global nature of our business and the needs of our members to have access to markets…and to be able to safely and efficiently leverage their technologies in the way they see fit in order to grow their business. SEMI will continue to advance the interests in what is an extremely challenging and dynamic global policy environment today. As ruling parties and representatives change around the globe, we will continue to build new relationships and educate lawmakers so they are able to make informed decisions that benefit our members. Mike Russo is VP of Public Policy and Talent Advocacy at SEMI.

Powerful winds of change are re-shaping the semiconductor industry as it flexes and re-positions to power a new wave of growth on the back of emerging applications. Today, the industry is thriving, with growth expected to continue through 2019 even as Moore’s Law – the trusty doubling of transistors roughly every two years – begins to pump the brakes. Product mix and production technology are shifting as the dominant smartphone and PC markets, having seen their growth peaks, start to give way to large markets with relatively low semiconductor penetration, such as automotive.What’s more, new potentially ubiquitous technologies and platforms such as AI, blockchain and smart manufacturing are redefining market dynamics and the semiconductor ecosystem that underlies them.Troublingly, the most significant threats to the continued growth of the semiconductor industry are not of its own making. Macroeconomic trends and trade policy disputes loom.These were some of the key takeaways from the SEMI Market Symposium kicking off SEMICON West in San Francisco this week. Following is a deeper look.Semiconductor MarketThe consensus view, reflected in forecasts presented by Clark Tseng of SEMI and Bob Johnson of Gartner, is that the semiconductor industry could top $500 billion in 2019 after reaching $400 billion in 2017. According to Gartner, smartphones and PCs will continue to account for large parts of the market, but will be displaced as major drivers of market growth by the emergence of industrial, automotive and, to a lesser extent, storage, from 2017 to 2022. Johnson noted that while communications and data processing applications drive logic device demand, average sales prices (ASPs) are a bigger contributor to revenue growth than unit growth.Leading-edge processors are a big part of the ASP picture, with equipment costs increasing ~20 percent per node. One challenge is that as Moore’s Law loses steam, leading logic producers are increasingly going their own way with new production technology. The volatile DRAM market – now in a “super cycle,” according to Tseng, and expected to peak in 2019 – has been stoking memory market growth.Initially, supply shortages fueled memory price increases as three of the four leading memory makers invested in flash rather than DRAM capacity. However, memory prices have been more recently been lifted by technology complexity, particularly as DRAM has moved to 3D architectures. The good news is that pricing, at long last, appears to be driven by value.Automotive MarketWith automotive accounting for less than 10 percent of semiconductor demand, there is room for growth. Rudy Burger of Woodside Partners noted that while the end market for automobiles is growing slowly, at 3 percent CAGR, the market size is nearing 100 million units. In market segments such as electric vehicles, the semiconductor content exceeds $1,000 but can be much higher.For example, the BMW i3 sports over $4,000 in semiconductor content. Burger said connectivity, autonomous driving and shared mobility services are also key opportunities for semiconductors to deepen their penetration in automobiles. For instance, the auto market for cameras, is expected to grow from $2 billion in 2017 to $6 billion in 2022.On average, high-end vehicles feature over $1,000 in semiconductor content, whereas low-end vehicles hover in the $400 range, said Anand Srinivasan of Bloomberg. Because the automotive market is segmented by function or subsystem, with different suppliers focusing on different areas, there is little supply concentration. Srinivasan also pointed out that because of significant differences in their objectives, automotive safety and automation systems should be developed separately.BlockchainThe chief benefit of blockchain is the trust it begets among all parties to a digital transaction through four fundamental features, said David Treat of Accenture: The tracking of provenance (knowing who has touched data, and what has happened to it) Tamper evidence (knowing if someone has tried to change the data) Control (which data elements to share with which parties) Security at the data element level While most of the hype over blockchain focuses on tokenized assets and ledgers (bitcoin and other cryptocurrencies), the fundamental application in the semiconductor industry is sharing trusted access to reference data at the data element level. This ability to provide shared trust can reduce costs throughout the supply chain and across enterprises. For example, future blockchain implementations will offer a full ecosystem view to any supply chain participant. While blockchain has typically been deployed through centralized control or platforms, peer consortia, such as SEMI, could help weave the benefits of blockchain through various ecosystems by enabling equipment and material suppliers, device manufacturers, designers and system integrators to share business and technical information securely and, if desired, anonymously.Global and Macroeconomic TrendsThe biggest threats to the continued growth of the semiconductor industry are exogenous. After a decade of steady recovery since the financial crisis, the global economy appears to be heading for a slowdown. Duncan Meldrum of Hilltop Economics made the case that the global economy is at or just past the peak of the business cycle, and semiconductor equipment is past the peak.A key indicator of a looming recessionary is the movement toward an inverted yield curve, in which long-term interest rates fall below short-term rates – a phenomena that could materialize this year or next.The increasingly heated trade climate, marked by high-stakes confrontations between the U.S. and China, threatens complex supply chain arrangements, though mercurial policy statements could do even more harm than stiffer trade tariffs. Underscoring competing interests between the U.S. and China and the unpredictability of their relations, Robert Maire of Semiconductor Advisors pointed out that, in 2019, 60 percent of all semiconductors are expected to be used in China, deepening the dependency of several U.S. semiconductor companies on China.Paul Semenza, for SEMI Industry Research and Statistics