Last year, U.S. chip firms traded at lows when the government started to toughen its chip export restrictions against China. Last Wed., U.S. President Joe Biden signed an executive order. This regulates certain U.S. investments in China.
The restrictions are serious. It covers semiconductors and microelectronics, AI, and quantum IT. The U.S. wants to weaken China’s development in surveillance, military, and cyber-enabled capabilities. China is known for espionage and cyberattacks.
Markets are unconcerned about the restriction. Nvidia (NVDA) benefited from selling billions of GPU server chips that China firms need for AI machines. Micron (MU) is not far from its 1-year high. AMD is also holding up, although many investors took profits during its June 2023 high.
Restrictions Hurt the U.S.
The U.S. needs to offset the restrictions by bringing manufacturing back to domestic markets. This increases cost requirements. In the long run, American employment at those factories will cost more than paying Chinese workers. The factory buildings are not ready for a few years. This will require subsidies and tax breaks, which increase the government’s expenditures.
Your Takeaway
Trade wars hurt all parties. The latest restriction escalates the tensions between the two superpowers. Tech investors need to watch out for the potential of supply constraints, higher labor costs, and lower demand in the years ahead.
