The world has split into two halves. And the dividing line is the Ukraine border with Russia. On one side there are the countries that choose to continue to do business with the war criminal Vladimir Putin and refuse to say anything negative about the rape, torture and murder machine he has unleashed on the people of Ukraine. 

No doubt emboldened by China’s complicity, India, Turkey, Saudi Arabia, Iran, North Korea — they all sit on the same side of the bloody ledger. 

On the other side there’s the U.S. and NATO countries that value borders and business.

Globalization was never perfect. But the idea that the countries could conduct business in a mutually beneficial way and respect each other's sovereignty seemed worthy. It seemed worthwhile to accept China’s multiple violations of fair trade in order to pursue the obvious benefits of cooperation. Like a doting parent with a rebellious kid “oh, he’ll come around.”

But that’s all over now. China isn’t “coming around.” U.S. companies are moving supply chains out of China. The Biden administration has cut China off from all of America’s advanced semiconductor technology – the chips that make hypersonic weapons and Artificial Intelligence (AI) possible. Japan and South Korea have joined the effort. 

Maybe in a few years it will develop the needed skills to make these advanced chips, but right now China can’t do it. And Americans working in China’s semiconductor industry were given an ultimatum: you can stay and continue working in China’s semiconductor industry, but you’ll lose your American citizenship. They left…

New Cold War

The biggest semiconductor manufacturer in the world is Taiwan Semiconductor (NASDAQ: TSMC). Taiwan Semi doesn’t design the chips. Advanced chip design comes from the U.S., Japan, South Korea and Europe. But Taiwan Semi makes (or fabricates, which is the proper jargon) over 90% of the world’s advanced chips. It makes virtually all the chips that go into the F-35 fighter and also iPhones. 

For the last decade, it was an operational efficiency for Apple to assemble iPhones in China. China’s a big market for iPhones. And Apple’s chip supply was close at hand…

The risk to Taiwan Semiconductor is obvious. That’s probably a big reason why it’s spending $12 billion to build a second US manufacturing site in Arizona. It’s building a $7 facility in Japan. And it’s in talks with Germany for yet another manufacturing site in that country.

Apple has already moved some of its assembly to Vietnam and India. 

Two months ago, Tesla (NASDAQ: TSLA) built over 83,000 cars in China. In November the total was a new record: over 100,000 cars. I wonder if Elon Musk is worried about how an economic Cold War that has already begun might affect Tesla. Then I look at the Tesla share price down 18% just this month, and 55% so far this year. Makes me think investors are worried about more than just his purchase of Twitter…

Japan Gets Tomahawks

The first two paragraphs in a Reuter’s article from yesterday went like this: 

“Japan is expected to unveil a new national security strategy on Friday along with details of its biggest military build-up since World War Two, in a marked shift away [from] the pacifism that has dominated its political discourse for seven decades.

The changes, which come as tensions grow with neighbouring China, Russia and North Korea, are likely to include spending on longer-range missiles and cyber warfare capabilities.”

It recently came to light that Japan is in the process of acquiring “several hundred” Tomahawk missiles from the United States.

Now, the Tomahawk is not a defensive weapon. A Tomahawk can travel 1,000 miles carrying a 1,000 pound warhead. They travel close to the ground so they are very hard to detect with radar. And they are deadly accurate. 

Up until now, only the U.S. and Great Britain have had Tomahawk missiles in their arsenals. Japan will be just the third country in the world to have them. 

Add this to the U.S. commitment to help Australia build nuclear powered subs and it becomes pretty clear: economic and military pressure on China is rising. And it’s rising fast.