This year, it’s Japan and South Korea.
Soon after the U.S. July Fourth holiday last year, the United States–China trade dispute saw significant escalation, and semiconductors were placed on the tariff list. This week, again following Independence Day, the industry has fallen prey to rising trade tensions, as Japan threatens to remove preferential status for exports of computer chips and other specialized materials to South Korea.
The chipmaker industry has a global supply chain and the industry could experience margin pressures as vendors continue to be in focus for global trade negotiations. Japan’s tensions with South Korea follow the United States’ reversal of its stance on blacklisting China’s Huawei, the world’s biggest maker of smartphones and 5G network equipment, allowing U.S. companies to do business with the telecoms giant.
Increased demand for chips in the second half of 2019 and into 2020 boosted by expansion of 5G networks and the proliferation of the internet of things would be welcome relief for an industry whose global supply chain is being battered by summer trade headwinds.
Historically, the United States has served as an arbitrator for Japan-Korea disputes, but the U.S. administration has its own semiconductors woes to handle. (See our recent post covering the administration’s handling of Huawei).
Analysts now say the best approach is to take a long view of the semiconductor industry. According to Bloomberg Intelligence, “With 2019 growth prospects dwindling, chipmakers and investors should focus on 2020 rather than a potential cycle trough. Amid macroeconomic weakness and trade disputes, organic sales growth may be pushed to 2020 with EPS aided by buybacks.”