Tech Winners and Losers from Trump 2.0

In the tech world, who wins and who loses from Donald Trump’s return? That’s the subject of a forthcoming Exclusive Report for subscribers to the Gilder Technology Report. In the meantime, here are some thoughts.

We have not been fans of the sanctions against China. We don’t like to see U.S. semiconductor companies losing revenue from what has been the largest semiconductor market in the world.

We don’t like breaking up a mutually beneficial global ecosystem and thereby encouraging the Chinese to develop competing rather than complementary technologies.

And we fear that U.S. hostility and the break-up of that ecosystem only increases the likelihood of China moving against Taiwan by force of arms.

That said, sanctions can be less bad or more bad, less skillfully or more skillfully done. Different U.S. companies can suffer more or less harm depending on the details.

Although Trump started the sanctions by banning Huawei products and then imposing restrictions on China’s Semiconductor Manufacturing International Corp (SMIC), his enthusiasm for American companies guided him to limit the negative impact of sanctions on U.S producers.

The Biden folk have been much worse and much less careful, imposing severe export controls that hurt U.S. and other non-Chinese companies more than they hurt the Chinese.

As with so many actions by the Biden administration, its China sanctions often seemed rote rather than strategic, mindlessly ratcheting up over time, not unlike the gradual but hardly strategic escalation of aid to Ukraine. Perhaps because of the former President’s health struggles, his policies often seemed to be on autopilot.

The damage has been severe. Healthy companies such as Nvidia (NASDAQ: NVDA) and ASML (NASDAQ: ASML) have not lost revenue and gained only distractions. NVDA launched an entire line of less capable and less profitable GPUs solely to comply with restrictions on exports to China. The cost of such a massive distraction will never be known: wasted brains are hard to account for.

For less secure U.S. companies, the sanctions—and China’s reaction to them–may be devastating. Early last year, China retaliated by banning its government agencies from buying Intel (NASDAQ: INTC) processors. For Intel, this ban was more than just a political statement—it was a financial blow. In 2023, China accounted for 27% of Intel’s $54 billion in annual revenue, making it one of the company’s largest markets. (See Table 1)

The ban forced Chinese companies to shift to domestic suppliers such as Loongson and Phytium. These firms, long overshadowed by Intel, seized the opportunity to expand their market share. If the ban were dropped tomorrow, Intel would likely not regain all that lost share.

Source: The Information Network

The Biden sanctions did hamper China’s production of the most elite chips by preventing the Chinese from acquiring cutting edge manufacturing tools, such as ASML’s advanced photolithography machines. But the sanctions galvanized the mid and low ends of China’s chipmaking industry. Between January and October 2024, China exported 245.99 billion chips, an 11.3% year-over-year increase. The value of these exports rose by 19.6% to $130.9 billion. (See Table 2.)

Source: The Information Network

It wasn’t just exports. Production for domestic use surged as well, reaching 353 billion chips during the same period—a 24.8% year-over-year increase.

In short, sanctions pushed Chinese semiconductor makers down the learning curve of lowering costs with increased experience. In the long run, accumulated experience at the lower end of the industry all but guarantees China successfully penetrating the elite ranks. That’s exactly how Taiwan Semiconductor (NYSE: TSM), once a lowly second-source producer of legacy chips, became the world’s greatest semiconductor manufacturing firm.

For Intel, the revenue decline from the Chinese ban exacerbated a host of mostly self-imposed problems, ultimately leading to the ouster of visionary CEO Pat Gelsinger. Today, when INTC makes a headline, its usually speculation about who will buy the company. In other words, the sanctions and mandates against China crippled America’s leading microchip fabrication foundry.

Going forward, investors should watch two things:

• Will the Trump administration be more mindful of the impact of trade policy on U.S. semiconductor firms.
• Which companies in the industry are best able to handle the burden of the trade war including further retaliatory measures from China.

Our Exclusive Report: Trump and Technology forthcoming to subscribers of the Gilder Technology Report, is the essential guide to investors finding the companies successfully navigating these challenges, leveraging growth in non-Chinese markets, and innovating to maintain leadership in critical technologies.