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Will Biden Terminate Taiwan?

It has been 14 months since we advised our readers to exit all Chinese stocks that we had previously recommended, including some companies we absolutely loved.

Chairman’s Xi’s revanchist regime had become so hostile to China’s best firms you would have thought its Politburo had been staffed out of Biden’s Federal Trade Commission. That hostility does not seem to have abated, at least in the case of the enterprises that most famously—and embarrassingly for the Chairman— owed none of their success to the Communist Party.

Jack Ma’s plan to slice up Alibaba into six supposedly more “nimble” firms bears all the marks of a settlement imposed to make it safe for Ma to return to China. The break-up is not helpful to BABA’s online merchant customers who appear to have relished the convenience and economy of one-stop shopping for the support services Jack Ma’s conglomerate provided.

The most conspicuous beneficiary of the BABA breakup is Chairman Xi’s voracious ego.

Nevertheless, we are considering re-entering China as investors for the rather provoking reason that the Biden Administration and the GOP China Hawks are doing more to help Chinese tech companies than the CCP is doing to hurt them.

Despite U.S. aggression on trade and Chairman Xi’s ambitious “Made in China 2025” program, China has so far generally refrained from closing its markets to U.S. technology. This is especially so in the semiconductor manufacturing arena for which the United States and its European allies provide the crucial tools used by chipmakers.

China’s semiconductor manufacturing sector is the fastest growing in the world, and China will soon be the world’s largest consumer of “wafer fabrication equipment” (WFE). Yet this enormous market has remained open to U.S., European and Taiwanese toolmakers.

It is open no longer, but not because of Chairman Xi. The Biden administration has forbidden a growing number of Western companies from exporting semiconductor fabrication equipment to China.

Even today, the ban— if actually enforced— would be devastating to Western firms, chopping many of these companies’ revenues by circa 30%.

As the China semiconductor market grows, the ban could become a death sentence for American firms. If jewels of the American semiconductor industry such as Applied Materials, Lam Research, Teradyne, Plasma-Therm, FormFactor, EV Group and more are excluded from the most important market in the world, they will shrink, their technology edge will dull, and investment capital will shift from the United States to China.

The sole beneficiaries will be the rapidly growing Chinese firms— almost 100 of them already— providing the same tools as their Western competitors, all protected by the U.S. government from U.S. competitors.

As for our European allies, in the end— and the end may be soon— they will not tolerate their best companies losing the China market just because the U.S. government says so. First, they will find loopholes in the ban, then the loopholes will expand, and finally Europe will just say “no.”

Asia will likely give its ‘no’ first. The only relevant countries over which we have sufficient influence to enforce the export ban are Japan and Taiwan. So far Japan has complied, but the pain of losing the China market will soon make continued compliance politically impossible.

Unfortunately, we do have sufficient leverage to force Taiwan to comply. For that beleaguered nation the Biden ban could be its death knell.

Taiwan, to an extent apparently not grasped to the White House, has been a super-charger of mainland Chinese capitalism. The mainland’s integration into Taiwan’s semi-conductor manufacturing eco-system has been the essential factor in the development of China’s own semiconductor industry.

The opacity of Chinese politics makes it impossible to factor thoroughly the CCP’s 55-year refusal to use force to retake Taiwan. Yet surely the enormous economic and technological benefits of the status quo have been a consideration. If we force the Taiwanese to wage economic warfare against the mainland, why shouldn’t China invade?

Thanks to the Biden ban, the Chinese semiconductor industry could become American investors’ best opportunity and Taiwan’s last stop.

P.S. I am pleased to announce that I will be speaking at the next Wealth365 Summit. This is the largest online wealth summit in the world, and the event is from April 17th – 22nd. There are 60+ speakers presenting that week, and I will be one of the keynote speakers for the event. Click here to learn more and register.

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