During President Trump’s first term, the geopolitical technology rivalry du jour was not artificial intelligence. Those were the blissful days before AI-speak infected our discourse. Instead, the concern centered on 5G technology.
But does anyone care about 5G technology and that China won the race for it? I’ve been asked about it once in the last two years. The US government has moved on to more pressing matters, like rare earths and AI. It raises the question of whether these issues are as pressing as they are made out to be.
THE SITUATION
Going back to Trump’s first term, Chinese company Huawei had established a dominant position in the cellular network technology industry and was both the highest-quality and cheapest vendor (with the only alternatives being European champions Ericsson and Nokia). The US was concerned China would use its position in global telecoms networks to spy on communications around the world, using this access to information to its advantage on everything from property theft to military supremacy.
President Trump’s first tariffs against China dealt with things like solar panels, steel, and aluminum. But by May 2019, the US government had become more surgical in its focus, banning Huawei from buying parts and components from US companies. It sharpened the scalpel in 2022 by barring any chipmaker using US technology from producing Huawei’s chips.
The Result Was Disastrous
Huawei went from being the top shipper of smartphones in the world to sixth place in the span of a year. Revenue plunged ~29% between 2020 and 2021 (and almost 50% in the consumer/smartphone division), and net profit declined 68% in 2022. The company was forced to divest a budget-brand smartphone subsidiary called HONOR, which is one of the reasons the net profit figures lagged the plunge in revenue.
But the result was disastrous, not lethal. In 2024, Huawei debuted a new phone that used chips made in China. It achieved this by developing its own operating system, building its own chips, and using equipment from other nations. In May of this year, it even announced a novel chip design approach with plans to introduce new smartphone chips this fall.
Critically, Huawei remains the world’s largest telecom equipment manufacturer. Its global market share has risen to 34%, up two percentage points from 2018.
US Attacks on Huawei Backfired
Meanwhile, the US government-backed alternatives to Huawei have floundered. By attacking Huawei, the US created an even more powerful version of it.
Some things worth noting here…
Sanctions and tariffs by themselves are not only ineffective but counter-productive. Other countries and companies don’t simply stop innovating or functioning because the US sticks them on an entity list. China’s entire semiconductor ecosystem is much stronger today due to the creative destruction imposed on numerous industries in China due to the US’s attempt to destroy Huawei.
Most geopolitical dilettantes are worried about World War III starting in the South China Sea over Taiwan because China wants to control Taiwan’s semiconductor fabs, which dominate the manufacture of high-end chips. I debunked this weeks ago, but I didn’t even mention that one of the reasons China won’t have to invade Taiwan is because China is going to be self-sufficient in chips anyway.
When the US was worried about Huawei, one of the biggest obstacles for China’s chip industry was access to EUV lithography equipment—huge, complex machines that sit in the fabs that make cutting-edge chips, dominated 100% by ASML. In 2019, it wasn’t clear China would ever produce EUV lithography equipment of its own, let alone catch up to ASML.
Lo and behold, last month, China started mass-producing domestically developed DUV lithography machines—not as challenging or sophisticated as EUV machines but a clear signal that China is making considerable and rapid progress.
The Rumor That Matters
I have tried to make this as non-technical as I can for the laymen, but this context is critical for understanding why I sat up in my chair when Reuters reported last week that South Korean tech giants Samsung Electronics and SK Hynix are “evaluating chipmaking equipment from China’s Advanced-Micro-Fabrication Equipment (AMEC) for possible use at their Chinese factories.”
Both companies have publicly denied testing AMEC equipment for use at factories in China, and Samsung went as far as saying it was not considering doing so. And that is fine; I am not in the habit of making rumors definitive or believing every news story that comes across my desk. But I found this report—even if it turns out to be untrue—an important signal for two critical reasons.
The first is a contrarian view that frankly has looked fairly wrong for the last few years: that South Korea is the underappreciated weakness in the US alliance network in Asia, and that the Trump administration has pushed South Korea away from the US with its policies on North Korea (from the first administration) and its tariffs (in the second).
While there is significant suspicion of China in Seoul today, for most of the last millennium, political and cultural power in Korea has admired China, and the current tensions are largely anachronisms from the Cold War rather than based in long-standing geopolitical grievances (unlike Korea and Japan, where the cuts go deep). Unlike the Philippines, Japan, and even Taiwan, South Korea is no island off the coast of the Asian mainland. It is on the mainland, and military buildups in island-nations like Japan may force South Korea to rethink its position.
The second, however, is that it is now at the very least plausible that South Korea’s top companies see enough progress and utility in Chinese technology that they might consider risking sanctions or tariffs to grow in the Chinese market. The US has spent much of the last few weeks announcing new tariffs via alternative legal justifications, and a bill named after the late Senator Lindsey Graham is currently under consideration in the House that could give President Trump sweeping new tariff powers that the Supreme Court will not be able to strike down.
Same Movie, Bigger Screen
China is engaging in plenty of its own heavy-handed protectionism as well—just look at how well EU-China trade negotiations are going—but when it comes to potential rivals like South Korea or India, China is doing the opposite, trying instead to find “win-win” opportunities, to steal from the parlance of the Chinese Communist Party. South Korea is also, in the meantime, launching its own semiconductor fund to buttress its own position, perhaps aiming to compete with China.
Much of this is based on inference and speculation, but I feel comfortable going out on the ledge a bit because we’ve already seen this movie before with Huawei, only now on a much bigger scale.
MAP/CHART OF THE WEEK
BLIND SPOT
The Telegraph reported earlier this week that new British Prime Minister Andy Burnham was presented a proposal suggesting the UK rejoin the EU’s single market in return for the UK extending its armed forces and nuclear deterrent protection across Europe. The UK would not join Schengen or adopt the Euro currency and would also reportedly include a European Confederation with other non-EU countries. I immediately began trying to find the right pun to match a potential reverse of Brexit, and the best I could come up with was: Returnnia! Not great… but not bad!
This is probably not going anywhere. Probably. For one thing, a Cabinet Office source told The Independent that the government receives “speculative policy ideas” all the time. The UK’s new cabinet minister in charge of EU talks told The Guardian that he wants “a deeper [and] more ambitious relationship with the EU,” but also noted that his ambitions would be bounded by the Labour Party’s red lines on Europe, which would seem to make any sort of defense-for-market-access difficult.
Then there’s the matter of getting the EU to agree—no small thing, given that the British Armed Forces aren’t what they once were. The EU would also be wary of the precedent: letting the UK reap the benefits of membership without paying the price, namely the pooling of sovereignty that binds all the other members.
And yet, it is not like British politicians have covered themselves in glory since Brexit, nor has the British economy. Northern Ireland and Scotland voted to remain back in 2016, and the overall vote in the UK was a close 52%–48%, an outcome no doubt impacted by fears around the European migration crisis in 2015.
The US seems a less reliable ally than before. President Trump has not joked about the UK becoming the 52nd state, to my knowledge, but if he can treat Canada this way, should the UK be surprised if he or his successors do? Moreover, British geopolitics must first be about affairs on the European continent because geography makes it so.
All of which is to say, Returnnia is indeed far-fetched. But British geopolitics becoming much more about its relations with Europe than with the US seems inevitable.
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