Chips: Liberated? Trump’s Semis Tariff Gambit
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It's not just Liberation Day, folks! Trump declared that he will be "taking a look at semiconductors and the whole electronic supply chain." What might happen next? And what would be the smart way to go about this?

We're back for another CSIS Chip Chat. Joining today is Bill Reinsch, who had a long career on the Hill in the Clinton administration and in private practice, as well as Jay Goldberg of the Digison Dollars blog and the excellent weekly semiconductor news podcast, The Circuit. We're recording this at 1138 on Friday, April 18th. What are we looking at right now?

Well, for the last two hours, nothing. You know, it's Easter weekend and it may be calm. I'm preparing my – I was in the middle of writing my weekly column and I decided for one – I'm not writing about tariffs. I'm writing about –

higher education and tourism, which are services which contribute to our trade surplus, which Trump is in the process of destroying both higher education and tourism. But I've avoided tariffs, but they're on the way. And you picked out the big one, semiconductors and not just semiconductors, but a very wide range of downstream products, which is going to be, depending on what he does, potentially very disruptive to the economy.

because we're talking laptops, iPhones, potentially, not cars because they're covered separately. But if it has a chip in it, you know, it may be vulnerable. And thanks to the Internet of Things, that's a lot of stuff, you know, your toaster, your refrigerator. And so if you don't have, you know, 145 percent tariffs on China, you're going to get some other percent tariff because it has a chip in it.

Unless, you know, they end up saying, well, we're only going to assess the tariff on the value of the chip inside the product, which would make it in some cases de minimis or small. But right now it looks like it's going to be broader coverage than that. And the mystery is what he's trying to accomplish because he's given conflicting goals. You know, one goal is

The revenge goal. You know, we're getting even for all the people that have taken us to the cleaners for the last 50 years and we're rebalancing. And then another one is it's all a negotiating tool to get them to bring their barriers down. And it's artfully designed so we don't have to do anything.

All we have to do is wait for them to make concessions. And then what we will do, our concession will be not to impose the tariffs that he's announced. I mean, if that works, that's a good deal. But we'll see. The third goal, which is inconsistent with the first two, is revenue. They need the money. They need the money to pay for the tax cuts. And this would be

I mean, depending on what we've estimated that at different levels, because what he tends to do intends to do changes every week. But our current estimate is three hundred and thirty billion a year, which is not peanuts. Could be more, could be less. That's about half of what Navarro said it would be. But, you know, that's only true if the tariffs stick. If he negotiates them away, then the revenue goes away.

The fourth goal is, which is the most interesting one, which you've talked about in the past, is let's bring manufacturing back here and let's build all this stuff here. Because as you said repeatedly, if you make it here, there's no tariff.

And there, what he doesn't talk about is the obvious time gap. Tariffs go into effect now. If you're building a factory, if you're building a fab plant, for example, you're talking lots of money and lots of years to put the pieces together to build it. And then you have the answer. The question we talk about later is, can you even find the workers there?

to fill the jobs that he's creating at the same time that he's busy deporting most of them. So which is the real goal? And it changes from time to time. And with chips, it's particularly hard to tell. It's not really a revenge issue because most of this stuff is covered by the Information Technology Agreement. So it's zero tariffs already. So it's probably trying to force manufacturing here

But in the process, you know, it's going to be one of the largest revenue transfers from the poor to the rich in history because the poor pay the tariffs disproportionately. The tax cuts they're going to pay for go to the rich disproportionately.

So it's going to make economic inequality in the United States a lot worse than it already is. All right, Jay, we got a mess. It's probably going to continue to be a mess, but we're probably going to get more tariffs than we had before. And you have a lot of executives who are trying to think what the hell they're going to do next. We've got the design side. We got the fabs. We got the SME. Let's start with design. Yeah. If you're a major chip designer...

What's going through your mind at the moment? So if you're a major chip designer, you're actually, you have two concerns. One is, are you going to lose access to the China market because China's going to have counter tariffs? And now suddenly your products are much more expensive. Maybe we'll come back to that. The other question is, what are the tariffs on not China, but on Taiwan? And I know there are all kinds of side agreements and other things going on here where some chips are coming in at zero tariff.

But one, is that going to continue? Because it sounds like there's threats to have more tariffs on Taiwan for reasons. And then not all chips are covered, right? And so I know, you know, like GPUs aren't covered under the rules. They're supposed to, they're actually, GPUs get tariffed.

Semi-analysis actually put out a good piece last week showing that there's a loophole. If you import your tariffs through Mexico as part of a system, then you don't get that tariff. But if you import the GPUs directly to the U.S., they're tariffed differently than CPUs, which hurts my brain and just seems counterproductive to, you know, do you want to do assembly in the U.S.? Well, you've just made that more expensive than doing assembly in Mexico.

You want to win the AI war, whatever that is, you've just made that whole process more cumbersome, more expensive. So I'm confused. It's kind of where I ended up on it. But to answer your question, the design side is, if I'm running Qualcomm or NVIDIA or Broadcom, I'm worried that suddenly my products are going to be more expensive somewhere along the line and that I'm going to lose access to 10, 20% of my revenue that goes through China. All right, let's do manufacturers. Manufacturing. I go back to Bill's question, which is like, what's the goal here?

Do we want to bring advanced manufacturing, semiconductor manufacturing back to the US? If that's the goal, we've already achieved it. If the goal is to have it up, because we have TSMC building advanced chips in Arizona. We have that, right? The supply chain is secured. That plant is very dependent on Taiwan Mothership for R&D.

So if you want an American company to have advanced manufacturing of semiconductors in the US, then the solution is give Intel $50 billion and problem solved. Because Intel can manufacture chips. It's not a technical problem anymore. The problem is an economic one. And they just need to get over certain cost curves in order to be able to manufacture here.

And if that was just like purely a national security concern and we just wanted to have a supply chain that's fully domestic in case of war, then just throw a bunch of money at Intel. They can get it done. But that doesn't, you know, that causes all kinds of other issues. It's we don't like subsidies. So it's confusing to me what the goal is. Well, one, yeah, there's a distinction that you're making that's an important one. Biden was a Biden was a president.

What's the right word? Carrot guy. Trump's a stick guy. Biden's approach was let's bribe companies into doing what we want. I mean, in a way, that's really what the CHIPS Act was about. I think it's what a lot of what the IRA was about. Tax credits, subsidies, give them incentives. Trump is the opposite. Trump says let's threaten them.

and let's bully them into doing what we want. It's a lot cheaper for the federal government. For him, for the federal government. It's not necessarily cheaper for the companies, as you've just pointed out. Yeah, I mean, in a very dim attempt at being bipartisan, I'll say that I don't think the Biden administration was particularly clear about what they wanted from semiconductors either. There's a lot of conflicting goals within their semiconductor motions. I wouldn't disagree with you on that. Yeah, but...

The process as it stands now is I think it's very confused. It's not clear what we want. And most of the paths that I see going forward involve everything being more expensive for the average consumer. And then we get into the whole question of what China is going to do to respond because there's some pretty serious counter tariffs they have too that are bad for all these companies. Yeah, I think the level of tariffs is such that –

They've really prohibited most trade between the two countries if it stays there. Now, my footnote to what you just said, though, is I think Trump wants a deal and believes that he can negotiate one with his good friend, Xi Jinping.

And I mean, I think this causes some consternation inside the administration because he appointed a number of people that are just decouplers. They just don't really want to have anything to do with China. But he has this view that he can he can make the deal. And when he says that, as he has a number of times,

I always think back to what 2018 and 2019. I mean, this is a movie we've seen before. He negotiated before. He made a deal. And in my view, he got played. He went in with a whole bunch of demands and in the end got what? They promised to buy a whole bunch of stuff. And then they didn't. And then they didn't. And when he was asked about at the giant press conference, he was asked,

Well, what about all the things you wanted? You know, no subsidies, you know, no stealing IP and all this long list of stuff, which, by the way, is good stuff. But what happened to all that? And he said, well, that's for phase two, which, of course, never happened. And I think you're going to see a replay. I think they'll negotiate. Right now, it's like a sumo match, if you've ever seen one. You know, you've got these two enormous guys.

fat people, you know, in the ring doing a lot of foot stomping and glaring and frowning at each other and throwing rice around. And then there will be a belly bump. And eventually, you know, they'll get to the table. And all they have to do to get to the table is disguise who made the phone call first. Sure. Because that's that's the issue. No, but neither one wants to be the asker. They both want to be the giver. So, you know,

You have an announcement that simply the two leaders have talked and now we're going to have a meeting, you know, without discussing about who called whom. So he has the meeting. And I think what you get is what you got before. But one consequence may be not 145 percent tariff on their stuff and not their 125 percent tariff on our stuff.

but some smaller number. I don't see right now any scenario where any of these numbers get below 10%, which is a significant bump up for the U.S., whose average tariff level for decades has been 2%, 2.5%.

I just want to say I'm a little disappointed. There was a polymarket on, "Does Trump impose 200% tariff on China before June?" And we're now down to 19%. It spiked up to 60% at some point. It's like, if we're going to go this high, you might as well get, I mean, give me a thousand. How about 949? Let's really throw it in their faces.

All right. Let's be a little positive. So, so we're, we're criticizing them for not having a prior prioritization. Um, uh, Bill and Jay, why don't you lay out your kind of independent, like, all right, if we are going to have this like tariff energy and bring it towards the semiconductor industry, what, um, you know, how would you sort of deploy, uh, deploy this tool in a way that, uh,

furthest interests that you define. I mean, I'm struggling here a bit because I feel like we're having a... You're both very intelligent, smart, serious people, and we're trying to have a serious conversation about something that I'm not. That makes no sense. That makes no sense. So, you know, but I think... Okay, well, we can define it now. No, no, no. I'll say it because I think if there was a moment, I think, a few weeks ago

when I think the Chinese establishment was very, very nervous. And like, I obviously, I have no idea. I'm not going to, you know, I have no idea what Xi Jinping or the senior party members are thinking. Like, I have no insight to that. But definitely from the commentary I was reading around the semiconductor industry, there was real fear. There was real, real trepidation. And that shifted the minute the terrorists went wider to the rest of the world.

Liberation Day was a really positive move, I think, from the Chinese perspective. But I think if he'd stayed the course, if he just held on to that and just tariffed China, and there was a moment there where he could have actually really affected the balance of trade. And then he tariffed everybody else and we lost all our allies. And then he reversed on a bunch of the tariffs, which really eroded the negotiating position. But there was a moment there where I think he actually had a shot at it.

Yeah, but they should go back to being worried because I think the way this is going to play out with other countries is there's going to be negotiations. I mean, they're lining up to show up here. And I think as that rolls out, one of the major U.S. asks of the other countries is going to be, do to China what we're doing to China.

put tariffs on them just like we're putting tariffs on them. This is not a semiconductor specific ask, but it's an important one. And it's one that will resonate with some of these countries, not all of them, because Chinese overcapacity

in a number of sectors is a huge issue. I mean, everybody knows about steel, aluminum, solar panels, EVs, cars. Next is commercial aircraft, which is already getting started. And other countries are beginning to see what it's doing to their domestic industries. So it's not just the EU on EVs.

It's India, Turkey, South Africa, Brazil, Canada, Indonesia, all taking or contemplating taking adverse tariff actions against China for various reasons. They're not all the same. I mean, in Indonesia, it's textiles, which is completely different. But so there's a lot of people that have figured out.

what's going on and they figured out that what's going on isn't good for them what is missing is a collective approach because right now every time you act unilaterally it's like squeezing a balloon it just goes somewhere else i mean the big victim of what we're doing to the chinese is going to be the eu because the stuff they're not selling us anymore is going to go there uh and they're worried about that so but the chinese should be worried because if it works

everybody's going to be ganging up on them and then they're going to have a much bigger problem than just a bilateral problem with us. Yeah, I think that's absolutely true. I just worry that the Europeans no longer trust us, trust the U.S. to sort of

be the center of that coalition. You know, you're exactly right. And, you know, we are busy alienating our friends, actually more than our enemies. And, you know, Russia, Iran were exempt from the terrorists. We don't trade much with them anyway, but it was sort of a symbolic step. You're right. I mean, why are these people going to help us the way we're treating them? It's just it doesn't it doesn't make a lot of sense. But

We said that already. So, I mean, I saw a story recently that ASML, which makes these critical EUV tools that advanced semis are sort of dependent on. During the Biden administration, they had given the keys, the software keys to the NSA, to the U.S. government, to make sure that China wasn't able to use the most advanced systems. And my understanding is with the new tariffs that came in, the Dutch government took the keys back. And so...

we've sort of moved in the other direction. Now, I think you're right, because I think there is a lot of common interest out there. All those companies you mentioned, there's a few more, have reasons to worry about China's export engine. And maybe we all come around. But we need that sort of collective action, because otherwise we're... Because that's certainly the tone I got from the Chinese press, which was,

They were very worried. They were very isolated and they knew it. And then Liberation Day came and suddenly the tone shifted overnight and they were very, very happy and very optimistic. Some of them explicitly saying that the U.S. has overplayed its hands. Now it's not the world against China. It's the world plus China against the U.S.,

That's really interesting. I hadn't thought about it that way, but you're making a good point. Yeah. And so I think you're – I mean, I'm trying not to be alarmist because I think you're right. I think there is a clear sign that there are countries out there that are lining up to negotiate, like you said, and want to come to some form of deal. Hopefully, some of that parlays itself into –

sort of collective action against China, not just a sort of bilateral series of actions. Yeah, my instinct, though, is that the countries that will be most reluctant to do that are probably going to be Japan and Korea, which are particularly relevant in the semiconductor sector. Yes. I mean, the sort of the second order impact semiconductor export controls, we saw the H20 get hit earlier this week, but that's the easy one. Like the

manufacturing equipment, you kind of need some help from your friends in order to do it. And like, yeah, you can go extraterritorial and you can really bang the drum and maybe you can squeeze tighter than you've been able to of late. But like, I don't know. I guess I'm of a few minds of this is that on the one hand, these countries are going to be so much more stressed about other trade issues

um disjunctures that like all right like tokyo electron getting a little screwed over is really not the end of the world if we're talking about 20 tariffs on your entire economy but like you're just also in a less friendly mood if this is how this country that's like not giving you a lot um but it's just this is just going to be another ask and if you're thinking about kind of reconsidering your um

your relationship towards China, this is the thing that they're going to be most excited about. Marc Thiessen: They've launched a new charm offensive, I think the third one. But I think you're right. What the United States is basically telling everybody is that we are no longer a reliable partner. And if we're not a reliable partner, that has a lot of implications. One implication, and particularly the way it's rolled out, has magnified this concern is

How can you be confident that anything we say is going to stick? You know, tariffs are on, they're off, they're up, they're down. There are no exceptions. Then there are exceptions. Then they're postponed, you know, and then the deadline changes. And now we're making deals. If I were a foreigner, I have no idea what's going to happen next. And I wouldn't have a very high level of confidence that any deal that I make is going to stick. I mean, Canada, Mexico,

prime examples. Trump negotiated USMCA. You'll recall it was the best, greatest trade agreement in history, you know, and now, you know, five years later, he's dismantling it. Why would anybody have confidence under those circumstances? It's interesting because the Biden administration, like they they ended up

You know, pulling the Netherlands and Japan and South Korea a little bit. But the sort of the prime directive was like, we want to be friends with our allies. Right. And that, I think, did end up putting a real breaker on just how aggressive they ended up being on SME. But in Trump, we're getting a few different like.

impetuses which are which are different from that first like we don't give a fuck about what the allies feel but like we also want to beat China more maybe and we also want to make deals with China so like there are many different pathways that you can see this

playing out where you alienate the allies so, you know, ASML doesn't care about figuring out a way to, you know, service DUV and sell EU view into China. Or they squeeze so hard and there's enough IP in it that they actually can get this stuff stopped and they just don't care what the allies think in a way that the Biden administration doesn't.

did, which sort of slowed their role from this perspective. So very wide range of outcomes if you're a smick of an engineer trying to think about what you will and won't have access to over the next five years. Well, I think it's one of the things that's fascinating to me. My sense is that there are all these competing camps within the Trump administration. And on these issues, some of them are pulling in diametrically opposite directions.

Right. You have you have like you said, there are some who favor complete decoupling and then you have others, Elon chief among them, who are dependent on China. Right. You know, Elon, Elon's factory in Shanghai is is the nexus of his whole his whole, you know, fortune. And I wonder about this a lot because like Elon, where do Elon Musk's loyalties lie? He has a lot of influence in in this administration. Maybe it's waning, but he has a lot of influence.

His Tesla is entirely dependent on that gigafactory in Shanghai because they use that to export everywhere. And maybe he's a little more sympathetic to China. He has to be, right? Because from his perspective, there are, what, 56 EV companies in China today, all competing with him. Some of them are starting to surpass him. You have to think that BYD and Xpeng and Li Auto would all love to see Tesla take a hit and get shut down.

right and so you have a strong voice in china arguing against tesla if if if elon can't deliver a friendly chinese relation friendly u.s china relationship with all his influence in dc what's what's the point they're you know they'll shut him down and so how does that play out it's you know that gives me some hope that there is there is room for some form of peaceable outcome to this you know the um the gossip last year was that the um

the Chinese were optimistic because they thought that Elon would take care of them. Right. You know, that he would come in and save the day. I think what you have to keep in mind with Trump is everybody that has ever worked for him gets thrown under the bus sooner or later. It's just a matter of time. When he was inaugurated, I gave him six months, and I'm sticking to that. So...

You know, his term runs out in May anyway, but the question is when his influence runs out. And I think that, you know, they all get thrown under the bus sooner or later. I mean, there's already a pool here on which cabinet officer is going to get the ax first. And there have been stories about why this one, why not, you know, why not that one. It's a parlor game.

I think that is sort of the one thing we can be certain of, right? Is that we are going to get big swings when it comes to whatever's going to happen with the CHIPS Act, whatever's going to happen with export controls, whatever's going to happen with tariffs, and sort of what that level of uncertainty does to

for the future of what was started in the first Trump administration of this whole push to bring domestic manufacturing back. I think there is a strain of thinking which is like, okay, he's just negotiating and then the tariffs are, it's just a bluff. It's just a negotiating business. And then ultimately we're going to come back to some much more reasonable lower level of tariffs and there's no lasting harm.

And I think that's misleading because one, Bill, to your point, we're going to end up with higher tariffs no matter what. That's pretty clear in a meaningful way. But I think there are other sort of second order things that worry me a lot. In particular, I look at the way that tariffs are being implemented in China to counter tariffs. What this whole thing has done is create a big window of opportunity for domestic Chinese chip design companies.

Right. Because the places where they're strongest are trailing at manufacturing analog products. And they have, I don't know, 500 companies competing in that space. And this is one of those things I was saying, but up until very, very recently, the Chinese semiconductor industry was in a really gloomy headspace. They were very worried. They have too much competition. They were constrained geopolitically.

What these tariffs have done now is make US products like those from Texas Instruments and analog devices much more expensive inside China, just at the moment when the Chinese companies are unleashing a massive wave of analog capacity. And so what that's going to do is it's going to propel some number of domestic Chinese chip companies into a place where they can now compete globally.

And once they're competing globally, we've seen this many, many times. Once they're competing globally, it sort of wrecks a lot of other foreign competitors because they're going to be very, very cost competitive. They have very low cost of capital. It's going to be permanently alter the chip design landscape because you're going to start to see these Chinese leaders, these Chinese champions emerge onto the global stage. And I don't think that would have been possible for another five years without the tariffs.

Yeah, it's a timing issue. When they first, when they did the October, the two October export controls, our reaction at CSIS was it raised three questions, you know, effect on U.S. company revenue, effect on Chinese policy, and effect on the design out issue, the extent to which it incentivized companies to leave out U.S. technology and avoid the scope of controls that way.

The second question, the effect on Chinese policy, it seems to me is, it's what you said. I don't think it changed Chinese policy at all because I think they've spent the last 10 years moving in the direction you just described, but it's accelerated them. And we're going to have to deal with this problem a lot quicker than we would have had to deal with it otherwise. I think it's pushed a lot of sectors past the point of no return.

Which wouldn't necessarily have happened. Probably would have, but things could have turned out differently. But now we're going to see a permanent layer of Chinese competition in some pretty important markets. So Jay, what is the corporate and policy response on the lagging edge and the analog side? I think it's going to be very challenging for companies like

TI has spent the last five years radically upgrading its capacity to the point where it can now compete on cost with Chinese low-cost competitors. They spent a lot of money. They spent about $10 billion lowering their cost structure. And so they can probably skate through this. But I think for some of the others, and in particular the European companies like STMicro and Infineon and NXP,

and analog devices here and on semi like those kinds of companies are are now going to have to deal with a new level of chinese competition um i think that's true in in analog it's it's it's true in memory it's a lot of a lot of categories um where you i think they could have operated they've been operating for years we're sort of like keeping an eye on chinese competitors but not really worried about them and now we're we

Move that all forward to like suddenly you have a new bunch of serious competitors. Is there a tariff answer to this? Is there a subsidy answer to this? Is there a consolidation answer to this? I don't think there's an easy answer. I don't think that the tariffs, I don't think are working because this is one area in which demand is actually coming from the Chinese side. The bright spot in analog chip companies revenues lately is China EVs.

Those companies are all going to lose a big chunk of that market. So now their growth prospects are, they're going to have to lower their outlooks. It's going to be a tough time for them. The other thing that's happening too is it's clearly driving Chinese companies to move to more domestic solutions. And I mean, to Bill's point, this is already happening back starting in 2018. And I've been tracking it

every year or so, Chinese domestic chip consumption goes up a point. And I think every year it's a little bit more. It's going to take a long time to get serious. It's still single digits. But in certain sectors, it's higher, and I think it's going to take a big step forward in the next year. And once the domestic competitors get there, then they have more funding, they have more cash flow, they can do more R&D, it makes them more competitive.

They become a permanent part of the industry in a way that they didn't have to be. Jay, you want to talk about the leading edge a little bit? How are we feeling about Intel, TSMC in relation to, I don't know, Huawei deciding to vertically integrate the entire semiconductor ecosystem? So I think leading edge...

I still think China has a ways to go in terms of leading edge. I know there's just constantly rumors that they've made some big breakthrough, but they're not quite there yet. I still think it's going to take them a few years. Certainly, the tariffs have given them new energy and new confidence and sort of accelerated that process. But Huawei is still pretty dependent on TSMC.

And they're just playing that constant game of whack-a-mole. There's constantly finding new avenues to get TSMC wafers. And that's going to continue. I mean, the other element of this, too, is we seem to be cutting back on the entire federal government of the U.S. So how does somebody like BIS enforce the export rules that are already in place when they can't get staff and all the other branches of the government are getting cut back, too?

Huawei and a lot of other Chinese companies are constantly playing shell company games, moving around entities. I think it's tricky. I think it's going to be very, very tricky. And I think the thing that really confused me most this week was now it looks like Trump has got his sights set on NVIDIA. Like NVIDIA is the enemy, which is like... I thought the point was we want to win the AI war. And now...

We seem to be directly targeting the company that is our champion of that, that is leading the way in AI compute. It's an American company, and we seem to be targeting them. So I don't know what to make of that. Hopefully that's just negotiating bluffing, but it's very strange to me. Yeah, I agree with that. With Trump, it gets very personal. If he doesn't like somebody, that becomes policy.

It's hard to predict. I got to say, though, going to Beijing the day after the H20 ban drops is like meeting with Liang Wenfang. I mean, like, I get it, but I also don't. It's like your future is not in that country. It's like it's just like I'm not sure how much clearer they need to make it. So it did seem like an odd tactical choice. He showed up in a suit and tie, too. Like he wasn't even wearing his leather jacket.

Well, he's trying to play both sides. He's trying to play both sides. Isn't everybody one way or another? Yeah, but like, like Trump can force him to not play one side anymore. Right. And like,

I mean, it's still, it's like, you know, 7% of revenue, 15% of revenue, something. Depends how you count Malaysia. I don't know. I was just, this reminds me of what we went through in the financial crisis in 08 and 09. And the discussion was, you know, are there some banks that are too big to fail? In this context, are there some companies that are too important to punish or to fail? And he may be thinking that NVIDIA is one of those companies and,

You know, Trump is limited to what he can do because exactly what Jay just said. What are the consequences? If you want to win the AI contest, you need NVIDIA. If you're going to destroy NVIDIA, there's a whole bunch of big boatload of collateral damage that you need to think about. Yeah, I think so too. And I do think from NVIDIA's point of view, from Jensen's point of view, he has to walk this tightrope where they have been the most...

subtly but vocal critic of these policies for years, going back to the Biden administration, because they're the ones bearing the brunt of it. It's them and ASML who are really feeling the big hit. I mean, every new wave of sanctions is a few billion dollars less revenue for NVIDIA. He's been quietly pushing against that. And now I think going to Beijing like that sort of makes it a little bit more prominent. And I think he has...

Some reason to be concerned, right? There are 20 or 30 GPU companies in China. None of them are particularly good, but they're getting better. And there's Huawei, which has some pretty impressive AI chops now. If Huawei can continue to get access to TSMC or whatever SMIC gives them,

Huawei suddenly becomes a pretty serious threat to Nvidia. It's like I was saying with the analog companies. If you create a vacuum in the market, a void in the market, there are going to be Chinese competitors who fill that. And once they're there, they're entrenched. You can't remove them. And I think Nvidia has some reason to be concerned about that. And to Bill's point, what are you going to do? You're going to tear up the biggest AI company we have?

Are you going to punish them? That seems a risky strategy for even Trump to pull. Yeah, I mean, that was the really frustrating thing about, like, first, that the H-20 ban took so long, and second, that it hasn't been accompanied by figuring out how to plug this TSMC loophole and how to plug all the semiconductor manufacturing equipment loopholes because it's like, I mean, we're in this, like, weird, worst world where, like,

we're helping Huawei on both dimensions by allowing them to like slowly like self-improve and sell roughly competitive chips to what Nvidia can bring to the market.

And they've got this like crazy cool rack now, which is, you know, it's not literally Blackwell, but it is getting there. And it is like tailored for the Chinese market because they don't have to stress out about power as much as we do. So we are not getting the nuanced, optimized version of this. We are getting the lowest common denominator policy choice. And that is,

that even if you do have four goals which are kind of competing with each other, you are not at the sort of frontier of what can be accomplished because you're just trying to write the reg that like takes the least amount of work and is the fewest pages and is the simplest to convey or that ChatGPT can write for you. So, I don't know. All right. I have a positive. Like you asked for like what's my one policy I would like to see. Okay. Be positive about this. The one thing I would like to see is give...

BIS or commerce, a thousand inspectors, right? Let them go enforce all the rules that are in place. I would take that. I would like to get rid of the tariffs too, but that's different. Like this seems achievable. Let's actually put some people in place

Let's not make them efficient. Let's just make them, let's throw added capacity at them so they can go out and chase down all these Malaysian companies that are, you know, suddenly building up massive data centers. We got all these, we got all these folks in the IRS we're apparently firing. Just like shift them over, right? Shift them over. Okay.

Yeah, I don't think the budget, well, the 25 budget, I think, featured either a cut or no significant increase. The only significant increase BIS has gotten is on the import side to deal with the Huawei hardware coming into the United States. They've not gotten expansion on the hardware.

the export side and particularly on the enforcement side. There's a bunch of us, we did a paper on this a couple years ago and we've been, Greg Allen joined us on this, we've all been advocating for budget increases. We've met with people on the Hill and it resonates. I mean, there's a lot of sympathy for it, but it just never ends up quite happening.

And we're not now where you're we started off with this or J. Did anyway, we're a start of we're in the era of drastically cutting government and coming in and saying, well, here's one agency that ought to get, you know, 25 percent boost in personnel. I don't think that's going to fly, even though it should.

Maybe let's close on this bill. Like you've been in this game a long time and we're at a point where like thinking does not seem to be super valued. And like, that's kind of what we do for a living, I guess. Do you have like a, like little change, right? I mean, give me, give me some words of encouragement to like for myself and everyone else who cares about this stuff to, to keep our heads in the game.

Well, I wish I could, but I'm thinking of the old quote, you know, the more things change, the more they stay the same. I had a for a year, you know, I used to work when I was on the Hill. I used to work on steel because I was working for John Hines from Pennsylvania. And I spent I was staff director of the Senate Steel Caucus for 17 years. I spent a good part of my life trying to save the steel industry. And then when I went into the government, I stopped doing that. Wasn't part of my portfolio.

And then like 20 years later, 20 plus years later, I came back to it when I left the National Foreign Trade Council and joined a law firm which represented steel companies. And I ran into the guy who one of their lobbyists and I said sort of, well, I'm back, you know, 20 years later. And he said, you know, nothing has changed. The issues are all exactly the same.

The people are different, but nothing has changed. And I would say in a way here, it's the same. It's been a cat and mouse game for 50 years, and that's never going to change. The enforcement people are always on defense. And the biggest mistake you can make is to

Think of this as a, you know, as a where you want to have 100 percent effectiveness, which is impossible. You have to look at it as a management problem. And, you know, you do the best you can to make it. I mean, the analogy I've always used is think of Iran trying to develop a nuclear capability. So they need 100,000 centrifuges. You know, if your enforcement goal is to make sure they get zero, you're doomed.

If your enforcement goal is to make sure they only get $25,000 and they all cost five times as much and it takes them 10 years rather than three years, those are attainable goals. And you can manage to that, but that doesn't satisfy the politics of this.

You know, because politically and go to the Congress and the China hawks politically, they want zero. They want Huawei out of business. They don't want any chips of U.S. origin going to China and they don't want ASML doing anything in China. And every administration has to contend with this faction that has been there forever, that believes that China is an existential threat.

To me, the amusing thing about this is I once had a conversation in the Bush administration with a guy at the NSC who had this portfolio, and we were actually talking about something else. But he sort of interrupts himself and says, you know, there are a million Chinese who wake up every morning thinking about, you know, how to kill Americans. And my immediate reaction is, well, you know, there's a lot of people at the Pentagon who wake up every morning thinking about how to kill Chinese. That's their job.

And he doesn't miss a beat. He looks at me and says, not nearly enough. And those people are on the Hill. They're in every administration. They're in both parties. They're actually in think tanks and academia and they're in the media and they're always there. And right now they're more ascendant than they have been in the past.

And I've tended to have the view that the best way, the best policy we could possibly pursue in both countries is to make sure that those people don't end up in charge. And I'm worried about that because a number of those people are in the administration lobbying. One of the topics under discussion, I think right now, is should we go to an embargo, which I think would add very little to what we've already done. But, you know, symbolically, it's an issue. So, yeah.

I'm gloomy about this. I hope that cooler heads will prevail. I think the industry, the semiconductor industry in particular, has done a decent job over the years of explaining what the consequences to them are of over control. But, you know, they didn't get as far as they didn't get nearly far enough from their perspective in the Biden administration. And I don't think they're going to get as far as they need to get in this administration either. But they at least are

You know, they're making up a good, putting up a good fight. I give them credit for that.

All right. So I took the we were speaking earlier on the show about how Bill Reince's son teaches at religion at a Catholic school. So I had AI make a transcript. I threw it into O3 and I asked it for some Bible quotes related to our specific conversation about BIS export controls. Bill, you want to pick your favorite out of this list?

Where nothing is concealed that will not be disclosed nor hidden that will not be made known. Luke 12. That's a good one. Okay. And my favorite was no wisdom, no understanding, no counsel can avail against the Lord. The horse is made ready for the day of battle, but victory belongs to the Lord. So we're going to throw it up to God to make sure whether or not we can...

you know, get export controls. Right. My son would agree with that. Plans fail for lack of counsel, but with many advisors, they succeed. Bobber's 52, 20, 15, 22. That's fine. All right. I'm going with that. I like this gimmick. I think we're going to stick with it. Um, Jay, Bill, thank you so much for being a part of China talk. Honor to be invited. Likewise. Thank you guys. Yeah.

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