President Trump’s awakening the US giant might hold the dragon at bay, but can he stop it?
Rear-guard action only
No doubt President Trump and his tariffs, quotas and outright trade bans might slow down the achievement of China’s MIC2025 ambitions. But it is almost certainly too late for him to have any meaningful effect on China achieving its potential destiny. And stopping the flow of US semiconductors to China is very likely to backfire: by 2025, China will likely be self-sufficient in this niche too.
That the US has rather belatedly woken up to China’s re-emergence at the forefront of the race for higher knowledge is perhaps not a surprise. What might be a surprise is realising the role that America Inc played in assisting China in the process, dividing the US into a very unequal nation as it did so.
As Bob Dylan prophetically foresaw in his 1983 ballad, ‘Union Sundown’:
Well, it’s sundown on the union
And what’s made in the USA
Sure was a good idea
’Til greed got in the way…
The MSCI US Index has depended heavily upon the leadership of US Big Tech for its solid, even spectacular, performance since 2008. This logic has shown recent signs of failing, and for multiple reasons.
Figure 1: The technology sector has driven US earnings since 2008
Source: Source: Investec Asset Management, Bloomberg, MSCI as at 31.12.18
US Big Tech tailwinds to headwinds
US Big Tech has achieved its recorded profit growth at the earnings level because of five main drivers:
For much of US Big Tech – with Exhibit A being Apple – circumstances are conspiring to turn all of these tailwinds into headwinds. This does not bode well for the US stockmarket.