Caught in a Global Labyrinth

US versus China… March 31, 2020 UNSUBSCRIBE | ARCHIVES URGENT UPDATE FROM JAMES ALTUCHER… (Only good till 9:30 TOMORROW MORNING!) This isn't the first time James has traded in an extremely volatile market, but what he's accidentally discovered changes everything.   It's crucial you catch his latest update about life and making money in a post-coronavirus world.   James reveals exactly what readers should be doing to help protect their money and how they can even profit from his latest discovery.   This video is only online till 9:30 TOMORROW MORNING. Click here to watch his update now. Caught in a Global Labyrinth Dear Daily Prophecy Reader, Yesterday brought a reality check for Trump Administration generals, 5G microwave warriors, and tech strategists who believe that they can exploit the US semiconductor technology lead to bring down China. Microchips provide a silicon backbone and central nervous system for the world economy. Everything ultimately depends on them — from finance, to medicine, to transportation, to defense. Over the last some thirty years, chip revenues have almost tripled as a share of global GDP. People talk about 5G (fifth-generation wireless standards). Semiconductors pervade every generation of every new technology that entails sensing, measuring, storing, sending, receiving, accessing and processing information. From biotech, to agriculture, to automobiles, to aerospace, can you think of anything those functions don't cover? Everybody agrees that in crucial ways, the US is the global leader, with nearly 50% market share, compared to China's roughly 3.5% in 2018. In Information Technology infrastructure, the US commands a 59% share. In military microchips, the US has an estimated 52% share. Let the Asians lead in consumer, autos, and smart phones.     With a mercantilist crunch, so it would seem, the US could stop the Chinese ascent through microchip bans and boycotts, "entities lists" of verboten Chinese companies and garottes of crucial tools and technologies. Thus, the Trump Administration is currently banning sales to Chinese facial recognition device companies and purchases from Chinese telecom equipment companies. No Fly Zone Huawei and ZTE get out of here, and no Intel or Nvidia chips for SenseTime and HikVision. Should eventually stop them in their tracks, right? But the title tells the story: "How Restrictions to Trade with China Could End US Leadership in Semiconductors." Written in conjunction with the Boston Consulting Group, the Semiconductor Industry Association (SIA) paper confirms that the US leads in 23 out of 32 categories of chips, from personal computer devices, to industrial, to information technology infrastructure, and was actually gaining share until 2018. Over the last five years, US microchip company shares have produced an annual shareholder return of 14%, roughly four points above the S&P average. US semiconductor industry gross margins stand at 62%, 11 points higher than the rest of the world. With higher returns, the US industry has led the world in R&D with 17% of sales, twice the rest of the world. Sounds imperial to me, and it is. The US position in the world largely stems from our bastion in microchips and other frontier technologies. We lose this bastion and we will eventually lose our world leadership. In microchip trade, our microchip bastion gives us a massive surplus. Peter Navarro, Trump trade strategist, should relish it. In his world, a trade deficit confers direct leverage. President Trump has treated our trade gap as a direct loss to the country. The Administration's mercantilist model is a zero-sum world where any deviation from trade balance means a loss for the party with the deficit. In the case of China, we were running a deficit near $250 billion in 2018, which represented a massive sluice of US wealth into China.   We design the chips and own them, but most of the time we don't manufacture the devices that use them. Less than 25% of global semiconductor demand stems from the US domestic market. 100 Little-Known Ways To Maximize Your Retirement Benefits This mysterious guide to maximizing your retirement benefits is waiting to be claimed… Here's a small sample of little-known methods you'll find inside… Boost Your Benefits by 32% Using the "Hiccup" Technique. Learn how some seniors are using this special "hiccup" strategy to increase their retirement benefit payouts by 32%. (Page 243) Hit the Benefits "Reset Button." Not happy with your current benefits? Learn how some folks are legally "resetting" their benefits for WAY bigger monthly payouts. (Page 245) The "$24,000 Switch Strategy." Discover a wrinkle that allows some retirees to switch to a higher benefit in the future… for up to $24K in extra retirement income. (Page 82) You'll find them all… and more than 90 additional retirement benefit maximizing methods inside. Click here to learn how to claim your copy now.  Nearly 80% of US microchip revenues come from export markets. In 2018, the Chinese market comprised 58% of global demand for semiconductors and 23% of demand for US chips. Chinese chip suppliers can provide only 14% of the needs of Chinese manufacturers. From the mercantilist perspective, these numbers give the US a tremendous position of power over China. However, the logic of trade is hostile to all such exploitation. Fabrication of a microchip entails some 1500 exquisitely calibrated steps in some $16 billion plant bringing together complex equipment from around the globe. It takes decades to establish these supply chains. The Chinese may be paladins at building cities and hospitals and are becoming brilliant at designing chips on computers. In value, they design 14% of the world's microchips. But they have yet to master the manifold maze of rigorous processes and techniques necessary on the ever-changing frontiers of chip manufacture. So, the Chinese are caught in this global labyrinth. They are trying to escape, but have yet to succeed. They can issue as many papers as they want, targeting 70% share by 2030, and print as much debt as they need to finance the effort. But they will not change this global technology industry into an autarkic fortress. However, it is not China, but the United States that imagines that it can convert this global asset into an American redoubt. The US with its dominance would seem to have a better chance. That is where the BCG paper offers a crucial corrective. Today's Prophecy Over the last two years of trade war, the US has already started to lose its lead. Since the trade war began, the median year to year growth of the top 25 US chip companies has dropped 90% — from some 10% to just over 1%. After restrictions on sales of chips to Huawei, the top US producers suffered revenue declines of between 4-9%. The authors of the BCG report, Antonio Varas from the Silicon Valley office and Raj Varadarajan from Dallas, project the effects on the US semiconductor industry of an actual decoupling of the US and Chinese technology sectors. UScompanies, such as Intel, Broadcom and Nvidia would lose 18 percentage points of global share and 37% of their revenues. These revenue drops, write the BCG team, would force severe cuts in R&D and capital expenditures and the loss of scores of thousands of highly skilled jobs in the US microchip industry alone. These jobs are the foundation for our national defense and prosperity. But perhaps the warrior strategists can shrug off these losses if they inflict comparable damage on China. But China has alternative possible suppliers in Europe and Asia for perhaps 70% of these chips. Over the last two years, China has begun gaining share while the US loses it. And if US boycotting actually crippled Chinese progress, they could redress the damage with merely one belligerent step. They could recover Taiwan, a country claimed by China and revealingly absent from the pages of the BCG-SIA report. Even though the US dominates market share in chip sales, the center of global semiconductor fabrication technology is in Taiwan. Contrary to the assumptions of some strategists, Taiwan is not an island off the coast of California. In future prophecies, I will explore the implications for investors of upsetting the delicate balance of policies surrounding Taiwan and pushing China toward recapture of this beleaguered island.     Regards, George Gilder Editor, Gilder's Daily Prophecy P.S. As the Wall Street Journal reports, "when [markets] get wild, the computers at [Wall Street's] firms start selling — helping make it wilder still." If you do not have a way to fight back, then you are helpless while your investments will be swinging up and down for no reason. My colleague James Altucher has found a way to help you fight back and made a short video on how to do so. Click here to watch it and learn how you could take back control of your money. If You Use Apps, a Smartphone or Online Banking… You'd better read this. Because, says world-famous futurist George Gilder, we're headed for a stunning $16.8 trillion reboot that could impact the way you use every single one of those modern tools. It could also radically transform the way you get paid, the way you save and — maybe most of all — the way you invest for retirement. It's all in his brand-new presentation — you'll find it at this link. What you'll see could change our way of life, the way microchips did. The way the internet did. The way smartphones have. And, says George, it could make you exceedingly rich — click here to see why. To end your Gilder's Daily Prophecy e-mail subscription and associated external offers sent from Gilder's Daily Prophecy, click here to unsubscribe. If you are having trouble receiving your Gilder's Daily Prophecy subscription, you can ensure its arrival in your mailbox by whitelisting Gilder's Daily Prophecy. Gilder's Daily Prophecy is committed to protecting and respecting your privacy. Please read our Privacy Statement. Gilder Press, a division of Laissez Faire Books, LLC. 808 Saint Paul Street, Baltimore MD 21202. Nothing in this e-mail should be considered personalized financial advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after online publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2020 Gilder Press, a division of Laissez Faire Books, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Gilder Press, a division of Laissez Faire Books, LLC. EMAIL REFERENCE ID: 401GDPED01