As collateral damage mounts, US continues to escalate cold war with China

Applied Materials, which is one of the world’s biggest suppliers of semiconductor manufacturing equipment, suffered a share price fall of 8% following its recent quarterly earnings announcement. According to the WSJ, the reason for this was ‘a lower-than-expected sales outlook for the first quarter on weaker demand trends in China.’

The company was keen to downplay the notion of exceptional circumstances in China. “We think that’s a normalized rate,” Applied Material’s Brice Hill said on a call with analysts, according to the WSJ. “It was elevated for a few quarters, even up into the mid-40s, and that was because we were shipping that DRAM demand to some specific China customers when it was allowed.”

When it was allowed. The clear inference from that is that Chinese revenues were higher before US restrictions kicked in. The company didn’t offer regional splits in its earnings presentation but Seeking Alpha has some illustrative charts, including the one copied below. The Chinese sales over the past year are exceptionally high, but who’s to say they wouldn’t have stayed that way without American restrictions imposed in a bid to suppress the Chinese chip sector?

Meanwhile, the US intelligence community took the opportunity this week to accuse China of hacking American telecoms networks. “The U.S. government's continued investigation into the People's Republic of China (PRC) targeting of commercial telecommunications infrastructure has revealed a broad and significant cyber espionage campaign,” opened the brief joint statement from Joint Statement from FBI and CISA.

“Specifically, we have identified that PRC-affiliated actors have compromised networks at multiple telecommunications companies to enable the theft of customer call records data, the compromise of private communications of a limited number of individuals who are primarily involved in government or political activity, and the copying of certain information that was subject to U.S. law enforcement requests pursuant to court orders,” it continued.

That’s about it. None of the companies or individuals involved were identified, nor was the nature of the compromise. The only call to action was a request that people contact one of the two agencies if they reckon China is spying on them. Nonetheless the bulletin has been widely taken at face value and reported as further evidence of Chinese wickedness.

So why would US intelligence agencies decide to issue such a vague announcement? The easiest assumption is that they want to reinforce negative public sentiment towards China, which in turn would justify the many sacrifices being asked of them in the name of security.

The timing is also intriguing. America recently elected Donald Trump as President once more, initiating a two-month window before he takes over for everyone to adjust to the new regime. While Trump has long been a China hawk, he is also no friend of the US security state. While it’s easy to believe the claims about Chinese espionage, it also seems likely that the countless US three-letter agencies are now wracked with existential angst and are desperate to justify their budgets before it’s too late.