Gavekal Technologies

Europe fears that subsidized and efficient Chinese high-tech companies will de-industrialize the continent. But the “second China shock” is arguably even more of a threat to northeast Asia, where China’s lead in batteries, electric vehicles and solar has Tokyo and Seoul incumbents worried that machine tools, robots and displays could be next. But Japan and South Korea should be able to hang on to large and profitable chunks of their industrial bases, thanks to both technological factors and geopolitics.

The “constructive strategic stability” from last month’s Trump-Xi summit is better understood as an uneasy stalemate, as core flashpoints such as export controls and Taiwan remain unresolved. Despite Trump’s effort to sideline China hawks, Congress is advancing several export control bills. The most significant one is the MATCH Act. Even in a scaled-back form, with targeted controls on ASML’s advanced deep ultraviolet lithography (DUV) systems, the bill will almost guarantee a strong response from Beijing. Likely retaliations from China include tighter critical minerals controls targeting US-led advanced semiconductor and AI supply chains, and invocation of supply chain security-related regulations.