Chips vs. Trump 1: The Chinese Dilemma

What’s going on? Has Apple’s leadership come down with a case of “gluttony” or forgotten the lessons on demand elasticity from their first-year economics course? Not at all!

Management resorted to raising prices for end consumers because it could no longer absorb the rising cost of components—specifically, the most critical component: microchips. Over the past two years, due to a sharp surge in demand from artificial intelligence (AI) data centers, memory chip prices have increased by roughly 400% (!!!)—that is, excuse me, fivefold! There is a shortage of high-performance memory chips used in AI computing servers, known as HBM. There is also a shortage of the more common DRAM and NAND memory chips, as AI companies have been willing to pay a premium to use them in servers and other systems. Analysts expect prices to continue rising this year, as memory chip production capacity is limited. Memory fabrication plants are being built in the United States and Asia, but construction takes time.

Thus, the law of supply and demand has demonstrated its categorical nature and delivered yet another sharp blow to President Trump’s reputation, as he won in 2024 promising to defeat inflation by returning to the fundamental principles of the market economy. This is something of a double blow to the administration, and especially to Donald Trump himself, since the president views the stock market as an important barometer of public opinion. He also understands perfectly well that his track record on inflation leaves much to be desired, and the midterm congressional elections are just around the corner.

So who, besides the market’s “invisible hand,” can help protect American consumers, the corporation, and Trump himself at the same time? Apple CEO Tim Cook is urging the Trump administration to deploy a powerful “visible hand” and allow the company to purchase chips in China to ease the acute shortage and high prices. Cook wants permission to procure memory chips from the Chinese manufacturer CXMT without any negative consequences. However, the anti-China “hawks” in the Trump administration, led by Secretary of State M. Rubio, oppose any such concession regarding memory semiconductors, which are so vital and widely used in the IT market.

The “hawks” have their own logic. CXMT (ChangXin Memory Technologies) is not just another faceless company in a competitive sea, and the memory chip market is not just another market—like the market for potato chips, as M. Boskin, head of the Council of Economic Advisers under President George H. W. Bush, once argued.

After ten years of steady business development, CXMT has made a sharp leap forward and now ranks fourth in the global memory market, with revenue of $8.6 billion last year and an impressive $7.3 billion in the first quarter of this year. As is typical for China, CXMT has received support from the state-backed National Integrated Circuit Fund. Much of its intellectual property and many of its engineers came from the now-defunct German memory chipmaker Qimonda. South Korean authorities accuse the company of intellectual property theft, which is also a familiar practice among Chinese technology firms.

Today, ahead of CXMT in the memory chip market—and still dominating—is the “big three”: two South Korean manufacturers (SK Hynix and Samsung) and one American company, Micron. However, if CXMT continues to grow without restrictions in the global market, one of the current top three companies will be pushed out. The market itself is tremendously promising. The semiconductor market is likely to reach $1.3 trillion in 2026, twice as much as two years ago, with the memory segment accounting for 48% of the total.

So what should be done about this new young Chinese electronic “dragon”? That will be discussed in the next article.