US pushes Japan, Netherlands on stricter chip controls for China

Good morning. Here's what happened overnight and what you need to know today.

---

1.

Chip chokehold: The Biden administration is considering the strictest trade measures available to curb China's access to advanced semiconductor technology, targeting companies like Tokyo Electron and ASML Holding, which make vital chipmaking machinery. Bloomberg reports, citing unnamed sources, that the administration is telling allies it may use a foreign direct product rule (FDPR) to control foreign-made products containing any US technology. The measures face resistance from American and international stakeholders. The US wants to pressure Japan and the Netherlands to limit their companies' ability to service and repair restricted equipment already in China, which American companies are barred from doing, Bloomberg said. Meanwhile US companies affected by existing restrictions, such as Applied Materials, Lam Research and KLA Corp, argue the current restrictions have curtailed revenue opportunities for American semiconductor companies and failed to halt Chinese progress. Shares of Tokyo Electron and ASML dropped by over 8% and 11.5%, respectively, following the news, overshadowing solid Q2 earnings from the latter which beat market forecasts. (Bloomberg)

2.

Tech bump: The Nasdaq fell almost 3%, reflecting a global selloff of chipmaker shares after former President Donald Trump said Taiwan should pay the US for protection against Chinese military aggression. In a lengthy Bloomberg interview, Trump, the Republican presidential nominee, also alleged Taiwan had taken over America’s semiconductor industry. The comments raised concerns about the security of the global semiconductor supply chain. Shares in Nvidia, Super Micro Computer and Taiwan Semiconductor Manufacturing Company (TSMC), which was expected to unveil a 30% jump in quarterly profit, each fell 6.6%, 6.9% and 7.2% respectively. Investor sentiment was further hurt by reports the Biden administration is considering measures to prevent technology sharing with China that could severely impact both US and non-US firms supplying advanced semiconductor technology to the Asian nation. Arm shares also fell 9.5% and Applied Materials dropped 10.48%. (Reuters)(Quartz)(Barrons)

3.

Hydrogen downgrade: Fortescue will cut 700 jobs, or 4.5% of its global workforce, and scale back its green hydrogen ambitions as it restructures to reduce costs amid falling iron ore prices and weak demand from China. Chairman Andrew Forrest told The Australian Financial Review Fortescue is abandoning its 2030 deadline to produce 15 million tonnes of green hydrogen annually. The decision is partly a result of high energy costs and market volatility from geopolitical conflicts, Forrest said. He said the company will continue its green efforts but acknowledged current energy prices make green hydrogen unviable. “We’re not going to swim against the tide,” Forrest told the paper. “We’re going to stay where we know we can win, and that’s green electricity. We’ll be producing 15 million tonnes [of green hydrogen] and more. But to get there, we’re going to make sure that the supply chain’s right.” (Capital Brief)(AFR)

4.

Trump card: After a striking show of party unity at the Republican National Convention in Milwaukee on Tuesday, Day 3 will focus on border security and foreign policy, with Trump’s convert JD Vance set to close the day with a prime-time speech. Two days after being added to Donald Trump’s presidential ticket, Vance, who had reportedly never attended a national political convention before this year, will speak at 11:30 am AEST. Preceded by Donald Trump Jr and his daughter Kai, the address is expected to highlight Vance’s personal story and modest upbringing in Middletown, Ohio. Vance’s vice-presidential candidacy aims to help win key battleground states like Michigan, Pennsylvania, and Wisconsin. Vice President Kamala Harris criticised her rival as a potential "rubber stamp" for Trump’s agenda, saying he is “loyal only to Trump, not to our country.” Meanwhile, The New York Times reported the Democratic National Committee is pushing back plans to finalise President Joe Biden’s nomination in a virtual roll-call by a week as officials continue to express discontent. (The New York Times)

5.

NAB revamp: New National Australia Bank CEO Andrew Irvine is accelerating a strategic review aimed at revitalising the bank’s core business operations and addressing technology shortcomings. The review is led by Nathan Goonan and Paul Carter and continues former CEO Ross McEwan’s focus on customer-centricity and simplification. No major decisions have been made yet, but cost challenges may impact staff numbers, Capital Brief reported. Underinvestment in retail banking technology are seen as reasons behind NAB’s relatively slow response times, contributing to a loss in mortgage market share. Key priorities for the bank include defending its business banking share, expanding institutional business and improving the deposit franchise, according to Citi analysts. Significant investment will be required to enhance technology and customer service, putting pressure on costs, they said. (Capital Brief)

6.

Schiff stir: Nancy Pelosi's close ally, California congressman Adam Schiff, urged President Joe Biden to withdraw from the 2024 presidential race, raising concerns about his ability to defeat Donald Trump. In a statement to the Los Angeles Times on Wednesday, US time, the senior Democrat and staunch critic of Trump praised Biden's service but stressed the need for new leadership. Schiff, who is running for the US Senate, said Biden had "been one of the most consequential presidents in our nation’s history, and his lifetime of service as a Senator, Vice President, and now President has made our country better. But our nation is at a crossroads," he said. "A second Trump presidency will undermine the very foundation of our democracy, and I have serious concerns about whether the President can defeat Donald Trump in November." Despite trailing Trump in polls and growing calls for him to step aside, Biden has resisted suspending his re-election campaign. Schiff is the first senior Democrat to publicly urge Biden to drop out since an assassination attempt on Trump on Saturday. (Los Angeles Times)

7.

Elon’s exodus: Elon Musk said he would relocate the headquarters of X – formerly Twitter – and SpaceX, from California to Texas, claiming a new law signed by California’s Democratic governor Gavin Newsom and other frustrations with the state’s policies drove the decision. In a post on X, Musk quoted the new law, which prevents schools from disclosing students’ sexual orientation to parents without consent, as “the final straw. Because of this law and the many others that preceded it… SpaceX will now move its HQ from Hawthorne California,” to the company town Starbase, in Texas, he said. Public filings show SpaceX requested to change its incorporation to Texas in February, USA Today reported. Musk’s announcement came just days after he endorsed Donald Trump for president following an assassination attempt on the Republican candidate on Saturday. X’s headquarters will move from San Francisco to Austin, Musk said, blaming crime and safety concerns in the city. Musk's brain-chip startup Neuralink and his xAI still have headquarters in California. (The Wall Street Journal)(The New York Times)

8.

Red-coded: Chinese government officials are testing AI companies' large language models to ensure they align with “core socialist values,” in an extension of the country’s censorship regime, the Financial Times reported citing people involved. The Cyberspace Administration of China (CAC) is leading this initiative, the report said, requiring tech giants like ByteDance, Alibaba, Moonshot and 01.AI to undergo comprehensive government reviews that test AI responses on politically sensitive topics, especially those related to President Xi Jinping. Companies must filter training data for problematic content and build databases of sensitive keywords, updated weekly, the paper said. Queries around sensitive topics such as what happened on June 4 1989 — the date of the Tiananmen Square massacre — or whether Xi looks like Winnie the Pooh, an internet meme, are rejected by most Chinese chatbots. But to censor more complex queries, engineers are using additional software components to monitor and replace inappropriate responses in real time. ByteDance’s AI has reportedly excelled in adhering to these standards, the FT said. (Financial Times)