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April 11, 2025
The Lithography Inflection Point - How Two Different Approaches to EUV Could Reshape the Semiconductor Industry
By
Kristal Investment Desk
(31 March – 4 April 2025)
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A strategic shift, or a negotiating tactic
The arithmetic of Donald Trump's new tariff regime is as peculiar as it is punitive. When the US president announced sweeping levies on "Liberation Day" this week against virtually all trading partners, the economic establishment winced. Markets reacted violently, with the Dow plunging 1,400 points. JPMorgan is now warning of recession.
Trump's logic runs thus: if a country sells more to America than it buys, it must be cheating. The remedy? Apply a tariff equal to half the bilateral deficit divided by total imports from that country. By this novel calculus, China faces a 34% tariff (atop existing 20% levies), South Korea 26%.
Even trade surplus partners Australia and the UK face 10% tariffs. Why? As the White House might say: why not?
China has retaliated swiftly with matching 34% tariffs on all US imports – an unusually comprehensive response from Beijing, which typically favors targeted measures. They've also restricted rare earth exports and blacklisted American companies.
For investors, the implications are stark. Supply chain disruption looms largest. Auto manufacturers, with their cross-border production networks, face immediate pain. But few sectors escape unscathed as operational resilience replaces efficiency as the managerial priority. Expect margin compression across corporate America.
The macroeconomic incoherence of Trump's approach is self-evident. Trade deficits reflect the gap between domestic savings and investment, not bilateral "fairness." America's low private savings rate and bloated government deficits ensure its aggregate trade imbalance will persist regardless of tariff levels.
Trading partners now face an unpalatable menu: retaliate (risking further escalation), appease (futile given Trump's binary scorecard), or diversify away from American markets (easier said than done). Canada's consumer boycott of US products represents sentiment likely to spread globally. Meanwhile, Vietnam, India, and Israel are reportedly in talks with Washington for preferential trade deals – suggesting a strategic realignment rather than mere protectionism.
The market consensus that these tariffs represent a temporary negotiating tactic, probably this misreads the situation again. This isn't improvised policy but the culmination of a decades-long intellectual project, articulated by former US Trade Representative Robert Lighthizer and now institutionalized by his protégé, Jamieson Greer.
Trump's tariff theatre might see tactical adjustments through exemptions. But the damage to business confidence and investment plans is already done. A global economy displaying signs of fragility now faces a powerful recessionary impulse from its largest player.
What's most remarkable is that markets paid what might be called a "signal tax" – the cost of ignoring clear warnings. Trump has advocated these policies for four decades, from newspaper ads in the 1980s to campaign rallies and published books outlining his vision. Yet investors acted shocked when he did exactly what he promised.
For investors, the message is clear: position for a more fragmented, bifurcated global economy. The post-1945 framework of economic integration is unwinding. Companies must now reconceptualize operations as discrete systems that might need to function independently as geopolitical fractures deepen. The multinationals' arbitrage – American consumer markets without American production costs – is ending.
The age of tariffs has arrived, and contrary to market hopes, it is not a temporary negotiating tactic. It's a paradigm shift that will redefine global commerce for decades to come.
The latest economic data presents a challenge for Federal Reserve chair Jay Powell — one worthy of a high-wire artist. While employment figures delivered a remarkably robust surprise, inflation indicators have begun to flash warning signs just as the White House unveils what amounts to a global tariff offensive.
The resilience of America's labour market is striking. March's nonfarm payrolls surged to 228,000, outpacing expectations by 66% while the participation rate ticked up slightly to 62.5%. Solid wage growth persists at 3.8% year-on-year, though marginally cooler than forecasts.
But this economic Goldilocks tale encounters complications when one examines the ISM Manufacturing Prices Index. At 69.4, it significantly overshoots expectations and signals intensifying input cost pressures — precisely what the Fed doesn't need as it contemplates rate cuts.
President Trump’s tariff gambit introduces another layer of complexity. The theory — perhaps less far-fetched than it initially appears — is that by engineering market uncertainty, the administration hopes to drive a flight to Treasuries, suppressing yields ahead of refinancing roughly $9tn in federal debt. A 100 basis point reduction in borrowing costs would yield approximately $90bn in annual interest savings.
Meanwhile, Wall Street's finest have rushed to downgrade growth forecasts. The market's reaction has been appropriately dramatic.
Powell, speaking on Friday, maintained his characteristic equanimity, noting that the Fed remains "in a good spot to be patient."
Translation: don't expect rate cuts until the tariff cloud dissipates and inflation's trajectory becomes clearer.
a. Amazon: Tariff Storm Amid digital Transition
Amazon shares have plunged since the White House's tariff announcement, potentially overshooting fundamentals. Goldman Sachs estimates an 18% blended tariff rate would trim $7.5bn from 2025 operating profit — significant but not catastrophic for a company that maintained stable margins during previous trade tensions.
The e-commerce giant possesses unmatched supplier leverage to share the pain. It can also recalibrate pricing, pivot to domestic sourcing, and shift procurement to tariff-exempt countries. Ironically, Chinese rivals Temu and Shein face steeper 54% tariffs, potentially neutralising recent market threats.
Digital advertising reveals another dimension, with UBS channel checks indicating marketing budget compression. Spending is consolidating on major platforms as advertisers prioritise performance marketing over brand-building — a shift favouring Amazon's attribution capabilities.
Project Kuiper's imminent satellite launch signals Amazon's transition from investment phase to potential monetisation, while its new Nova Act AI model demonstrates continued innovation.
· Hims (HIMS): Now offering Eli Lilly's Zepbound weight loss drug, but LLY denied this represents a partnership. Questions remain about Hims' business model of "personalizing" drugs to bypass exclusivity periods.
· DraftKings (DKNG): Experienced poor luck with March Madness results as top-seeded teams advanced, reducing profit margins. However, betting volume grew 30%, supporting long-term thesis. Several states issued cease-and-desist letters to prediction market platforms.
· Meta (META): Planning upgraded Ray-Ban smart glasses with hand controls and screen. Making strong progress in AR/VR as part of strategic shift to reduce dependence on other platforms following Apple's privacy changes.
· Tesla (TSLA): Tesla deliveries fell 13% year-over-year, missing estimates by 14% and falling short of "whisper numbers" by approximately 8%. The company is navigating Model Y transition challenges amid a softer global macro environment. Political demonstration headwinds may also be impacting performance. Despite these challenges, Tesla's U.S.-centered production footprint could provide a relative advantage if tariffs persist, creating an unexpected competitive edge against import-dependent rivals.
· PayPal (PYPL): PayPal has extended its advertising platform to the UK market, strategically expanding revenue streams beyond transaction fees. This move represents PayPal's ongoing efforts to diversify its business model and capitalize on its merchant relationships to create additional monetization opportunities in the competitive payment processing landscape.
· Uber (UBER): Uber announced a new integration partnership with OpenTable while simultaneously accelerating autonomous vehicle deployment through a WeRide partnership in Dubai. The company is also expanding autonomous delivery capabilities with Serve Robotics in Dallas and Coco Robotics in Miami. This dual-pronged approach targets both passenger transport and delivery automation, positioning Uber at the forefront of mobility innovation.
· Apple (APPL): Apple is actively exploring iPhone production shifts to Brazil in a strategic move specifically designed to circumvent new tariff structures. This represents the broader trend of supply chain diversification beyond China that many companies are pursuing. The consideration demonstrates Apple's willingness to undertake costly production transitions to maintain margin structures and suggests growing corporate acceptance that the current tariff environment may persist longer than initially anticipated.
Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.
By
Kristal Advisors
April 8, 2025
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April 11, 2025
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We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
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Copyright © 2023 Kristal Advisors (SG) Pte. Ltd. UEN: 201711235E
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