Taiwan and South Korea Emerge as Dual Pillars of China Containment
Foreign Policy Moves Trigger Immediate Exchange Rate Reactions
Legislative Blitz in the House Formalizes Anti-China Line

The geopolitical chessboard in East Asia is rapidly shifting, and the United States is placing its pieces with growing assertiveness. From dramatically expanding its unofficial embassy in Taiwan to advancing sweeping legislation aimed at curbing Chinese influence across education, trade, and technology, Washington is no longer merely reacting to Beijing—it is laying down a long-term containment framework. At the heart of this strategy is Taiwan, now being treated almost on par with a formal ally, and increasingly, South Korea—a critical partner now facing heightened pressure to align. The market has taken note: East Asian currencies are strengthening, signaling investor recognition of a historic diplomatic realignment. As a new “strategic triangle” among the U.S., Taiwan, and South Korea takes shape, the region edges closer to a security and economic structure that challenges decades of U.S.-China engagement.

Strategic Triangle: The U.S.-Taiwan-South Korea Axis Emerges

Washington’s deepening involvement with Taiwan is unmistakable. The American Institute in Taiwan (AIT), a de facto embassy, has seen its personnel swell to over 550—more than double the number from the early 2000s. This makes AIT the largest foreign mission on the island, a powerful indicator of Taiwan’s elevated status in U.S. foreign policy. Stephen Young, who led AIT from 2006 to 2009, noted that back then, the staff hovered around 250. The dramatic expansion, he explained, reflects the growing strategic importance of U.S.-Taiwan ties.

Yet Taiwan is not alone in this spotlight. South Korea, long a vital military ally of the U.S., is increasingly being drawn into a more complex configuration. Prominent conservative figures, including former National Security Advisor John Bolton, have publicly linked the futures of South Korea and Taiwan. “South Korea’s future is closely tied to Taiwan’s,” Bolton asserted in repeated statements—effectively framing the two as part of a single strategic block. This linkage is not just rhetorical; it reflects a deeper restructuring of U.S. regional priorities.

Unlike the traditional “U.S.-Japan-South Korea” security framework, the emerging triangular formation now includes Taiwan at its center. The U.S. is reinforcing cooperation with both South Korea and Taiwan in critical industries—especially semiconductors and defense. These collaborations are framed under the guise of “supply chain resilience,” but their deeper purpose is clear: to build a technology-based bulwark against China. Taiwan’s TSMC and South Korea’s Samsung Electronics and SK Hynix are now bound together in a tech alliance with enormous strategic weight.

Troy Stangarone, Director at the Wilson Center’s Korea History and Public Policy Program, emphasized the ideological departure of the Trump administration from past U.S. leadership. “Trump is seeking to disrupt and realign global trade and security orders,” he said. In this shifting terrain, South Korea must walk a tightrope—strengthening ties with Washington without inflaming tensions with Beijing. But the window for such balancing may be closing fast.

Currency Surge: Markets Read Between the Diplomatic Lines

Financial markets are reflecting these diplomatic undercurrents in real time. The Taiwanese dollar experienced a rapid 9% appreciation between May 1 and May 5, strengthening from 32.1 to 29.2 against the U.S. dollar in just two trading days. Analysts attribute this surge to growing speculation that Taiwan’s government will allow currency appreciation amid tariff negotiations with Washington. The logic is strategic: a stronger Taiwanese dollar would help offset the U.S. trade deficit, potentially appeasing American concerns and facilitating future agreements.

Taiwanese firms, anticipating these shifts, began selling dollars en masse while global investors moved capital into Taiwanese assets—fueling even greater demand for the local currency. This sharp appreciation didn’t occur in isolation. South Korea’s won also saw a notable rebound. On May 5, the won-dollar rate in the New York Non-Deliverable Forward (NDF) market dropped to 1,374.2 won—down 3.3% (or 46.8 won) from April 30, the last trading day before the May Day holiday in Seoul.

Hong Kong's currency, pegged to the U.S. dollar at HK$7.75–7.85, also experienced upward pressure. The Hong Kong Monetary Authority (HKMA) intervened with massive dollar sales—HK$56.1 billion on May 2 and a record HK$60.5 billion on May 5—to prevent the currency from breaching the lower band of its peg.

This synchronized strength among East Asian currencies stands in stark contrast to the weakening U.S. dollar, which is being battered by the Trump administration’s escalating tariffs. Bank of Korea Governor Rhee Chang-yong, speaking at the Asian Development Bank’s annual meeting in Milan, commented that exchange rate volatility remains unresolved. He added that the ongoing recalibration of U.S. trade and currency policies—especially vis-à-vis China—could lead to more unexpected shifts. Rhee hinted that Washington’s behind-the-scenes talks with individual countries may indicate a rising probability of a U.S.–China trade accord.

Legislative Front: From Universities to Microchips, the U.S. Tightens the Screws on China

U.S. containment strategy is not limited to diplomacy or financial signals—it is being codified into law. A series of powerful bills recently passed in the House of Representatives show just how far Washington is willing to go to isolate China and elevate Taiwan.

One of the most significant measures, spearheaded by Republican Representative August Pfluger, aims to strip Department of Homeland Security (DHS) funding from American universities that collaborate with Chinese institutions. Specifically, this includes those hosting Confucius Institutes or participating in the “Thousand Talents Program”—a Beijing-led initiative launched in 2008 to recruit elite foreign academics with generous financial incentives. With the bill’s passage, major Chinese universities and research organizations, such as the Chinese Academy of Sciences, could find themselves effectively blacklisted from U.S. partnerships.

Another bipartisan bill, expected to be introduced by Democratic Representative Bill Foster, seeks to embed tracking and fail-safe technologies into U.S.-manufactured semiconductors. The aim is to ensure these chips do not end up in embargoed nations like China. The legislation would mandate that exported chips become non-operational if detected within restricted jurisdictions. The Department of Commerce would be tasked with implementing these provisions within six months—a clear sign of urgency.

Simultaneously, the House is moving to support Taiwan’s participation in international organizations. A key example is the “Falun Gong Practitioners Human Rights Protection Act,” which calls for sanctions on Chinese officials involved in persecuting Falun Gong followers. Collectively, these bills mark a departure from the strategic ambiguity of past U.S. administrations. The Biden-era approach of maintaining minimal cooperation with China is being dismantled in favor of open confrontation.

For allies like South Korea, this hardening U.S. legislative front is closing off middle-ground options. Seoul is increasingly being pushed to choose sides, especially as Washington frames its economic and security policies within a broader ideological struggle. The days of nuanced balancing may be giving way to a binary geopolitical order.

U.S.-UK Tariff Reductions and Eliminations on Key Goods
Decline in Price Competitiveness of U.S.-Made Vehicles
Automotive Industry Faces Emerging New Trade Order

A newly signed trade agreement between the United States and the United Kingdom—heralded by leaders as a diplomatic milestone—is stirring intense backlash from within the American automotive sector. The landmark deal, which reduces tariffs on up to 100,000 UK-manufactured vehicles annually, is being criticized by U.S. carmakers who fear it will erode their competitive edge and flood the domestic market with foreign-made vehicles that contain little to no American parts.

While President Trump and UK Prime Minister Keir Starmer touted the pact as a “historic breakthrough,” the response from U.S. industry stakeholders tells a different story—one of disillusionment, economic anxiety, and frustration over the apparent prioritization of geopolitical symbolism over sector-specific protections. Yet as discontent brews in Detroit and across the American manufacturing heartland, automakers in Europe, South Korea, and Japan see the deal as an opening, prompting calls for new negotiations with Washington. The aftershocks of this agreement may well reshape global trade strategies far beyond the Atlantic.

Symbolism Over Substance: Industry Voices Alarm

The agreement, signed in early May, slashes tariffs on UK-made vehicles exported to the U.S. from a previous rate of 25%—27.5% when including Most Favored Nation status—to just 10%. This applies to up to 100,000 vehicles annually, which is roughly equivalent to the volume of UK car exports to the U.S. each year. On the surface, the pact appears to unlock new commercial opportunities for the UK’s auto sector. However, American auto leaders see it as a threat.

The American Automotive Policy Council (AAPC), representing major U.S. car manufacturers such as Ford, GM, and Stellantis (formerly Fiat Chrysler), issued a sharp rebuke. “British-made vehicles that incorporate almost no U.S. components can now be imported more cheaply than vehicles made in Mexico or Canada—despite those being composed of up to 50% U.S. parts under the USMCA,” AAPC warned. The result, they argue, is an uneven playing field that undercuts domestic manufacturers, suppliers, and workers.

The deal also extends beyond automobiles. Both countries agreed to revisit the 25% tariffs imposed on steel and aluminum. While the White House offered only that an “alternative arrangement” would be negotiated under Section 232 of the Trade Expansion Act, the UK swiftly announced that those duties would be lifted in the near future—bolstering hopes in London but triggering further frustration among U.S. industrialists.

Critics have taken aim at the Trump administration’s approach, accusing it of overlooking industry-specific interests for the sake of political symbolism. The White House appears to have prioritized the diplomatic narrative of a U.S.-UK alliance—emphasizing economic and national security integration—while leaving trade imbalances and industrial competitiveness to be dealt with after the fact. This posture has only heightened anxieties among U.S. manufacturers already burdened by inflation, supply chain instability, and volatile demand.

Still, President Trump praised the deal as a blueprint for economic and geopolitical cooperation. “This agreement includes a plan for the UK to join the U.S. economic and security framework—this is a first,” he stated. Emphasizing the link between national security and industrial policy, Trump framed the deal as part of a broader strategy to secure key sectors such as steel, technology, and automotive manufacturing through coordinated trade, export control, and supply chain policies.

Trump’s Selective Strategy: A Familiar Playbook

The nature of the deal itself reflects a distinct Trumpian approach to trade—what observers call a “selective opening” strategy. Rather than pursuing a comprehensive overhaul of bilateral trade barriers, the agreement targets specific sectors for relief. In this case, automobiles served as the UK's bargaining chip, while the U.S. likely leveraged the deal to gain future access in agricultural goods or high-tech components.

This model aligns with the administration’s broader “America First” framework. The U.S. offers narrowly tailored tariff reductions in areas critical to partner nations, allowing each side to declare diplomatic victory while avoiding sweeping concessions that might spark domestic backlash. It’s a calculated balancing act—limited giveaways in exchange for strategic goodwill.

Such conditional and transactional trade policy appears poised to become a template for future deals. India and Japan are widely viewed as the next countries in line for similar agreements. Japan, for instance, has formally requested a review of all bilateral tariffs, including those on cars. Meanwhile, the European Union, frustrated by stalled negotiations with the U.S., is weighing punitive tariffs on as much as €95 billion (about $150 billion) in American goods if talks break down.

What distinguishes this strategy is its political utility: partner nations feel they’ve secured tangible gains, while the U.S. government avoids large-scale backlash from sectors like agriculture or manufacturing. Yet for U.S. industry players left out of the loop, it’s a frustrating dance—where their concerns are often sidelined until after the ink dries.

Global Shockwaves: Reactions from Europe, Asia, and Beyond

If the U.S. auto industry is frustrated, foreign carmakers are cautiously encouraged. The U.S.-UK trade deal has sent tremors through the global auto sector. While AAPC and other U.S. groups decried the agreement for exacerbating domestic competition, automakers in Europe, South Korea, and Japan interpreted the move as a potentially precedent-setting development. One unnamed European executive reportedly quipped, “If the UK pulled it off, why not us?”

That sentiment is gaining traction across national borders. Governments in Seoul, Tokyo, and Brussels are now being pressured by their respective automotive sectors to pursue comparable negotiations with Washington. In some cases, automakers are actively lobbying policymakers to open new trade channels or revisit stalled talks with the U.S. The logic is clear: if the UK can win selective tariff relief, others may too.

The momentum also ties into a broader context of trade uncertainty. Since returning to office, the Trump administration has aggressively weaponized tariffs, branding the auto sector a strategic priority. In April alone, the U.S. levied a sweeping 25% tariff on all imported cars—a move that caused Jaguar Land Rover to halt all U.S.-bound shipments for the month. Stellantis, whose brands span Chrysler, Peugeot, and Fiat, temporarily shuttered operations in Canada and Mexico.

By singling out the UK for tariff relief, the U.S. has essentially revealed its hand: under the right conditions, it is willing to grant preferential treatment. That revelation is now influencing the trade strategies of governments and corporations worldwide. Several auto companies reportedly believe that if such relief is granted, it could significantly improve vehicle price competitiveness and expand their footprint in the U.S. market.

In essence, one bilateral trade deal has done more than alter tariffs—it has jolted the global automotive industry into a state of reorientation. What began as a symbolic diplomatic win for the U.S. and UK has quickly become a flashpoint for broader economic realignments, with automakers scrambling to secure their place in a rapidly evolving trade order.

Signals full-scale development of proprietary wearable devices
Expanding the product lineup to include AI servers and next-generation MacBooks
CEO Cook views this as a strategic turning point for Apple

In the fast-evolving world of consumer technology, a quiet revolution is underway—one that moves computing away from our hands and pockets and places it seamlessly on our faces. This isn’t science fiction or speculative futurism. It's Apple's next major bet.

After defining the smartphone era with the iPhone, Apple is now charting a bold course toward wearable artificial intelligence. At the center of this strategy is the company’s highly anticipated smart glasses—an ambitious project combining custom silicon, advanced AI capabilities, and a lightweight form factor that aims to redefine the way humans interact with technology.

Apple’s smart glasses are not merely a peripheral. They are designed to be a cornerstone of the company’s post-iPhone era—a mainstream, intelligent wearable that brings computing into the line of sight. More than a display device, these glasses aim to understand, assist, and respond to their user and environment in real time. And they’re being built with unprecedented attention to power efficiency, AI integration, and user privacy.

With mass production targeted for as early as 2027, this is not just another tech product. It’s a strategic pivot that could reshape the consumer hardware market—and Apple’s role within it.

A Strategic Pivot Fueled by Custom Silicon

Apple’s roadmap to the smart glasses launch is being paved with silicon—custom silicon. Since 2020, Apple has been moving away from third-party chip suppliers like Intel and Qualcomm, instead building its own processors that offer greater control over performance, efficiency, and vertical integration. Now, that same strategy is at the core of its wearable ambitions.

According to a recent report by Bloomberg, Apple’s silicon design team has made significant progress on a new low-power chip specifically engineered for smart glasses. Based on the architecture of the Apple Watch’s energy-efficient chip, this new processor is being developed to control multiple cameras, run AI tasks, and sustain wireless connectivity—all while maintaining minimal energy usage to preserve battery life in a lightweight device. The custom chip is tailored to meet the unique requirements of face-worn wearables, and it represents a fusion of miniaturization, power management, and machine learning optimization.

Internally codenamed N401, the smart glasses are one of the most closely held projects inside Apple. Bloomberg’s sources suggest that the company is aiming for mass production between late 2026 and 2027, with testing and prototyping already well underway. Importantly, the glasses are being developed not as a companion device but as a standalone computing interface. They are expected to offer core functions such as voice control through Siri, real-time photo and video capture, audio playback, and hands-free calls. There are also suggestions that Apple Intelligence—Apple’s own suite of AI features—could be deeply embedded into the glasses, enabling context-aware assistance akin to an on-the-go personal assistant.

Apple CEO Tim Cook is reportedly pushing the project forward with intense focus. Several insiders have described his interest in the glasses as bordering on “obsessive,” with the device envisioned as the iPhone’s spiritual successor. In Cook’s view, Apple’s long-term future will be defined by ambient, always-available computing—technology that doesn’t require a screen in your hand but lives quietly and usefully on your body.

This vision extends beyond the glasses themselves. Apple is currently working on a number of other chips, including “Nevis” for camera-enabled Apple Watch models and “Glennie” for AirPods that incorporate camera modules. These developments hint at a unified ecosystem of intelligent, interconnected wearables.

The company’s roadmap also includes a custom modem lineup, with the C1 chip slated for the iPhone 16e, followed by a higher-end C2 in 2026 and an ultra-premium C3 in 2027. On the computing front, new M6 (Komodo) and M7 (Borneo) chips for iPads are in development, alongside a high-performance chip named “Baltra” for Apple’s future AI servers. All of these processors are part of a single narrative: Apple wants to own the full stack—from silicon to services—especially as it ventures into the new frontier of wearable intelligence.

Rivals Push Innovation in the Smart Glasses Race

Apple’s entry into the smart glasses race is timely. The wearable AI landscape is already heating up, with major tech firms jockeying for dominance in what many see as the next great consumer platform.

Meta, which already leads the smart glasses segment with its Ray-Ban Stories line, is preparing to launch two next-generation models in 2025. These will feature enhanced AI capabilities, most notably “Super Sensing”—a suite of features that includes facial recognition and real-time environmental scanning. Super Sensing is part of Meta’s broader Live AI initiative, which aims to offer continuous AI interaction rather than the current 30-minute window available on its existing smart glasses. The new models will be able to scan faces, identify individuals, and assist with contextual awareness—an advancement that brings augmented cognition closer to reality.

Meta’s strategy is centered on embedding its AI tools directly into daily life through fashion-conscious, highly capable devices. The company has already proven that consumers are willing to wear smart glasses if they are comfortable, stylish, and useful. Now, Meta is doubling down on intelligence and interaction, hoping to widen its lead before Apple’s glasses reach the market.

But Meta isn’t Apple’s only competition. Amazon, too, has made a strategic entrance into the space. Through its Alexa Fund, Amazon has invested in IXI, a Finnish startup developing smart glasses with autofocus functionality. These glasses are engineered to help users with presbyopia and other vision impairments by automatically adjusting the focus of the lenses. IXI recently closed a €32.2 million Series A funding round, which also included backing from Eurazeo and the Finnish state VC, TESI.

Amazon’s interest in IXI goes beyond eyewear innovation. Analysts believe the e-commerce giant sees IXI’s technology as a natural extension of the Alexa ecosystem. Imagine glasses that not only adjust focus automatically but also respond to voice commands, offer schedule reminders, or display notifications directly in the user’s field of vision. By integrating Alexa into smart glasses, Amazon could offer a uniquely intuitive and accessible experience—especially for aging populations or people with visual limitations.

This three-way race—between Apple’s design-first innovation, Meta’s AI-driven ambition, and Amazon’s smart home synergy—marks a new battleground in tech. Each company is approaching the challenge from a different angle, but the destination is the same: wearable devices that merge intelligence, interaction, and ubiquity.

Redefining Personal Technology Through Wearable AI

The implications of Apple’s smart glasses extend far beyond the device itself. They represent a redefinition of personal technology—one where intelligence is embedded into the objects we wear, and computing becomes both invisible and indispensable.

Unlike smartphones, which require manual engagement, or smartwatches, which remain peripheral, smart glasses offer ambient interaction. They sit comfortably on the face and can provide contextual information, audio feedback, and real-time assistance without the need for active touch or constant visual focus. This passive yet intelligent form of computing aligns perfectly with the direction in which personal tech is heading: unobtrusive, anticipatory, and always available.

Apple’s greatest strength in this arena lies in its control over the ecosystem. By designing its own chips, operating systems, and user interfaces, Apple can ensure a smooth, integrated experience across devices. This vertical integration will be essential for the smart glasses to feel natural, responsive, and private. Privacy, in particular, is likely to be a differentiating factor, as concerns about facial recognition and AI surveillance grow. Apple has long positioned itself as a protector of user data, and its smart glasses are expected to reflect that ethos.

Furthermore, Apple’s design language and brand trust could be powerful assets. While Meta and Amazon may push the envelope in terms of raw functionality, Apple is likely to focus on seamless usability, aesthetic appeal, and consumer confidence. If history is any guide, Apple doesn’t aim to be first—it aims to be best.

In that sense, the smart glasses are not an isolated product but a strategic convergence of Apple’s investments in chip design, AI, camera hardware, and user experience. They build upon the groundwork laid by the iPhone, Apple Watch, and Vision Pro—but with the aim of delivering something more casual, more wearable, and more widely adopted.

If successful, these glasses could serve as the first truly mainstream face-worn computer, ushering in an age of personal AI companions that assist users with everything from navigation and reminders to communication and real-time translation.

The year 2027 may seem distant, but it's around the corner in the tech world. The race is on, and Apple’s smart glasses project—driven by custom silicon, CEO vision, and an integrated ecosystem—may very well define the next frontier in how we see and shape our digital lives.

U.S. aims to steer negotiations with hardline message
China focuses on moving away from 'labor-intensive growth'
Failure in talks could mean failure in structural transition

As the United States and China begin tariff negotiations, global trade tensions are mounting. U.S. President Donald Trump has declared, "There will be no rollback of tariffs on China for the sake of negotiations," sending a strong message from the outset. This statement is seen not merely as posturing but as a calculated pressure tactic. With both nations urgently needing to address structural bottlenecks in their economies, the negotiations are expected to carry implications far beyond tariff adjustments.

A Classic Trump Negotiation Strategy

According to international reports on May 7 (local time), President Trump responded with a firm “No” when asked during a press conference at the White House—held after the inauguration of U.S. Ambassador to China David Perdue—whether he would consider partially lifting tariffs on China as part of negotiations. This statement comes ahead of a planned meeting between the two nations on May 10. The U.S. Treasury had earlier announced that Secretary Scott Bessent and U.S. Trade Representative Jamie Greer would travel to Switzerland starting May 8 to begin trade talks with Chinese officials.

Trump also partially walked back Bessent’s comments on potential tariff exemptions for products such as infant car seats. “Too many exemptions wouldn’t be ideal, but we’ll take a look,” he said. Bessent had hinted during a Fox News interview on May 6 that “the current tariff levels are unsustainable” and suggested possible relief for certain products. He emphasized that the U.S. does not seek a decoupling from China but desires fair trade.

Nevertheless, President Trump continues to deliver hardline rhetoric toward China. He strongly rejected Chinese claims that the U.S. had taken the first step toward negotiations, saying, “Anyone making that claim needs to look at the facts again.” Local media characterized this approach as a textbook example of Trump’s negotiation style—tightening the screws before the other side can react, and seizing control of the dialogue from the start.

China’s Frustration and Real Economic Pain

From China's perspective, this round of negotiations is a sensitive issue that blends economic logic with emotional weight. China argues that for decades, its cheap labor and production capacity have supported the low-inflation consumer economy in the U.S. From this viewpoint, while Americans have enjoyed price stability thanks to low-cost Chinese imports, China has borne the burden of an exploitative industrial structure and environmental costs. As such, U.S. tariffs targeting China’s “excessive profits” may appear hypocritical or unjust.

The hardest hit by the recent tariff actions are China's small and mid-sized manufacturers. According to the BBC, after the tariffs took effect, orders for electronic and electrical components in key Chinese industrial zones fell by over 60%. These businesses, heavily reliant on exports to markets like the U.S., were immediately affected by the launch of Trump’s second term—facing a sharp drop in exports, factory shutdowns, and mass layoffs. This isn’t just about a worsening trade balance—it signals a potential collapse of China’s broader manufacturing ecosystem and employment structure.

Despite this, Trump continues to insist that China should bear the brunt of inflationary costs. In an interview with ABC News at the end of last month, when asked about concerns that tariffs could raise prices on electronics, clothing, and building materials, Trump dismissed the issue: “That’s something we can’t know.” He added, “If someone has to pay the price, it’ll be them [China].” When told that tariffs as high as 145% effectively amount to an import ban, Trump replied, “That’s a good thing. They deserve it.”

‘Twin Deficits vs. Domestic Transition’ — A Structural Battle

The upcoming Switzerland talks are expected to be far broader in scope, as both the U.S. and China are using tariffs as a means to address structural bottlenecks in their own economies—a process of "systemic readjustment." For the United States, the key challenge is breaking away from the structure of twin deficits—trade and fiscal. The Trump administration’s goal is to reduce imports to improve the trade deficit, reshore industries to create domestic jobs, and increase tax revenues to enhance fiscal soundness. However, given the heavy concentration of the global supply chain in Asia, experts across the trade sector widely agree that fully restoring U.S. manufacturing is nearly impossible.

China, on the other hand, is under urgent pressure to shift its economy away from an over-reliance on exports and toward domestic consumption. Yet this is a daunting task due to weak household income levels and a fragile social safety net, which make voluntary increases in consumer spending unlikely. Furthermore, with exports weakened under tariff pressure, China faces difficulty even in accumulating the capital needed to support its domestic transition. It’s a vicious cycle: exports are needed to fund structural reform, but those exports are being blocked. Should negotiations with the U.S. fail, President Xi Jinping’s “dual circulation” strategy (domestic + international circulation) could be derailed.

Ultimately, this negotiation is unlikely to be merely about setting tariff percentages. It resembles a direct showdown—America seeking to resolve its twin deficits, and China striving to reorient its system through domestic demand. Observers note that both countries are wielding tariffs not just as economic weapons but as strategic tools to buy time—clarifying who will shoulder the cost of the global production system, and laying the groundwork for long-term structural survival.

Chinese Solar Companies Face Profit Slump Crisis
Oversupply Outpaces Demand, Undermining Profitability
“They've Held Out This Long” — Market Now Watching Production Efficiency Closely

Major Chinese solar panel manufacturers recorded consecutive losses last year. The sharp decline in panel prices, driven by oversupply, is believed to have significantly weakened overall profitability.

Crisis in China’s Solar Industry

According to a May 6 report by Nihon Keizai Shimbun (Nikkei), seven major Chinese solar panel manufacturers recorded a combined loss of 27 billion yuan (approximately 5.2 trillion KRW or about 3.7 billion USD) in 2023. It marks the first time these companies have reported losses since comparable statistics became available in 2017. Among the seven companies, five—including Longi Solar, which holds the world’s second-largest market share—posted losses. JinkoSolar, the industry leader, remained profitable but saw its earnings plummet by 98%.

The primary reason cited for the decline in performance is oversupply. Global demand for solar panels surged following the outbreak of the war in Ukraine in 2022. According to the International Energy Agency (IEA), the newly installed global solar panel capacity reached 242 GW in 2022—a 40% increase from the previous year. That figure rose to 456 GW in 2023 and is expected to hit 602 GW in 2024.

However, Chinese firms, which dominate the solar panel market, ramped up production capacity significantly, reversing the market situation. As supply far outpaced demand, China offloaded its excess inventory overseas at rock-bottom prices, causing panel prices to plunge. By the end of 2024, solar panel prices had fallen to 9 cents per watt—about 70% lower than in early 2022.

How Did They Achieve Production Efficiency?

The market is taking note of the fact that Chinese solar companies are only now reporting their first financial losses. One industry insider commented, “The downturn in earnings due to oversupply was inevitable. What’s significant is that Chinese solar companies managed to hold out without incurring losses until 2023.” He added, “Their overwhelming production efficiency seems to have acted as a shield against financial decline.”

In fact, Chinese solar firms have optimized their efficiency by vertically integrating their supply chains and making active use of the country’s vast land resources. Solar module production begins with polysilicon as the raw material, followed by ingot, wafer, cell, and finally module stages. Among these, the ingot, wafer, and cell production stages are particularly electricity-intensive—electricity alone accounts for about 40% of total production costs.

To address this, Chinese companies have strategically located their manufacturing facilities in regions where electricity is inexpensive, such as Xinjiang Uyghur Autonomous Region, Inner Mongolia, and Yunnan Province. Xinjiang and Inner Mongolia offer broad desert landscapes with abundant sunlight and wind, allowing for large-scale solar and wind power generation, which in turn provides low-cost electricity. Yunnan, located in the upper reaches of the Yangtze River, benefits from widespread hydropower infrastructure, enabling similarly low-cost power access.

Breaking Through the Market with ‘Economies of Scale’

An overwhelming economy of scale is also a key factor in lowering production costs. In the solar module industry, average unit prices fluctuate easily with production volume, and in China, there are as many as seven companies with annual production capacities exceeding 50GW. It is estimated that 15 to 20 companies produce more than 10GW of solar panels annually. This marks a significant gap when compared to Korean, American, and European companies, whose average production capacity hovers around 10GW.

Small and mid-sized companies supplying related components also rely heavily on economies of scale. A representative from a Korean SME remarked, “While Korean small businesses typically generate around USD 3.6 million in annual revenue from component manufacturing, their Chinese counterparts producing the same parts make around 30 billion won USD 21.7 million. That naturally leads to a noticeable difference in average unit prices.” He added, “Moreover, the average monthly wage for workers at Chinese SMEs is just about USD 870 , which is extremely low.” Despite the price advantage, he emphasized that “there is virtually no difference in technological capabilities.” The conversion efficiency of solar modules—meaning the percentage of sunlight converted into electricity—for both Chinese and Korean modules is known to be in the 25–30% range.

The problem, however, is that even Chinese companies armed with such cost competitiveness have not been able to overcome the broader market downturn. One industry expert explained, “In the solar panel market, supply still far outpaces demand, leading to inevitable price dumping to liquidate excess inventory.” He added, “Chinese solar companies have so far maintained profitability thanks to their overwhelming price competitiveness, but with the ongoing bleeding competition due to oversupply, it will be difficult to reclaim past glory. Moreover, the extreme tariff policies under the Trump administration in the U.S. have emerged as another major headwind.”

Just last month, the United States imposed steep tariffs on solar panels produced in countries used as indirect export routes by China, including Cambodia (3,521%), Malaysia (34.4%), Thailand (375.2%), and Vietnam (395.9%).

Industry and ‘General Countries’ Express Mounting Discontent
Policy Direction Remains the Same, Only the Format Changes
Move to Use Export Controls as Strategic Assets

Artificial intelligence is no longer just a matter of technological innovation—it's become a defining force in global diplomacy. The latest policy moves by the United States highlight this shift, as Washington retools its export controls on AI semiconductors. What appears on the surface to be a loosening of restrictions is, in reality, a strategic recalibration. By easing controls for allies while tightening its grip on adversaries like China and Russia, the U.S. is embracing a high-stakes game of diplomatic engineering, using access to its advanced technology as leverage in trade, security, and foreign relations.

An Exit from the Biden-Era Framework: Focus on Allies

The U.S. government has decided to abandon the “Framework for Artificial Intelligence Diffusion,” a regulatory system that had been set to take effect on May 15. This framework, introduced in January during the final stretch of the Biden administration, aimed to block countries like China from accessing U.S. AI technologies through third-party nations while also imposing strict security conditions on allies seeking to collaborate with American tech firms. It divided the world into three distinct categories—trusted allies, general countries, and countries of concern—with corresponding levels of access to American AI chip technology.

Yet mounting criticism quickly followed. The framework was labeled overly bureaucratic and burdensome, even by those within the U.S. government. The Bureau of Industry and Security (BIS), under the Department of Commerce, argued that the regulations hindered American innovation and failed to serve the country’s strategic goals. The Biden-era structure, once intended to fortify national security, was now being dismantled in favor of simpler rules that aim to preserve U.S. leadership in artificial intelligence. The new rules are expected to be publicly released no later than May 14.

This regulatory pivot is unfolding in the lead-up to President Trump’s visit to the Middle East from May 13 to 16. Countries like Saudi Arabia and the United Arab Emirates have repeatedly voiced frustration with the U.S.'s restrictive AI chip policies, especially as they invest heavily in building up their own tech capabilities. Responding to these diplomatic signals, the Trump administration began work on a revamped export control regime. According to Bloomberg, the issue is expected to feature prominently during Trump’s meetings in the region. This policy shift appears tailored not just to satisfy strategic partners but to secure broader geopolitical influence by making AI chip access a privilege of trusted alliances.

Industry Pressures and a Sharpened Targeting Strategy

The growing discontent wasn’t limited to foreign governments. Leading voices in the tech industry also raised red flags about the consequences of an overly rigid export regime. One of the most vocal critics was Jensen Huang, CEO of NVIDIA, who recently warned at the “Knowledge 2025” conference in Las Vegas that strict AI chip export restrictions could backfire. Huang noted that if the U.S. steps back from foreign markets, those markets won’t disappear—they’ll simply be filled by competitors, particularly from China. His remarks, widely interpreted as a veiled reference to Huawei and China’s burgeoning AI ecosystem, stressed the need for the U.S. to maintain its competitive edge through active market engagement rather than withdrawal.

Although Huang emphasized his willingness to cooperate with government policy, he urged the administration to remain nimble and responsive. His concern reflects a broader anxiety within the industry: that the U.S. could cede its global leadership role if it becomes overly cautious. Despite such appeals, the countries currently facing strict restrictions—China, Russia, and their military or strategic allies—remain under the same constraints. The export controls that prevent these nations from acquiring U.S. AI chips and related technologies are still firmly in place.

What has changed is the strategic precision of the policy. While the removal of the tier-based framework gives the appearance of liberalization, the actual result is more accurately described as a sharpening of enforcement. Analysts believe the United States is now pursuing a clearer, more deliberate strategy—one that strengthens alliances through technology partnerships and simultaneously tightens the noose on rivals. This is no longer about simply regulating technology; it’s about turning it into a geopolitical tool. For the Trump administration, this policy shift embodies a doctrine of selective control. Trusted partners will benefit from increased cooperation and supply chain stability, while adversaries will find themselves locked out of the most important technological advances of the coming decade. In this view, AI semiconductors are no longer just economic assets—they are national security instruments and diplomatic currency.

Technology as Leverage in Trade and Foreign Policy

While this new export policy may seem like a response to internal and external criticism, its deeper purpose lies in its use as a trade and diplomatic lever. According to reporting from Reuters, the easing of chip export sanctions is closely tied to the Trump administration’s broader trade strategy. By offering or withholding access to American-made AI chips, the U.S. is equipping itself with a powerful tool for future negotiations. In trade talks, access to these semiconductors could serve as a bargaining chip, allowing the U.S. to steer outcomes in directions that align with its national interests.

This approach also enables the U.S. to tailor its controls to the unique diplomatic and strategic circumstances of each country. It introduces flexibility into a space once governed by rigid categories and static thresholds. However, the policy is not about blanket easing. In fact, in some areas, the Trump administration is preparing to impose stricter rules. Alongside the abandonment of the diffusion framework, officials are reportedly looking to tighten oversight of NVIDIA’s high-performance AI chips, such as the H100. These chips are central to AI training worldwide and are already subject to export notifications when shipments fall below 1,700 units. The new proposal would lower that threshold dramatically to just 500 units, imposing much stricter limits on the volume of chips that can be sent abroad without prior approval.

This dual-track strategy—easing rules for trusted partners while tightening controls on specific technologies—underscores a dramatic transformation in the role of technology in U.S. foreign policy. Where once export controls served primarily as economic regulations, they have now become instruments of international diplomacy. Through this recalibration, the United States is using its technological superiority to not only protect its national security but to design the contours of a global order that favors its leadership.

AI chips are no longer simply products of innovation—they are evolving into strategic weapons. In a world where geopolitical competition is increasingly defined by data, compute power, and algorithmic advantage, the battle over AI semiconductors is not just about markets. It is about shaping the future balance of power itself.

Fed Holds Interest Rates, Projects Rising Unemployment and Inflation
Stagflation Crisis Deepens, Leaving the Fed in a Dilemma
"Inflation Takes Priority" — June Rate Hold Seen as Most Likely Scenario

The U.S. Federal Reserve is facing one of its most complicated economic challenges in recent memory: the dual threat of high inflation and economic stagnation—a scenario known as stagflation. In its latest policy decision, the Fed chose to keep interest rates unchanged, a move reflecting both strategic caution and growing concern. As inflation hovers above target and trade uncertainties escalate under the Trump administration’s aggressive tariff policies, the Fed is being pulled in opposite directions. It must now decide whether to protect growth or stamp out inflation—knowing that acting on one front could worsen the other.

The Fed’s Cautious Balancing Act

On May 7, the Federal Open Market Committee (FOMC) voted to hold the benchmark federal funds rate at a range of 4.25% to 4.50%. This marked another month of policy pause, signaling a more guarded approach to managing economic uncertainty. The FOMC’s policy statement included a crucial new addition: language explicitly acknowledging the rising risks of both inflation and unemployment. This insertion—subtle but telling—underscored the Fed’s growing awareness of a potential stagflation scenario.

During the post-meeting press conference, Chair Jerome Powell was candid in his warnings. He stated that if the newly imposed high tariffs remain in place, the most likely outcomes would be higher inflation, slower economic growth, and increased unemployment. These three indicators—when seen together—are classic symptoms of stagflation and reflect an economic environment that is unusually resistant to conventional monetary tools.

The financial sector quickly picked up on this shift in tone. JP Morgan noted that the Fed’s unchanged rate decision was expected, but the addition of language referencing inflation and unemployment risks marked a significant development. Rather than signaling a hawkish or dovish pivot, it reflected deeper unease about structural threats emerging from trade policy. Daiwa Securities echoed the concern, suggesting that the FOMC’s updated language revealed not just policy caution, but an acknowledgment of the complex economic tightrope the Fed now must walk. These changes indicate that stagflation is no longer a peripheral concern but a core issue in monetary policy discussions.

Historical Echoes and Present Parallels

The fear of stagflation conjures powerful historical parallels. Economists and policymakers recall the 1970s as the quintessential example of stagflation. During that period, the U.S. economy was under immense pressure: expenditures had ballooned due to the Vietnam War and expanding social programs, while the 1973 Yom Kippur War triggered an oil embargo by Arab nations against the U.S. and its Western allies. This embargo sent oil prices skyrocketing—from just $2–3 per barrel in the early 1970s to $35 per barrel by 1980.

The impact was devastating. By 1974, U.S. economic growth had fallen into negative territory, registering at -0.5%, while inflation surged to a staggering 11.1%. It was the worst of both worlds: consumer purchasing power plummeted, job creation stagnated, and the Fed was left with no easy policy tools. Raising interest rates to fight inflation risked worsening the economic downturn; lowering them to stimulate growth risked fueling even higher prices.

Fast-forward to today, and the U.S. faces a similar predicament. While inflation is no longer in double digits, it remains above the Fed’s 2% target—driven in part by the ripple effects of global supply chain disruptions and trade tensions. At the same time, growth is slowing, and fears of recession are simmering. The Fed is acutely aware that any wrong move—whether too aggressive or too passive—could tip the scales in the wrong direction.

In a typical economic slowdown driven by weak demand, central banks can intervene confidently with stimulus measures. But stagflation ties their hands. Efforts to stimulate demand could exacerbate inflation, while anti-inflationary measures could deepen the recession. As such, the Fed’s decision to pause is less about indecision and more about waiting for clearer signals in a highly ambiguous economic climate.

Rising Expectations for a Prolonged Rate Pause

As market analysts and investors absorb the Fed’s message, there’s growing consensus that interest rate cuts are unlikely in the near term. Market watchers are now increasingly betting that rates will remain unchanged through June—and possibly beyond. One market insider explained that with inflation still far above the Fed’s 2% goal and tariff-related uncertainty mounting, the central bank has little choice but to prioritize price stability over growth acceleration.

Recent data reinforces that perspective. According to the U.S. Bureau of Economic Analysis, the core Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation gauge—rose by 2.6% year-over-year in March 2025. Though this is an improvement from previous peaks, it remains well above target.

Investor behavior is shifting in real time. The CME Group’s FedWatch tool, which gauges expectations using interest rate futures, shows a sharp decline in anticipated rate cuts. As of May 7, the probability of a 0.25 percentage point cut at the June FOMC meeting had fallen to just 20%, down dramatically from 63.2% just a week earlier. Conversely, the likelihood of a rate hold in June surged to 80%, compared to only 32.9% at the end of April.

South Korean analysts are echoing this cautious view. Woo Hye-young of LS Securities pointed out that Powell repeatedly emphasized his willingness to “wait and watch” rather than act prematurely. He also noted that the “cost of waiting is relatively low,” which suggests a preference for steady policy over preemptive rate moves. Woo added that Powell explicitly distanced the current environment from that of 2019, when the Fed made early rate cuts in anticipation of downturns.

Ahn Ye-ha of Kiwoom Securities further supported this position, forecasting that any potential rate cut would likely come in July rather than June. With no clear signs of economic contraction in the latest April data, Ahn argued, “It would be difficult for the Fed to justify immediate action.”

The broader takeaway from analysts and market behavior is clear: rate cuts are not off the table, but they are no longer imminent. The Fed’s cautious stance reflects its intent to carefully navigate one of the most complex macroeconomic environments in decades—one where inflation, trade friction, and employment trends are pulling in different directions.