Even as the coronavirus dominates headlines about China, the tech war with the US has rumbled on. Despite the fallout that has rippled through US tech stocks, investors should consider the fringe benefits to certain parts of the sector.

Technology companies are facing daunting conditions amid tense US-China relations. The phase-one trade deal in December hasn’t quelled the intensifying struggle for tech supremacy between the two countries. Beyond just tariffs, the gloves-off tactics by the Trump administration also include blanket bans on specific technology companies, such as the US blacklisting of exports to equipment-maker Huawei Technologies over concerns that it may present a national security threat. And even though the steps are supposed to help US companies grapple with Chinese rivals, the rivalry is taking a toll.

A Cloud over Tech Stocks

Semiconductor manufacturers have been taking the brunt. Restrictions on selling components and technology to Chinese companies weighed on share prices of US-listed chipmakers last year because China is a primary source of demand for their products. After all, China consumes a quarter of global smartphone and PC units and around 15%–20% of global memory supply.

When Cisco said in 2019 that its China sales had been hurt because of negative sentiment over the trade war, its stock price took a swift hit. Meanwhile, electronics-makers like Apple have been warning the US government about the negative impact that tariffs could have for sales of their products. And even though the phase–one accord defused US threats to levy tariffs on laptops and cellphones, experts remain concerned that this possibility may arise if trade tensions escalate again.

In China, manufacturers have been hobbled by the US export ban. The trade war has prompted Beijing to accelerate its long-term strategy of strengthening its domestic technology industry in order to eliminate a dependence on US suppliers. China wants to make everything from Tesla cars to memory chips to cutting-edge mobile handsets; its leaders are now convinced that they need to achieve this goal as fast as possible.

Made in China for China

That means Beijing’s “Made in China 2025” plan is being accelerated. This ambitious program, which aspires to replace US chipmakers, such as Micron Technology, Texas Instruments, QUALCOMM or even Intel, with domestic vendors, will now resemble a “Made in China 2023” plan. Indeed, at the end of 2019, China’s government set up two major investment funds: a US$29 billion fund to build chipmakers and US$21 billion to boost China’s technology manufacturing sector.

Yet China’s strategic decision has created a silver lining for a specific category of global tech companies, in our view. In order to innovate, Chinese companies still need machines that can only be found abroad. Equipment manufacturers for semiconductor fabrication complexes have emerged as key enablers of China’s aspiration for self-sufficiency.