AFM 205 Midterm

Define tariffs

tax on imported goods

Define Integration

Economies being connected

Define leverage

Ability other than create pressure

Define Bargaining power

Ability other than influence negotiations

Define the core issues with tariffs

the 2 countries spent decades building an interconnected production system which can be broken into 3 things

What are the 3 things in the production systems

1. Integration

2. politics

3. Exposure

Define integration in production systems

supply chains where built around relatively open borders

Ex. automative industry (CAN → US → CAN → US)

Define exposure in production systems

cananda is more dependent on the US on trade so it becomes harder

Why does Canada dependence on US matter

Canada sends a very large of ts exports to the US

So disruption in the trade can affect Canadian businesses, workers, investments & GDP

Historical timeline for US and Canada

1965: Autopact → more integrated auto supply chain

1989: Canada - USFTA → tariffs were eliminated (free trade = fewer barriers)

1994: NAFTA → removed remaining trade, created investment & common trades

2020: USMCA → trump 1st admin changed the terms of integration rather than eliminating North American trade all together

today: tariffs

Define Dollar-For-Dollar

the same total value of trade is targeted

Define Rate-for-Rate

match the tariff percentage

Why won’t Canada put tariffs on everything

• because business and consumers will also suffer instead we choose where we have domestic alternatives

• (steel: we have a major steel industry, Agricultural equipment)

Define politics in pressure chains

Canadian. tariffs → us business get Hirt → workers/business owners get concerned → they pressure politicians → senators/represents free pressure → gets to Washington→ government has more incentives to negotiate

Main idea behind Ohio and Michigan

target economically important industries in politically sensitive regions

Ohio: steel, Aluminum. Agricultural equipment, Machinery

Michigan: Automobiles, Autoparts, steel, Aluminum

Who can withstand the pressure 3 possibilities

1. Base Case: tariffs continue| Result: slower Canadian growth, price go up

2. Escalation: tariffs become broader or rates increase| Result: higher prices, Lowe trade, supply chain disruption, more Econ pressure.

3. De-escalation: tariffs get reduced or exemption are negotiated| Result: lower trade barriers, Canadian exports can recover, consumer face lower costs

Why do Canada and US trade

specialization and comparative advantage and economy of scale

why aren’t all products made domestically

can be more expensive or inefficient

why is the autopact important

started the us and Amanda auto integration

Define involution

worker harder → everyone works harder → no body really gains

Define Healthy competition

work harder → become more productive → earn more

3 characteristics that count as involutions

1. diminishing returns: more import → smaller additional gains

2. Increasing inputs: more Time and labour & resources are invested

3. Intensifying competition: everyones tries harder to stay ahead

Define innovation

harder work → new value → better outcomes

Define Normal competition

competition can create better outcomes for individuals in the Econ

What can the Chinese government do about involution

1. Ban below cost selling: stop firms from selling below their costs| why: to precent price wars

2. Require demand before expanding: dont allow companies to massively increase production unless enough demand

3. Reduce unnecessary subsidies: if subsidies encourage companies to produce too much reducing them can decrease over supply

4. improve graduate job matching: help graduates find jobs tay actually use their skills

Define Zero-sum

one persons gains mean another person loses

Define deflation

General prices keep falling

Define price flooring

government set min price

Define Consolidation

firms merge to make less firms so they relate

Define Degree inflation

too many grades for available jobs

define tant ping

rejecting extreme competition

Define fab

A specialization factory that turns silicon wafers into working chips

Define disaggregated

splitting many pieces done by different companies

How different regions do different things in the semiconductors supply chain

• US & Europe: Design & equipment

• East Asia: Fabrication & package

• Southeast Asia: Assembly & testing

• Australia: supplies raw materials

Semi conductor supply chain

1. Energy & materials: electricity, poly silicon, silicon wafers

2. Design: the chips blueprint & what it should do

3. Foundries: physically printing the chips (chips on the wafers)

4. OSAT & packaging: Assembly packaging & testing the chips

5. End markets: where the ends up (AI, cloud, phones and cars)

Define lithography

how circuits are printed into silicon

Define EDA (electronic Design Automation)

software that allows engineers design & test chips on a computer before building them

Define EUV Lithography

using advanced light to carve pathways into a microchip

Define Fabless design studios

designs own their chips using EDA tools & architecture than outsource

examples: Nividia,, AMD , Broadcom

Define Fabless companies

they dont own factories, so margins are high (~75%)

the downside is they depend on foundries and must pay in advance to get factory time

Define Integrated Device Manufacturing (IDM)

design & print chips under one roof

example: Samsung, Intel, texa instruments

Define pureprint foundries

only print chips for others

Example: TSMC, Global founders, UMC

how did the war escalated

2018: US section tariffs (trade dispute starts)

2022: US controls on advanced AI chips & tools

2023: China licenses exports of gallium and germanium

2024-25: more control, chip tariffs up to 50%

Define gallium and germanium

rare chemical metals used to make tech

What’s SMIC/HuaHong

chinas main foundry (mature & some advanced chips)

what’s Naura/AMEC

equipment (to cut, carve, or corrode a clear design, pattern, or text into a hard surface like glass, metal, stone, or silicon)

what’s Aishengna

lithography → still behind ASML since no EUV

what’s Huawei Ascend

AI chips, 1000+ systems deployed but demand exceeds supply

Key dates coming up on the chip wars

Nov 9: US affiliates rule return

Nov 10: China rare earth pause end

Nov 27: galluim suspension expires

Define chips Acts

US law funding local microchips factories

Define open source

code is public and anyone can change and redistribute it without asking permissions

Define open weight

the trained model is downloadable but data & code can stay private

Define closed

only accessible through the provider

What’s the goal of ChatGPT (open Ai)

control who gets access and make money from usage

What’s the goal of Claude (Anthropic)

building safety & trust with AI

What’s the goals of Gemini (Google)

keep control while building AI into Google

What’s goal of Deep seek(An independent company)

advances AI through efficiency, affordability, and openness

What’s the goal of Kimi (Moonshot)

advanced coding reasoning and agentic AI (AI that’s independently to reach goals)

What’s the goal of Qwen (Alibaba)

make advanced AI accessible & practical for real world case

define CRISI (centre of AI standards and innovations)

US government group that tested the models

Chain to build advanced AI from chips

chips Access (powerful chips give you a lot of computing power) → compute scale (allows to train a smart AI) → model training ability

Define Distillation

copying intelligence into smaller models

Define Efficiency

getting good results while using less of something since China has fewer chi[s it has to get creative

Define trajectory

series of steps taken to do stuff

Define US version of efficiency

Rich companies buying the best quality products

Define China version of efficiency

Make lots of cheap chips fast

Define NEV

new energy Vehicles

they’re chinas wider term that includes plug in hybrids

Define ICE (International Combustion Engine)

the old gas engine

Define JV (joint venture)

2 companies from different countries team up to make cars together and share ownerships

Define OEM (Original Equipment Manufacture)

car company itself (BYD, Tesla)

Define vertical integration

company does many steps in the chain itself

Define LFD battery

lithium iron phosphate

cheap and safe doesn’t need expensive cobalt and nickel

Define battery swapping

machine swaps empty battery for the new one

Define local content rule

% of the car parts that need to be made in the country where its sold

What is the Chinese car brand BYD signature feature

blade battery (safe and cheap LFP)

What is the Chinese car brand Geely signature feature

super Eva AI that runs the dashboard and driving

What is the Chinese car brand Changan signature feature

golden shield

next generation solid state battery

What is the Chinese car brand leapmotor signature feature

builds 65% of the car itself to save costs

What is the Chinese car brand GAC Lion signature feature

i60, gas backup EV with 1000+ km range

What is the Chinese car brand Wuiling signature feature

Honguang mini EV & starts below $6,200

What is the Chinese car brand NIO signature feature

Battery swap in 3 mins

What is the Chinese car brand LI auto signature feature

pioneered chinas gas backup EV formula

What is the Chinese car brand Xiaomi Auto signature feature

the car as a smartphone on wheels

What is the Chinese car brand AITO signature feature

runs on Huawei’s software & self driving tech

Define Urbanization

more people moving to cities

Define GDP

total value of everything an Econ makes

Define SEZ (Special Economic Zone)

area with tax breaks and reals rules to attract foreign companies (like the Suez)

Define fintech

tech that makes money services (payments) easier

Define Cold chain

keeping food and need cold during transportation

Define AfCFTA (African Continental free trade Area)

a deal to make trade between African countries easier

Define Refinery

a factory that turns crude oil into fuel (petrol, diesel)

Define Recaptilization

forcing banks to hold more of their own money as society cushion

Countries that weren’t mentioned

• Addis Ababa: growing fastest 10.6% but small economy

• Johannesburg: strong but Lagos, Nairobi, Cairo give better geographic spread

• Dar es Salaam: 9% but Nairobi is more diversified

• Abidjan: growing 8.8% but Lagos bigger market

Define FDI

a long term investment where their investor has a real influence or ownership in a business abroad

Define portfolio investment

just buying share or bonds with no control its passive FDI isn’t

Define profit outflow

foreign investors sending their profits back home

Define data centre

a building full of computers that run and digital services

Define hyperscale

a very big data centre

Define FIDA (foregin investment protection Agreement)

a legal deal that protects a country’s investors abroad

Define Aluminum supply chain

Bauxite (a rock) → crushed and washed → sent to refinery → healed and filtered into alumina (white powder) → dissolved in hot chemical bath → results liquid aluminum