A common misconception in the United States is that the majority of semiconductor manufacturing is done overseas, as is the case with other electronics products. However, this is not true and the fact is that US semiconductor companies do the majority of their manufacturing in the United States and semiconductors are one of America’s top manufactured exports, behind only aircraft and automobiles.
It is true that for years other countries have coveted the US semiconductor industry and have attempted by various means to gain access to the technology and to grow their own industry. The world runs on semiconductors and these products are at the heart of the defense and communications industries. They power fighter jets, guided missiles and communication satellites. They are in every appliance in homes, cars, even in wristwatches. Computing power and semiconductors is the fundamental core that is shaping the future of human mobility world, with the business of autotech chips becoming now huge business. They are the backbone of modern society.
In the March 30th edition of the South China Morning Post, China reported that it is cutting taxes for semiconductor makers. With the looming trade war between the US and China, they want to reduce their reliance on their $200 billion annual chip imports annual chip imports from the United States. WSJ: China Cuts Taxes, Chipmakers Promote Industry Development Logistics
In recent years China has emerged as a legitimate challenger as they have attempted to wrestle control of the US’s semiconductor technology. In January of 2017, just before President Obama left office, the President’s Council of Advisers on Science and Technology issued a report “Ensuring Long-Term US Leadership in Semiconductors,” warning of China’s “zero-sum” activities to advance its own semiconductor industry, including stealing intellectual property both “covertly and overtly.”
One of China’s techniques is to subject US tech companies operating in China to security reviews, which the report says can be used to “gain access to detailed knowledge of semiconductor technologies.” Another Chinese tactic is forcing the transfer of technology in exchange for access to the Chinese market, according to the report. The report also pointed out that Chinese companies, with State funding, collude to lower the value of foreign companies that they wish to acquire, using tactical business decisions, before buying those companies when their stock prices decline.
This is not the first time that the US lead in semiconductors has been challenged. In the 1980s, the United States faced a similar challenge, which was met by an innovative policy mix, including the industry consortium SEMATECH and an effective market-opening trade agreement with Japan that stopped dumping in the United States and third markets, which helped companies such as Intel to reposition their production toward microprocessors, where US design strengths proved decisive.
Earlier this year, the current US Administration blocked a Singapore-based company’s plans to acquire the US chipmaker Qualcomm for $117 billion, citing national security concerns. The order effectively squelches what would have been the largest technology acquisition of all time. It appears that Washington continues to be worried about losing the competitiveness of the US semiconductor industry and this will be a fundamental element of the trade negotiations between the US and China, but also other countries. We believe that though there are myriad of specific factors involved in this specific issue, that the world is far better off with measured but free trade.
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