The First Semiconductor Trade War –

The president was confronted by the possibility that an Asian country would overtake the United States in vital technology manufacturing, and decided to strike The nationalist look. He said that the U.S.’s semiconductor industry is vital to America’s future competitiveness. We cannot permit it to be endangered by unfair trade practices.”

The President Joe Biden and former President Donald Trump were not taking a stand against China. Reagan was responding to Japan’s technological advancements in 1987.

The Reagan administration reached an agreement that would have limited the sales of Japanese computer chips to America a year prior. Reagan was not satisfied with these results and decided to increase the trade war by placing 100 percent tariffs upon all imported semiconductors from Japan in 1987. The effort to subsidise American chipmakers fell apart a year later when Congress approved an industrial policy of $500 million.

Nearly 35 year later, the semiconductor industry is once more at the heart of trans-Pacific trade tensions. American politicians worry about how global supply chains will affect computer chip production. Taiwan is now the world’s leading manufacturer of semiconductors—the tiny, thin wafers of silicon that power computers, smartphones, cars, and many household appliances. China is the one that has been causing a stir in America by its massive spending to boost domestic production.

Although they are different, China is experiencing the same political reaction in America as Japan 30 years ago. If policymakers aren’t careful they may make the same mistakes as Japan 30 years ago.

Reagan’s levies made personal computers and TVs more costly, but they did not reduce Americans’ desire for these products. Some tariffs were lifted within one year, but the majority were quiet removed by President George H.W. Bush 1991

Sematech, which is a acronym for “semiconductor manufacturer technology”, was a private-public consortium that 14 American chip makers created in 1987. It was partially funded by federal funds. This makes policymakers more aware of the important lessons. Sematech was created at the same time as a Pentagon report, which stated that “it simply is not possible for individual U.S. silicon firms to compete separately.” This report stated that the government’s inaction could “directly threaten technological superiority, which is essential to U.S. defence systems.” Congress approved $500 million in subsidy for Sematech, which is roughly $1.2 billion today. All 14 companies were required to pay 1% from their annual semiconductor sales, which can reach $15 million per year.

Sematech was hoping to build an “international-class” facility for semiconductor fabrication in Austin, Texas using a combination of private and public funds. There would also be a shared research and development center, as well as manufacturing expertise, so that American firms can once more surpass Japan’s.

America was able to quickly restore its status as the largest chipmaker worldwide, however this wasn’t due to any actions taken by the consortium. Brink Lindsey is now vice president of the Niskanen Center and wrote, “A closer look at Sematech confirms every darkest suspicions by industrial-policy critics.” You have to understand In 1992, Sematech asked Congress to fund five years more. Austin’s chip plant was producing chips that weren’t cutting edge. Lindsey said that Sematech had the ability to borrow best practices from its members, but never produced anything other than the same manufacturing results as private companies years earlier.

Sematech received similar negative reviews in later years. According to trade historians Douglas Irwin, and Peter Klenow in 1996 papers published by National Academy of Sciences, federal government-investments in Sematech did not “induce more semiconductor research” than it would. They found that the subsidies caused member companies to cut their own spending on semiconductor R&D.

Sematech was not perfect, but American semiconductor manufacturing boomed over the 1990s. The panic about Japan’s technological breakthroughs had subsided. James L. Schoff (a senior fellow at Carnegie Endowment for International Peace), a think tank on foreign policy, says, “The American companies prospered because they were able to innovate effectively and not because such techno-nationalist nor protectionist measures.”

Schoff wrote in 2020 that integration and cooperation, not insular protectionionism, would allow both Japan and the U.S. to increase their market share in the expanding global semiconductor market. In fact, Japanese companies joined Sematech by 1996. This was despite the fact that it had been cut off from federal funding. Its primary purpose was to facilitate ideas sharing.

The current reality in which foreign-made silicon is a danger exists for politicians pushing the semiconductor industrial policy. Earlier this year, Senate Majority Leader Chuck Schumer (D–N.Y.) A bill that would provide $52 Billion in subsidies to American chipmakers was successfully introduced earlier this year by Chuck Schumer (D-N.Y.). He argued that government action is needed “to maintain our competitive edge” while warning that America’s economic and national security were at risk.

Republicans are now eager to support the cause because they have always been skeptical about government intervention in industries. Sen. Tom Cotton (R–Ark.Supporter of Schumer’s subsidy plan, he says that government intervention is needed because the United States “has fallen behind” and has given China’s -Communist Party dangerous influence over our country’s future. The cycle continues.

Technonationalist policies should be skeptical because they are not based on a correct understanding of the global market. Most semiconductors that are used in America come from overseas. According to the Semiconductor Industry Association, 47 percent of global semiconductor industry is controlled by U.S. companies.

Those American companies do not need government aid. In 2020, global chip makers saw a 10 percent increase in revenue, despite slowing demand from the pandemic. The New York Times reported In May. In May, equity investors poured more than $12 Billion into the sector.

Sematech’s story shows how nationalists can be hurt when they lose the competition and are replaced by lobbyists. Irwin wrote in 1996 that Robert Noyce, co-inventor and chairman of Intel, had spent 20% of his time living in Washington, D.C., between the 1980s and 1990s. He is not likely to have been there as major technological breakthroughs took place in the capital.

Even though the top chips in China have been made many generations ahead of those in America and Taiwan in recent years, it will prove difficult to close the gap, especially since the U.S. bans the export of equipment for semiconductor production to China. Politicans aren’t known to let good panic be stopped by inconvenient facts.

The rules of economics and semiconductors are not likely to have changed much since 1980s. Because the federal government is not better at choosing winners and losers, nationalist policies like tariffs on foreign competition and subsidies to domestic producers will likely fail today.