Report: The Detrimental Impact of China’s Mercantilist Policies on the Semiconductor Industry

In his new report, Stephen Ezell, Vice President of Global Innovation Policy at Information Technology and Innovation Foundation (ITIF), explores how China’s aggressive strategy to distort and harm the global semiconductor market is continues to hurt the U.S and the market at large.   

In highlighting the growth of the industry, he explains “a thriving global semiconductor industry depends upon three critical conditions: fair access to global markets, market-based competition to reduce artificial overcapacity and significant price declines, and minimal intellectual property theft.”

To contextualize this, he uses the example of Applied Materials, ASML, KLA Tencor, and Lam Research, a collection of US and European companies that “manufacture the machines and tooling equipment that run semiconductor fabs.” Ezell explains that “the key driver of the global semiconductor industry has been specialization, as enterprises—and indeed entire industrial ecosystem clusters within nations—have elected to concentrate their competitive energies on mastering key facets of the semiconductor production process.” 

However, China has shifted this critical driver and are attempting to gain a large share of the industry through “massive subsidization, IP theft, state-financed foreign firm acquisitions, and other mercantilist practices.” He mentions specially, YMTC: “China’s state-owned national champion for memory chips” and CMXT: “another Chinese government-created semiconductor manufacturer.” By drawing on companies as examples, he explains that “the Chinese government has become a minority or majority shareholder in most medium- and large-sized semiconductor enterprises in China” and this interference continue to hurt U.S. jobs, innovation and growth. China Tech Threat has also written on this same dynamic and has previously explored how inaction against these companies will have long term consequences.

Ezell suggests that in order to address the China challenge, the U.S “needs to work with like-minded nations while enhancing its own innovation capacity in the sector.” He astutely concludes, “China has every right to compete intensely in the global semiconductor industry, but it should do so through innovation, not innovation mercantilism.”

Read the full report here.