Semiconductors Vital to the Future and Security of American Technology Sector

Last week the Information Technology and Innovation Foundation (ITIF) hosted a webinar titled, “An Allied Approach to Semiconductor Sector Competitiveness.” The webinar included opening remarks from Senator John Cornyn, a lawmaker committed to addressing semiconductor industry concerns through actions proposed in the National Defense Authorization Act. Panelists included a collection of policy experts and think-tank leaders, including Corey Johnston, Chief Competition Officer at the Department of State, Ian Steff of the Department of Commerce, John Nueffer of the Semiconductor Industry Association and James Lewis of CSIS. The event was held in conjunction with the release of ITIF’s new research report bearing the same title as the event.

Panelists responded to recent US semiconductor industry pressure due to unfair and market-distorting practices by the Chinese government. The semiconductor industry, as outlined by John Nueffer, relies on continual sales and market access for reinvestment in new technologies. In his words, “revenue from 10nm architecture provides budget for development of 5nm architecture, then that line provides for development of architecture and so on down the line.” The experts outlined the drop in market share for US semiconductor manufacturers from 25% to just 12% in recent years, mostly due to the outsourcing of foundries to other countries for the sake of cost savings and economic conditions.

The presence of Chinese government influence in the semiconductor industry was heavily discussed, as Chinese subsidies to native semiconductor companies creates market distortions that quell competition and halt future technology development. China has committed to investing $1.4 trillion in the industry in the coming decades, compared to just $25 billion in projected US government funding in the same period. The panelists stated greater US government investment in the industry would offset Chinese market distortions – a strategy already used successfully by the US in the 1980’s when competing against similar Japanese government practices.

Panelists entered discussions during the question and answer portion of the event, with James Lewis of CSIS and John Nueffer of the Semiconductor Industry Association debating export controls in the semiconductor industry. Lewis called for export controls on the technology, as semiconductors have been proven to be used by the Chinese PLA for military purposes. Nueffer brought to attention the issue of “dual-use” products by the Chinese government – meaning components used for both civilian and military use that introduces ambiguity to export controls. This debate is at the heart of the semiconductor debate, especially given the national security and economic importance of the industry to American technology innovation.

Semiconductors are the backbone of modern technology – or, as Corey Johnston stated, “the crude oil of the tech sector.” American leadership in semiconductor manufacturing and technology will allow for American companies to remain on the cutting-edge of technology development, free from reliance on Chinese supply chains and ensuring national and economic security. It is vital that Congressional leaders, along with Department of Commerce and BIS officials recognize the importance of this industry and tailor policy to promote fair competition and further development of this vital sector.