The First Semiconductor Trade War
Faced with the prospect of an Asian nation overtaking the United States as the world’s preeminent manufacturer of vital technology, the president struck a nationalist pose. “The health and vitality of the U.S. semiconductor industry are essential to America’s future competitiveness,” he said, announcing huge new tariffs and setting the stage for subsidies to domestic microchip makers. “We cannot allow it to be jeopardized by unfair trading practices.”
This was not President Joe Biden or former President Donald Trump taking a stand against China. It was President Ronald Reagan responding to the growing technological prowess of Japan in 1987.
A year earlier, the Reagan administration had reached a deal that was supposed to limit Japanese companies’ sales of computer chips to America. Unsatisfied with the results, Reagan decided to escalate the trade war in 1987 by slapping 100 percent tariffs on all semiconductors imported from Japan. One year later, Congress approved a $500 million industrial policy to subsidize American chipmakers, but the effort largely fell flat.
Nearly 35 years later, semiconductors are once again at the center of trans-Pacific trade tensions, and American politicians are fretting about global supply chains for computer chips. 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. But it is China that is rankling American politicians by spending huge sums to stoke domestic production.
While the circumstances are not identical, China’s growing technological prowess is triggering the same American political reactions that Japan’s did 30 years ago. If policy makers are not careful, they will end up repeating some of those wasteful mistakes.
The levies Reagan imposed made TVs and personal computers more expensive but did little to curb Americans’ appetite for those products. Some tariffs were lifted just a year after they were imposed, while the rest were quietly yanked by President George H.W. Bush in 1991.
The more interesting lesson for policy makers is the failure of Sematech (a portmanteau of “semiconductor manufacturing technology”), a public-private consortium created by 14 American chip manufacturers in 1987 and partially funded by the federal government. Sematech’s creation coi
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