DP15597 How the United States marched the semiconductor industry into its trade war with China

Author(s): Chad P. Bown
Publication Date: December 2020
Keyword(s): Export restrictions, Huawei, National Security, Semiconductors, SMIC, Supply Chains, USā??China trade relations
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15597

The US-China trade war forced a reluctant semiconductor industry into someone else's fight, a very different position from its leading role in the 1980s trade conflict with Japan. This paper describes how the political economy of the global semiconductor industry has evolved since the 1980s. That includes both a shift in the business model behind how semiconductors go from conception to a finished product, as well as the geographic reorientation toward Asia of demand and manufactured supply. It uses that lens to explain how, during the modern conflict with China, US policymakers turned to a legally complex set of export restrictions targeting the semiconductor supply chain in the attempt to safeguard critical infrastructure in the telecommunications sector. The potentially far-reaching tactics included weaponization of exports by relatively small but highly specialized American software service and equipment providers in order to constrain Huawei, a Fortune Global 500 company. It describes potential costs of such policies, some of their unintended consequences, and whether policymakers might push them further in the attempt to constrain other Chinese firms.