U.S. trade restrictions will hurt the U.S. semiconductor industry : The Indicator from Planet Money As the trade war continues, China hasn't purchased nearly as many exports from the United States as it previously agreed to. There was one bright spot though: semiconductors — but that may soon change.
NPR logo

The Semiconductor Standoff

  • Download
  • <iframe src="https://www.npr.org/player/embed/920818891/920844975" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
The Semiconductor Standoff

The Semiconductor Standoff

  • Download
  • <iframe src="https://www.npr.org/player/embed/920818891/920844975" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. Cardiff here. This is THE INDICATOR FROM PLANET MONEY. Remember the trade war between the U.S. and China? Well, it's still happening. It's totally still a thing. The U.S., for example, still has higher tariffs on Chinese goods than it did before the trade war. And China has not bought as much stuff from the U.S. as it promised to buy in a deal that the two countries agreed to earlier this year. But according to trade economist Chad Bown of the Peterson Institute, there is one part of trade between the U.S. and China that's been doing quite well in 2020.

CHAD BOWN: So so far in 2020, China has actually done a really good job at buying American semiconductors and all the equipment that semiconductor manufacturers in other countries need to make semiconductors.

GARCIA: That is, until now. Semiconductors, by the way, are the little chips, the intricately designed, super complicated little chips that are needed for things like smartphones and telecommunications gear and weapons systems and all kinds of other electronics to function. And the U.S. has a lot of the world's leading companies that design and produce semiconductors. It's a part of the U.S. economy that just really stands out.

But the Trump administration has now put in place export restrictions that make it harder for China to buy semiconductors not only from the U.S., but also from other countries. The U.S. says it's doing this for national security reasons. It does not want China to have access to those semiconductors. But Chad says there's a big problem with the way that these export restrictions have been designed - actually, three problems.

BOWN: The first is it really hurts our relationship with other countries, even American allies. A second is it's actually going to really be damaging for the American high-tech industry itself. And the last one - and this one's really important, too - it's not clear that this is actually going to make Americans safer and protect America's national security.

GARCIA: After a quick break, Chad explains what this new front in the trade war is all about and what the consequences might be for the U.S. economy and for American workers.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: Chad Bown, welcome back to the show.

BOWN: Thanks for having me.

GARCIA: So, Chad, the U.S. has companies that are great at making semiconductors. China has companies that want to buy these American-made semiconductors - seems like a pretty good arrangement all around. So why is the U.S. government taking steps to restrict Chinese companies from buying the semiconductors?

BOWN: It's all about national security. The main concern is this one Chinese company called Huawei. And what they do is they provide telecommunications infrastructure to basically lots and lots of companies around the world that are, you know, providing, you know, the new 5G, the fifth-generation networks of service. And so what they provide are base stations and cellphone towers, things like that.

GARCIA: Right. Yeah, that's, like, the infrastructure that's needed for our smartphones and Internet and things like that to work.

BOWN: And the national security concern is that they may be able to create ways for the Chinese government to be able to get access to information on private citizens, government communications, military communications in ways that would threaten Americans' national security.

GARCIA: Yeah. And, Chad, there's something kind of interesting about the way the U.S. has gone about this because the U.S. actually first started last year by restricting China and Huawei from buying U.S. semiconductors. But then it just realized that China could buy those semiconductors from companies that make them in other countries, like in South Korea. And so now the U.S. is basically saying to those foreign companies, hey, you sell a lot of semiconductors to China, but you make your semiconductors with parts that are made in the U.S. And so if you want to keep buying those U.S.-made parts, then you have to stop selling semiconductors to China, or we won't sell those parts to you anymore - basically compelling other countries to also not do business with China.

BOWN: Exactly. These are really, really important sectors for countries like South Korea and Taiwan. And so this is the American government kind of unilaterally telling companies in those countries that they have to shut off a huge line of their business. And this is going to be - you know, this is going to hurt their economies and without going through essentially the South Korean or the Taiwanese government to do so.

GARCIA: And how is that going to affect the U.S. relationship with those other countries that are not China?

BOWN: Well, on the policy side, foreign countries, foreign governments certainly aren't going to be happy with the United States just unilaterally deciding what their firms can and can't do in terms of who they can interact with. On the commercial side, this is actually going to create opportunities for companies in other countries to be able to come up with products to be able to sell to China or to semiconductor makers everywhere in the world. This is a really globalized industry that American companies now aren't able to supply to because of these American export controls.

GARCIA: Chad, how big of a deal is it financially for U.S. companies to lose the business of selling semiconductors to China?

BOWN: This is a huge, huge deal for this industry. The Semiconductor Industry Association, the main lobby group for these companies, says that about a quarter of their sales every year go to these companies in China. So semiconductors cutting the Chinese market off from American suppliers, you know, could potentially be devastating for American companies and the workers, the folks that work there.

GARCIA: I guess I'm also thinking about the potential longer-term consequences, Chad. Like, the U.S. is a world leader in making semiconductors. So I'm wondering if the loss of this business is a big enough threat to also undermine its global standing.

BOWN: The semiconductor industry is unique in the sense that it relies on these revenues that it makes from China and from sales around the world to fund huge amounts of research and development. You know, the American industry is at the frontier. They're coming up with the latest and greatest in these technologies because of these revenues. But it requires them to do so much innovation. And you take those revenues away, and the worry is the American companies are no longer going to be the ones at the head of the race anymore, keeping, you know, the American technology sector really at the forefront of the global industry.

GARCIA: Chad, I think a lot of people might hear this, and they'll reasonably think, well, yeah, I get it. This is bad for American companies, and it's also not great for U.S. relations with other countries. But if there's a threat to national security, we got to do it anyways. What's your argument to them? What's your response to them?

BOWN: I think the argument is, they've identified perhaps an actual national security threat that needs to be dealt with. But the concern with this approach is it's very much focused on the short-term worry of today. And to deal with the national security threats of the future, that's going to require lots of research and development, lots of coming up with new ideas, keeping ahead of everybody else, you know, developing the weapons systems of the future to make sure that Americans can remain safe from threats around the world. That requires the very same research and development funding that comes from the revenue of selling semiconductors out there to the world. And if you take that away, then there's less R&D, and there's fewer of these great ideas. And so the Americans of the future might not actually be as safe.

GARCIA: So is there a better way of doing this, then? Is there a better way of addressing the national security concerns and also not harming U.S. companies and not sort of needlessly damaging U.S. relationships with other countries?

BOWN: I think the balance here that has to be achieved is by using these sorts of export restrictions and limits on American technology sales to foreigners in a much more targeted way. And the concern with the current approach is that they're doing so very broadly and that this is going to actually hurt a much larger segment of the American semiconductor industry, the American semiconductor equipment manufacturing industry and lots, lots of more companies and more workers than are really necessary to deal with, you know, the imminent national security threat that they might be seeking to keep us safe from.

GARCIA: OK. Chad Bown, thanks so much.

BOWN: Thanks for having me.

GARCIA: This episode of THE INDICATOR was produced by Brittany Cronin and fact-checked by Sean Saldana. THE INDICATOR is edited by Paddy Hirsch and is a production of NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

Copyright © 2020 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.