Report Shows Risks of Excessive Restrictions on Trade with China

by John Neuffer, President and CEO

An independent study released today by the Boston Consulting Group (BCG) concludes America’s longstanding leadership in semiconductors is put at risk by broad restrictions on U.S. exports of commercial chip technologies to China. The BCG report was commissioned by SIA to help inform the public discussion on the impact of trade restrictions on our industry, a topic that has been at the center of debate in Washington and capitals around the world.

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Titled “How Restrictions to Trade with China Could End U.S. Leadership in Semiconductors,” the report finds if the U.S. government maintains its current trajectory of placing increasingly broad restrictions on trade of semiconductors to China, U.S. semiconductor companies will see their competitive position erode. In this scenario, U.S. companies’ global market share would decline by eight percentage points over the next three to five years, and their revenues would drop by 16 percent. In a second, more extreme scenario, where restrictions are expanded to cover all U.S. semiconductors going to China, the report finds American chip firms would cede a stunning 18 percentage points of global market share and 37 percent of revenues.

The report seems to validate the concerns President Trump recently expressed about efforts to block U.S. chip exports to China that do not raise national security concerns. Targeted restrictions on technology exports can play an important role in protecting our country, but any such controls should be multilateral, narrowly focused on technologies that pose direct and tangible national security risks, and avoid collateral negative impacts on U.S. semiconductor leadership.

The U.S semiconductor industry vigorously defends its market leadership through unbridled, market-driven innovation. Global sales of non-sensitive, commercial products allow our industry to make huge research investments that keep our technology at the leading edge. U.S. chip companies invested nearly $40 billion in R&D in 2018, about one-fifth of revenue, which is among the top shares of any U.S. industry.

We take very seriously the threat posed by Chinese state-backed competition. Turbocharging U.S. innovation leadership through more robust federal investments in research and technology – to complement already-large private investments – is key to staying in the pole position in the race for global semiconductor leadership. Federal and private research investments are critical for leadership in the must-win technologies of the future, including AI, quantum computing, and advanced wireless networks such as 5G.

The BCG report also finds the projected loss of U.S. companies’ global market share and revenue would lead to significant cuts to industry R&D and capital expenditures, as well as the loss of 15,000 to 40,000 jobs in the U.S. semiconductor industry. To avoid these negative consequences, the report concludes policymakers should devise solutions that simultaneously address national security concerns while preserving global market access for U.S. semiconductor companies. We agree.

We look forward to working with leaders in Washington to ensure restrictions on trade with China strike the right balance, and we hope BCG’s report is a helpful resource for these discussions.