US think tank warns export controls will damage American chipmakers

Robert Atkinson, president of the Information Technology & Innovation Foundation, warned in a July 12 report that “export controls shrink the global markets US semiconductors need to survive.” According to Atkinson,

If the United States is to win the techno-economic battle instigated by China, then trade policy must prioritize global market access for advanced industries with high fixed costs, like aerospace, software, biopharmaceuticals, and especially semiconductors. Yet, the current export controls on chips and semiconductor equipment reduce the available market size for US firms, potentially hurting America’s mid- to long-term competitive advantage.

This is why scale is so critical for semiconductors, and why if America wants to regain its semiconductor lead—which the CHIPS Act will help accomplish—the federal government must do all it can to maximize the available market. Doing so will allow US firms to sell products at more competitive prices and maximize R&D investments to stay competitive in future product cycles. Given that US and allied semiconductor firms are in increasingly stiff competition with China, a critical factor for success is which country captures more marginal new sales.

If U.S. export policy limits sales to China, then US costs won’t fall as much as they would otherwise, which will make their products less competitive. American companies will be less profitable, so they will have less to invest in critically needed R&D. In contrast, export controls will enable China to gain scale, allowing it to sell its chips for lower prices and achieve higher profits (or lower levels of government-subsidized losses) to invest in next-generation semiconductors.

Global market access is existential for industries with high fixed costs. Otherwise, costs won’t fall, R&D won’t increase, and competitors will gain structural advantages that ultimately can lead to the demise of advanced US firms and industries with high fixed costs. It’s time for US trade and national security policy to recognize this more nuanced and sophisticated reality.