America is at risk of losing its strategic advantage in technological innovation. One warning sign is in semiconductors, the silicon chips in everything from cell phones to satellites to jet planes. Recently, the hedge fund Third Point warned that US semiconductor giant Intel, the only US-based company that both designs and manufactures leading-edge logic chips domestically, was in trouble. The Biden administration faces a test: Can it craft an industrial policy as part of our competitive response to China?
While Intel has made some moves in recent days, policymakers and business leaders need to forge a sound industrial policy with a “buy American” standard and incentives to keep the manufacturing and innovation of critical goods like semiconductors on shore. The goal of this policy should not be ending trade, but building resilience in strategic sectors.
Beijing’s state capitalism tilts the playing field to its advantage. China, still categorized a developing country by the World Trade Organization, seeks to achieve self-sufficiency in critical areas, including semiconductors, by 2025. Since 2014, China has invested nearly $150 billion in its semiconductor industry. Most recently, its largest chipmaker received a $2.2 billion injection of capital. While still behind Taiwan, South Korea, and the United States, some predict that China will be independent in 7nm semiconductor production — an important technical achievement — in two years.
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