Report Points to Threatened Semiconductor Innovation

While much of the world is still talking about the deadly COVID-19 virus and all the effects of a global pandemic, the ITIF (Information Technology and Innovation Foundation) is persistently committed to spreading the word about a different kind of threat—not a health threat, but one that could stifle innovation in the U.S. technology sector and beyond. The ITIF’s latest report examines the impact of China’s mercantilist strategies on the global semiconductor industry. How worried should the tech space be about China’s efforts to, as the CSIS (Center for Strategic and Intl. Studies) puts it, “pursue semiconductor independence”? How are China’s state-directed efforts to vault into a leadership position in the semiconductor industry affecting Moore’s Law?

In 2015, when China first released its Made in China 2025 initiative, a decade-long action plan focused on promoting manufacturing, other developed nations certainly took notice. In fact, in the years that have followed, it’s created a bit of a situation. According to the Council on Foreign Relations, China’s initiative clearly aims to “use government subsidies, mobilize state-owned enterprises, and pursue intellectual property acquisition to catch up with—and then surpass—Western technological prowess in advanced industries.” And, according to the ITIF, China’s massive subsidization, IP theft, state-financed foreign firm acquisitions, and other mercantilist practices are distorting the global market.

By giving Chinese firms a leg up (in many cases despite inferior technology), the nation and its practices are pulling everybody down—at least in terms of global semiconductor innovation. By losing marketshare to Chinese firms, other firms based elsewhere in the world lose out on resources that would have gone to R&D (research and development). Specifically, the ITIF estimates that if not for China’s mercantilist policies, there would be 5,000 or more additional U.S. patents in the semiconductor industry every year. The ITIF’s stance is that some of China’s more questionable methods of attaining its national manufacturing goals threaten Moore’s Law, the trend predicted by Gordon Moore in the 1960s that computing power would roughly double (and costs half) every two years.

Moore’s prediction has been uncanny in its accuracy for half a century, but these advances aren’t guaranteed. Many millions of R&D dollars and the innovative drive of thousands of people have made Moore’s Law a reality for as long as it’s been a reality. If R&D resources are diverted thanks to unfair competition overseas, it’s worth the question: Is Moore’s Law coming to an end? In July 2020, Intel CEO Bob Swan’s announcement that the firm (nicknamed “Chipzilla”) would be delaying its 7-nanometer chips caused a dip in the chipmaker’s stock price. It also got a conversation started about semiconductor innovation and how China is impacting the sector.

Because semiconductor innovation is so critical to the technology space as a whole, it’s an important conversation to have. The ITIF’s report made some recommendations to address the multi-faceted issue, including appropriating funding to support objectives in the CHIPS for America Act and tripling federal investment in semiconductor R&D, collaborating with allied nations on semiconductor export controls and semiconductor development activities, and enhancing information-sharing efforts to combat foreign economic espionage and IP, technology, or trade secret theft.

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