Semiconductors as a Strategic National Asset and US Policy Response

Key Insight

In response to the escalating Japanese competition, U.S. semiconductor leaders like Jerry Sanders declared semiconductors the 'crude oil of the 1980s', emphasizing their strategic importance for both civilian technology and national security. By the 1980s, integrated circuits were indispensable for computers, planes, automobiles, and military systems, making them critical for American military primacy. Pentagon officials, who had leveraged semiconductor technology to offset Soviet conventional advantages since the mid-1970s, recognized that Japan's increasing dominance, surpassing the U.S. in chip production by 1986 and controlling 70 percent of global lithography equipment by the end of the decade, posed a severe national security threat.

The U.S. industry, through the Semiconductor Industry Association, lobbied Washington for support after a decade of focusing on civilian markets. Initial government responses included tax cuts (capital gains reduced from 49 percent to 28 percent), loosened financial regulation for venture capital, and strengthened intellectual property protections via the Semiconductor Chip Protection Act. However, these measures proved insufficient as Japan's DRAM market share continued to grow. A 1986 trade agreement imposed quotas on Japanese DRAM exports to the U.S., which raised prices but largely failed to save most American memory chip producers, as they were already exiting the market.

Ultimately, the U.S. government and industry formed Sematech in 1987, a consortium funded equally by the Pentagon and leading chipmakers, to revitalize the semiconductor industry. Led by Bob Noyce, Sematech aimed to foster collaboration between equipment manufacturers and chipmakers, addressing issues like equipment reliability and production alignment. A significant portion, 51 percent, of Sematech's funding was directed towards saving America's struggling lithography industry. Despite initial skepticism, Sematech's support enabled GCA, a U.S. lithography tool producer, to develop 'best in the world' deep-ultraviolet equipment and win customer service awards, temporarily regaining technological brilliance, though its business model remained unviable.