Panic in Silicon Valley: The Semiconductor Industry’s Cry for Help

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Market-oriented economists think that it is just a bitwasteful to spend time on problems of international trade. Ina properly functioning world economy, after all, internationaltrade would be just a special case of interregional trade.There are, indeed, some special difficulties -- transportationcosts, language barriers, and the like -- but they are relativelystraight-forward. Why worry about international trade when thereare so many more interesting things to think about?[1]

This blasé attitude, of course, is shared by almost nobodyelse. Industries affected by imports are the first to feel thesting of increased competition from foreign firms. Then, responding to pressure from industry, government gets into the act.Once in a while, even an economist joins the fray, as when LesterThurow of the Massachusetts Institute of Technology, in a recentNewsweek column, thundered about the danger of a "videocassetterecorder gap" between the United States and Japan.[2]

The issue of foreign competition -- especially when accompanied by charges that government-subsidized foreign firms are"dumping" their products at below-cost prices to drive local competitors out of business -- does raise some serious questions ofpublic policy. American firms that are exposed to competitionfrom abroad make a substantial contribution to the wealth of ournation and employ thousands of workers. If promoting economicwell-being and combating unemployment are proper concerns ofgovernment, then an intelligent policy on foreign trade isessential.

This is the rationale given by the U.S. SemiconductorIndustry Association (SIA) for publishing its recent report,The Effect of Government Targeting on World SemiconductorCompetition: A Case History of Japanese Industrial Strategyand Its Costs for Americans.[3] While the report is highlypolemical, it does make a case that the Japanese semiconductorindustry has received and continues to receive various forms ofassistance from its government -- although the competitive impactof such aid is unclear. What should the U.S. government doabout the situation, if anything?

Scott Palmer

Scott D. Palmer is the editor of Data Processing Management and the ICP Insiders' Letter, published by International Computer Programs, Inc., of Indianapolis, Indiana.