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April 6, 1987


By CBR Staff Writer

The crisis in the semiconductor industry that threatens to plunge the world into a trade war this week has its roots way back in the mid-1970s when it became clear that US and Japanese chip manufacturers were embarked on an expansion programme that would require them to sell 10 times as many commodity parts of succeeding generations every two or three years simply to stand still in financial terms. And as long ago as 1977 it was clear that a crisis of the proportions that hit the US industry in 1984 was inevitable. Unless somebody came up with an irresistible application for the one-trip micro – the chip that would be used once and thrown away – it was inevitable that there would be too much silicon chasing too few customers. The best – but rather forlorn – hope at that time seemed to be the Smart Card, but even in France, its penetration is not yet significant. The monster memories sported by current generations of personal computers have done their bit to mop up a small part of the surplus, but without all personal computers being fitted with nothing but solid state storage in place of disk, there was no way they could make a sufficient dent in the chip mountain. And, equally inevitably, the less efficient manufacturers – all the American memory chip makers – were driven out of the commodity business, and the most efficient manufacturers – the Japanese – won a monopoly of the market. Japan is perhaps the least well-equipped of any major nation to manage such a crisis, because the educational and cultural tradition heavily discourages initiative and original thinking. The Japanese approach is to identify a promising market and, if successful, do more and more and better and better of the same – leading inexorably to rapid saturation of one market after another.

Anti-dumping side is working

And the American onslaught that led to the semiconductor agreement with Japan was very largely an effort to punish the Japanese for being successful. There are clear signs that the anti-dumping side of the agreement is now working – as a result of the Ministry of International Trade & Industry ordering the major manufacturers to trim their output of commodity chips for two quarters. It is clear that the US administration, armed with a single invoice issued by the Oki distributor in Hong Kong, was determined to wind up the pressure on the Japanese before the evidence that the anti-dumping side of the agreement was working, and will impose trade sanctions in pursuit of the other side of the agreement, which calls for Japan to increase its purchases of US chips. Even if the Japanese were truly willing to implement this side of the agreement, there is no way short of ordering US chips wholesale and putting them into intervention stores that the Japanese government could engineer a rapid implementation of that side of the agreement. And so the US is going to risk a wholesale trade war by imposing 100% import duties on Japanese manufactures amounting to $300m a year – and is already demanding 100% bonds from importers of all the items on the hit list from which the final collection of products will be selected. The intention is to make a symbolic gesture to the Japanese manufacturers without hurting US businesses, but the electronics industry is so inter-related that US firms must be hurt. The one redeeming feature of what has degenerated into a childish trial of strength is that the Japanese can least of all afford a trade war.

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