The Indicator from Planet Money - The Semiconductor Standoff

As the trade war continues, China hasn't purchased nearly as many exports from the United States as it previously agreed to. There was one bright spot though: semiconductors — but that may soon change.

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Hey, Ron Carter. This is indicator from planet money is a trade war between the US and China. What's still happening? It's totally still a thing the US for example still has higher tariffs on Chinese Goods than it did before the trade war and China has not bought as much stuff from the u.s. Is it promised to buy in a deal with the two countries agreed to earlier this year? But according to trade Economist Chad down the Peterson Institute. There is one part of trade between the US and China that's been doing quite well in 2020. So so far in in 2020 Chen has actually done a really good job at buying American that semiconductors and all the equipment that semiconductor manufacturers in other countries need to make semiconductors until now by the way are the little chips the intricately-designed super complicated little chips that are needed for things like smartphones and Telecommunications.

Gear and weapon systems and all kinds of other electronics to function and the US has a lot of the world's leading companies that design and produce semiconductors. It's a part of the US economy that just really stands out what the Trump Administration is now putting Place export restrictions that make it harder for China to buy semiconductors. Not only from the US but also from other countries us says it's doing this for national security reasons. It does not want China to have access to those semiconductors that says there's a big problem with the way that these export restrictions have been designed actually three problems. The first is it really hurts our relationship with other countries even even American Allies a second is it is actually going to really be damaging for the American high-tech industry itself in the last one in this one's really important to its it's not clear that this is actually going to make American safer and and protect America's national security.

After a quick break that explains with this new front in the trade war is all about and what the consequences might be for the US economy and for American workers.

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Shut down welcome back to the shelf life for having me such ad the US has companies that are great at making semiconductors. China has companies that want to buy these American-made semiconductors seems like a pretty good arrangement all around. So why is the US government taking steps to restrict Chinese companies from Vine semiconductors? It's all about National Security. The main concern is this one Chinese company called Huawei and what they do is they provide telecommunications infrastructure to basically lots and lots of companies around the world that are you know, providing, you know, the new 5G the 5th generation networks of of service until what they provide our base stations in cell phone towers things like that, right? Yeah, that's like the infrastructure that's needed for our smartphones and internet and and things like that to work and the National Security concern is that they may be able to

8 ways for the Chinese government to be able to get access to information on private citizens government Communications military Communications in ways that would threaten American National Security about the way the u.s. Is gone about this because he was actually first started last year by restricting China and far away from buying US Senate conductors, but then it just realized that China could buy those semiconductors from companies that make them in other countries like in South Korea as are now the u.s. Is basically saying to those foreign companies. Hey, you sell a lot of semiconductors to China but you make your semiconductors with parts that are made in the US and so if you want to keep buying those u.s. Made parts, then you have to stop selling semiconductors to China or we won't sell those parts. Do you anymore basically compelling other countries to also not do business with China?

Exactly. These are really really important sectors for countries like South Korea and in Taiwan and so this is the American government kind of unilaterally telling companies in those countries that they have to shut off a huge line of of their business and this is going to be you know, this is going to hurt their their economies and without going through essentially the South Korean or the Taiwanese government to do so, how is that going to affect the US relationship with those other countries with those other countries that are not China policy side foreign countries for governments certainly are going to be happy with United States just unilaterally deciding what their firms can and can't do in terms of who they can interact with on the commercial side. This is actually going to create opportunities for companies in other countries to be able to come up with products to be able to sell to to China or to a semiconductor makers everywhere in the world is a really globalized industry that American companies.

That were able to supply to because of these because of these American export controls us companies to lose the business of selling semiconductors to China. This is a huge huge deal for this industry the semiconductor industry Association the main lobby group before these companies says that about a quarter of their sales every year go to these companies in China. So send me the collectors cutting the Chinese market off from American suppliers in a potentially devastating for American companies. And the worse the fact that work there. I guess. I'm also thinking about the potential longer term consequences Chad like the u.s. Is a world leader in making semiconductors. So I'm wondering if the loss of this business is a big enough threat to also undermine its Global standing the semiconductor industry is unique in the in the Sun.

Set it relies on these revenues that it makes from China and in from sales around the world to fund huge amount of research and development in the American industry is at the frontier. They're coming up with the with the latest and greatest in these Technologies because of these revenues but it requires them to do so much Innovation, you take those revenues away and the worry is the American companies are no longer going to be the one to the head of the race anymore keeping, you know, the American Technology sector really at the Forefront of the global industry. This is bad for American companies and it's also not great for us relations with other countries, but if there's a threat to National Security we got to do it. Anyways, what's your what's your argument to them? What's your response to them? I think the argument is they've identified perhaps an actual national security threat that did needs to be dealt with but the concern with this approach.

Is it's very much focused on the short-term worry up today and to deal with the National Security threats of the future that's going to require lots of research and development lots of coming up with new ideas keeping ahead of everybody else, you know developing the Weapons Systems of the future how to make sure that Americans can remain safe from threats around the world that requires the very same research and development funding that comes from the revenue of selling semiconductors out there to the world. And if you take that away then there's less R&D and there's a few of these great ideas until the Americans of the future might actually be as safe there a better way of doing this then is there a better way of addressing the National Security concerns and also not harming us companies and not to renewed Loosely damaging us relationships with other countries. I think that the balance here that it has to be achieved is by using the source of export restrictions.

And limits on American Technology sales to foreigners in a much more targeted way and the concern with with the current approach is that they're doing so very broadly and this was going to actually her a much larger segment of the American Semiconductor industry American Semiconductor equipment manufacturing industry and lots lots and more companies in more workers than are really necessary to deal with. You know that eminent national security threat. They might be seeking to keep us safe from. Okay. Thanks so much for having me.

This episode of the indicator was produced by Brittany Cronin. In fact check by Sean Saldana indicators edited by Patty Hirsch into the production of NPR.
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